Cost Chapter 7

Defines the summary milestone schedule and project approval requirements that will influence the management of the project schedule

Charter

Cost Performance Index formula?

𝐸𝑉/𝐴𝐶

To Complete Performance Index: The efficiency that must be maintained in order to complete the current EAC. work remaining / funds remaining > 1.0 = Harder to complete 1.0 = Same to complete < 1.0 = Easier to complete

((𝐵𝐴𝐶 −𝐸𝑉))/((𝐸𝐴𝐶−𝐴𝐶))

Standard Deviation of an Activity

(𝐜𝑷−𝐜𝑶)/𝟔

CPI ratio meanings --

1) value less than 1.0 indicates a cost overrun for work completed 2) greater than 1.0 indicates a cost underrun of performance to date

SPI ratio meanings --

1) value less than 1.0 indicates less work was completed than was planned. 2) greater than 1.0 indicates that more work was completed than was planned.

The accuracy of single-point cost est may be imporved by considering estimation uncertainty and risk and using three estimates to define an approximate range for an activity's cost. Assumed distribution provide an expected cost and clarify the range of uncertainty around the expected cost.

3 point estimating

Earned Value formula?

Actual % Complete * BAC

Projects with a high degree of uncertainty may use lightweight estimation methods to generate a fast, high-level forecast of project labor costs, which can then be easily adjusted as changes arise

Agile Adaptive Environment

Quick Less costly to create Activities not needed Gives PM idea of management expectations

Analogous Estimating - Adv

Less accurate Limited detail Requires experience Difficult for projects with high uncertainty Does not account for differences in projects

Analogous Estimating - Disad

This monitoring and controlling process is concerned with cost variances. Cost variances can be either positive (good) or negative (bad). It ensures that the costs stay on track and that change is detected whenever it occurs. Controlling processes are proactive and do not only wait for change to occur; they try and influence the factors that lead to change. It is not a process that is only performed once, it begins as soon as project costs are incurred and is performed more frequently as project costs increase

Control Costs

1) Project Management Plan Cost Management Plan Cost Baseline Performance Measurement Baseline 2 )Project Documents Lessons learned register 3) Project Funding Requirements 4) Work Performance Data 5 )Organizational Process Assets

Control Costs - inputs

1) Work Performance Information 2 ) Cost Forecasts 3) Change Requests 4) Project Management Plan Updates: Cost Management Plan, Cost Baseline, Performance, Measurement Baseline 5) Project Documents Updates Assumption Log: Basis of Estimation Cost Estimates Lessons Learned Register Risk Register

Control Costs - outputs

1) Expert Judgement 2) Data Analysis: Earned Value Analysis Variance Analysis Trend Analysis Reserve Analysis 3) To-complete performance index (TCPI) 4) Project Management Information System

Control Costs - tools

Costs are estimated at an activity level, then aggregated to higher levels in the WBS

Cost Aggregation

The approved version of the time-phased project budget, excluding any management reserves, which can only be changed through formal change control procedures Used as a basis for comparison to actual results. In traditional projects, funding forms an S curve, meaning it starts slowly, accelerates through execution and monitoring and controlling, then slows during closure. Management Reserves are added to the cost baseline to produce the project budget

Cost Baseline

is the APPROVED version of the project budget PLUS contingency reserves.

Cost Baseline

Focuses on cost planning, estimating, budgeting, financing, funding, managing, and controlling costs so the project can be completed within the approved budget

Cost Management

Defines how costs will be managed and controlled. estimating methods that can be used and the level of precision and accuracy required for the cost est.

Cost Management Plan

A measure of the cost efficiency of budgeted resources expressed as the ratio of earned value to actual cost. most critical metric .

Cost Performance Index

is a measure of the cost efficiency of budgeted resources expressed as a ratio. Considered the most critical EVA metric and measures the cost efficiency for the work completed

Cost Performance Index (CPI)

The difference between the value of work completed to a point in time and the actual costs to the same point in time. Amount a budget is deficit or surplus at a given point in time.

Cost Variance

May involve choosing strategic options to fund the project such as: self-funding, funding with equity, or funding with debt The cost management plan may also detail ways to finance project resources such as making, purchasing, renting, or leasing. Techniques may include: payback period, return on investment, internal rate of return, discounted cash flow, and net present value

Data analysis

A budget, also known as the cost performance baseline (or cost baseline), takes the estimated project expenditures and maps them back to dates on the calendar. Helps the organization plan its expenditures appropriately and prevents them from tying up too much money throughout the life of the project Includes all the funds authorized to execute the project .

