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5.02 CONTROLLING
COSTS
PROJECT MANAGEMENT 1
YOU WILL LEARN ABOUT THE FOLLOWING:

• forecasting metrics used to analyze the

progress of a project
• earned value management and cost analysis
Project Cost Management:
Control Costs
WHY CONTROL COSTS?

• Controlling costs- by analyzing and

managing costs, the project manager can
influence and manage changes related to
cost.
• Occurs during the monitoring and controlling
process group.
 WHAT IS CONTROL COSTS

• Control Costs is the process of monitoring the status of the

project to update the project budget and managing changes
to the cost baseline.
• Updating the budget involves recording actual costs spent to
date
• Any increase to the authorized budget can only be approved
through the Perform Integrated Change Control process
 WHAT IS CONTROL COSTS

• Includes:
• Influencing the factors that create changes to the authorized cost
baseline
• Ensuring that all change requests are acted on in a timely manner
• Managing the actual changes when and as they occur
• Ensuring that cost expenditures do not exceed the authorized funding
• Monitor cost performance to understand any variances
• Preventing unapproved changes
• Informing stakeholders of all approved changes and associated costs
PROJECT COST MANAGEMENT:
CONTROL COSTS
 INPUTS: ESTIMATE COSTS

Project • Contains cost baseline and cost

Management Plan management plan.

Project Funding • Detailed forecasted costs.

Requirements
• Information about project progress,
Work Performance such as which deliverables have
Data started, their progress and which
have finished
 TOOLS AND TECHNIQUES:
EARNED VALUE MANAGEMENT

• Earned Value Management (EVM) is a commonly used method of performance measurement

• Integrates project scope, cost, and schedule measures to help the project management team
assess and measure project performances and progress
• The principles of EVM can be applied to all projects, in any industry
• EVM develops and monitors three key dimensions for each work package:
• Planned Value (PV) – authorized budget assigned to the work in a given activity or WBS component
Adding all activity PVs gives you the Budget At Completion (BAC) or total expected cost for your project
• Earned Value (EV) – the value of work performed expressed in terms of the approved budget assigned
to that activity or WBS component. EV is often used to describe the percentage completion of a project
• Actual Cost (AC) – the total cost actually incurred in performing an activity or WBS component
 TOOLS AND TECHNIQUES:
EARNED VALUE MANAGEMENT

• EVM also includes Variance Measurement

• Schedule Variance (SV) – measure of schedule performance on a project.
• SV = EV – PV (Schedule Variance = Earned Value – Planned Value)
• EVM Schedule Variance can indicate a project falling behind its baseline schedule

• Cost Variance (CV) – measure of cost performance on a project.

• CV = EV-AC (Cost Variance = Earned Value – Actual Cost)
• EVM CV is particularly critical because it indicates the relationship of physical
performance to the costs spent. Any negative EVM CV is often non-recoverable to the
project
 TOOLS AND TECHNIQUES:
EARNED VALUE MANAGEMENT
• Schedule Variance and Cost Variance are converted to efficiency indicators to reflect the
cost and schedule performance of any project for comparison against all other projects
or within a portfolio of projects
• Schedule Performance Index (SPI) is a measure of progress achieved compared to progress planned on a project.
• <1.0 indicates less work completed than planned
• >1.0 indicates more work completed than planned
• SPI = EV/PV (ratio of Earned Value to Planned Value)
• Cost Performance Index (CPI) is a measure of the value of work completed compared to the actual cost or
progress made on the project. It is the most critical EVM metric and measures cost efficiency for work completed
• <1.0 indicates a cost overrun for work completed
• >1.0 indicates a cost underrun of performance to date
• CPI=EV/AC (ratio of the Earned Value to the Actual Costs)
 TOOLS AND TECHNIQUES:
FORECASTING