Determine Budget

1) Project Management Plan: Cost management plan, Resource management plan, Scope baseline 2) Project Documents: Basis of estimates, Cost estimates, Project schedule, Risk register 3) Business Documents: Business case, Benefits management plan 4) Agreements 5) Enterprise Environmental Factors 6) Organizational Process assets

Determine Budget - Inputs

1) Cost Baseline 2) Project Funding Requirements 3) Project Documents Updates: Cost estimates, Project Schedule, Risk register

Determine Budget - Outputs

1) Expert Judgement 2) Cost Aggregation 3) Data Analysis: Reserve analysis 4) Historical Information Review 5) Funding Limit Reconciliation 6) Financing

Determine Budget - Tools

Estimate to Complete: Assuming work is proceeding on plan, the cost of completing the remaining authorized work. Formula?

EAC - AC

forecasts for ETC work performed at budget rate. accepts the actual project performance to date as represented by actual costs. Formula?

EAC = AC + (BAC - EV)

forecast for ETC work considering both SPI and CPI factors. mostly useful when the project schedule is a factor impacting the ETC effort. Formula?

EAC = AC + [(BAC - EV) / (CPI x SPI)

forecasts for ETC work performed at the present CPI. Assumes that what the project has experienced to date can be expected to continue in the future. Formula?

EAC = BAC/CPI

Schedule Performance Index fomula?

EV/PV

compares the performance measurement baseline to the actual schedule and cost performance. integrates the scope baseline with the cost baseline and schedule baseline to form the performance measurement baseline.

EVA

The planned value of all the work completed (earned) to a point in time, without reference to actual costs

Earned Value

measure of work performed expressed in terms of the budget authorized for that work. it is the budget associated with the authorized work that has been completed. cannot be greater than the authorized PV budget component.

Earned Value

Data Analysis: is a measure of work performed expressed in terms of the budget authorized for that work.

Earned Value (EV)

Data Analysis: compares the performance measurement baseline to the actual schedule and cost performance

Earned Value Analysis (EVA) -

Data Analysis: integrates the scope baseline with the cost baseline and schedule baseline to form the performance measurement baseline.

Earned Value Management (EVM) -

1) Project Management Plan: Cost management plan, Quality management plan, Scope baseline 2) Project documents: Lessons learned register, Project schedule, Resource requirement, Risk register 3) Enterprise Environmental Factors 4) Organizational Process Assets

Estimate Costs - inputs

1) Cost Estimates 2 )Basis of Estimates 3) Project Document Updates: Assumption log, Lessons learned register, Risk register

Estimate Costs - outputs

1) Expert Judgment 2) Analogous Estimating - very little detail/top down 3) Parametric Estimating - better accuracy 4) Bottom-Up Estimating 5) Three-Point Estimating 6) Data Analysis: Alternatives analysis, Reserve analysis, Cost of quality 7) Project Management Information System 8) Decision Making: Voting

Estimate Costs - tools

May involve choosing strategic options to fund the project such as: self-funding, funding with equity, or funding with debt. The cost management plan may also detail ways to finance project resources such as making, purchasing, renting, or leasing. Techniques may include: payback period, return on investment, internal rate of return, discounted cash flow, and net present value. May involve choosing strategic options to fund the project such as: self-funding, funding with equity, or funding with debt The cost management plan may also detail ways to finance project resources such as making, purchasing, renting, or leasing. Techniques may include: payback period, return on investment, internal rate of return, discounted cash flow, and net present value

Estimate costs

Acquiring funding for projects

Financing

allows the team to develop a forecast for the estimate at completion (EAC) that may differ from the budget at completion (BAC)

Forecasting

may happen in incremental amounts. required may include the cost baseline PLUS Management Reserves (Total Budget)

Funding

Expenditure of funds should be reconciled with any funding limits for the project

Funding Limit Reconciliation

Historical relationships can result in parametric estimates or analogous estimates that involve the use of project characteristics (parameters) to develop mathematical models to predict total project costs

Historical Information Review

Used to monitor the three EVM dimensions, planned value (PV), earned value (EV), and actual cost (AC) and display graphical trends

PMIS

Includes the scope baseline and other scheduling decisions related to cost, risk, and communications Includes components such as Scope Management Plan and Development Approach. Development Approach—helps to define the scheduling approach, estimating techniques, scheduling tools, and techniques for controlling the schedule.