• As the project progresses, the project team uses forecasting to determine

if changes to the project budget are required
• Forecasting includes comparing the Budget At Completion (BAC), which
forms your cost baseline, to the Estimate At Completion (EAC)
• Estimate At Completion (EAC) = Actual Cost (AC) + Estimate To Complete
(ETC)
• Ultimately you want your BAC to equal your EAC, however when there is a
variance, you may need to perform a change request
 TOOLS AND TECHNIQUES:

• The To-Complete Performance Index (TCPI) is the cost

performance requirement of remaining work needed to achieve
a specific goal; such as BAC or EAC
• Performance Reviews compare cost performance over time
and may include variance analysis, trend analysis, and earned
value performance
 OUTPUTS

• Work Performance Information

• The calculated CV, SV, CPI, and SPI values for WBS components are documented and
communicated to stakeholders

• Cost Forecasts
• Communicate the project budget and spending revisions

• Change Requests
• Changes requested, to be formally approved by the official change control process of the
project

• Project Management Plan Updates

• Updates to reflect any changes to the cost baseline or the cost management plan
 GUIDED PRACTICE- HOME BUILD PROJECT
Amount to spend on your home build= $100,000.

• Budget at Completion (BAC)= $100,000.

• The amount you expect the project to cost.
• Total costs of each project activity without regard to completion status.
• = sum of all values
 GUIDED PRACTICE- HOME BUILD PROJECT
DETERMINE EARNED VALUE
Component Definition Calculation/Amount
Planned Value The value of the work that should Total the value of each
(PV) have been completed at a specific project activity scheduled
point in time, excluding any work for completion at a
started ahead of schedule. specific point in time.
$60,000
Actual Cost The cost of the work that has been Total all the project costs
(AC) completed at a specific point in at a specific point in time:
time, including any work started $80,000
ahead of schedule.
Earned Value A measurement of the progress of a BAC or PV multiplied
(EV) project and the basis for cost by percentage
analysis, including any work started complete.
ahead of schedule. If 40% of the house is
complete, the
EV=$40,000.
PERFORMING SCHEDULE ANALYSIS

• Compares the amount of work completed versus the amount of work

that SHOULD have been done.
• Uses the earned values of:
• Planned value (PV)
• Earned value (EV)
 GUIDED PRACTICE- HOME BUILD PROJECT
PERFORMING SCHEDULE ANALYSIS
Index/Variance Definition Calculation/Amount
Schedule Index that denotes the SPI=EV/PV
Performance Index amount of work done at a
(SPI) single point in time. Our house build project would
1.0= project on track calculate as
>1.0= project is ahead of $40,000/$60,000= .67
schedule In this case, 67% of the work
<1.0= project is behind that was scheduled to be done
schedule at this point in time has been
completed.
Schedule Variance between the value of SV=EV-PV
Variance (SV) the work being completed
and the value that should Our house build project
have been completed. would calculate as $40,000-
0= project on track $60,000=-$20,000
>0= project is ahead of In this case, the project is
PERFORMING COST ANALYSIS

• Determines the project progress in terms of the amount of work

completed (EV) versus what was paid to get the work done (AC).
• Uses the earned values of:
• Budget at completion (BAC)
• Actual cost (AC)
• Earned value (EV)
 GUIDED PRACTICE- HOME BUILD PROJECT
PERFORMING COST ANALYSIS
Index/Variance Definition Calculation/Amount
Cost Performance Index that denotes the return CPI=EV/AC
Index (CPI) on each dollar spent at a
single point in time. Our house build project would
1.0= project on track calculate as
>1.0= project is under $40,000/$80,000= .50
budget In this case, the project is
<1.0= project is over getting .50 of work done for
budget every dollar spent.
Cost Variance Variance between the value of CV=EV-AC
(CV) the work being completed
and the cost of work that Our house build project
should have been completed. would calculate as $40,000-
0= project on track $80,000=-$40,000
>0= project is under In this case, the project is
budget over budget by $40,000.