PMP

Uses a statistical relationship between relevant historical data and other variables to calculate a cost estimate for project work Can produce higher levels of accuracy depending on sophistication and the underlying data

Parametric Estimating

statistical relationship b/e relevant historical data and other variables to calculate a cost estimate for project work. Technique can produce higher levels of accuracy depending on the sophistication and underlying data built into the model. can be applied to the total project or to segments of a project

Parametric est

Establishes the framework for how project costs will be estimated, budgeted, managed, monitored, and controlled.Provides guidance and direction on how the projects costs will be managed throughout the project. Cost management sets the framework for each of the cost management processes so that the performance will be efficient and controlled.

Plan Cost Management

Project Charter Project Management Plan (Schedule Management Plan; Risk Management Plan) Enterprise Environmental Factors Organizational Process Assets

Plan Cost Management - inputs

Cost Management Plan

Plan Cost Management - outputs

Expert Judgment Data Analysis Meetings

Plan Cost Management - tools

Planned Value formula

Planned % Complete * BAC

The value of the work planned to be completed to a point in time or project completion

Planned Value

authorized budget assigned to schedule work. Authorized budget planned for the work to be accomplished for the activity WBS component, not including management reserve.

Planned Value

Data Analysis: is authorized budget assigned to scheduled work. Sometimes referred to as Performance Management Baseline (PMB). Total planned value is also known as Budget at Completion (BAC)

Planned Value (PV)

Plan Cost Management Estimate Costs Determine Budget Control Costs

Project Cost Management

Includes the projected expenditure plus anticipated liabilities Used as a constraint to control costs

Project Funding Requirements

Instead of petitioning for authorization on each individual cost, funding over periods of time is determined using the cost baseline

Project Funding Requirements

What is included in the scope baseline?

Project scope statement, WBS, WBS dictionary

Describes the activities and resources necessary to achieve quality objectives set for the project

Quality Management Plan

Estimate to Complete: Re-estimate the remaining work from the bottom up

Re-estimate

Analysis to account for cost uncertainty. The contingency reserves are the budget within the cost baseline that is allocated for identified risks, which are accepted and for which contingent responses are developed. Management reserves are an amount of the project budget withheld for management control purposes and are reserved for unforeseen work that is within scope of the project Contingency Reserves = "known-unknowns" Management Reserves = "unknown-unknowns"

Reserve Analysis

used to monitor the status of contingency and management reserves for the projects to determine if these reserves are still needed OR if additional reserves need to be requested

Reserve Analysis:

Data Analysis: contingency allowances to account for cost uncertainty. budget within the cost baseline that is allocated for identified risks. Intended to address the unknowns.

Reserve analysis

A measure of schedule efficiency expressed as the ratio of earned schedule to actual time. measure of schedule efficiency. how efficiently the project team is accomplishing the work.

Schedule Performance Index

is a measure of schedule efficiency expressed as a ratio

Schedule Performance Index (SPI)

The difference between the work completed to a point in time and the work planned to be completed to the same point in time. amount by which the project is ahead or behind. The EVA will ultimately equal zero when the project is completed because all the planned values will have been earned.

Schedule Variance

A method to determine the expected cost of a project or activity Uses three data points for the duration: Optimistic (cO), Pessimistic (cP), Most Likely (cM) Two methods are used: Beta distribution and Triangular distribution. Standard Deviation creates a range for the estimate, with the range being cE ± Standard Deviation

Three-Point Estimating (PERT)

A measure of the cost performance that is required to be achieved with the remaining resources in order to meet a specified management goal Expressed as the ratio of the cost to finish the outstanding work to the remaining budget

To-Complete Performance Index (TCPI)

measures the cost of performance required to be achieved with remaining resources to meet specific management goal - Ratio of the cost to finish outstanding work to remining budget

To-complete performance index (TCPI)

examines project performance over time to determine if performance is improving or deteriorating - charts, forecasting

Trend Analysis

examines project performance over time to determine if project is improving or deteriorating

Trend Analysis -

Three point estimate fomulas?

Triangular - O+M+P/3 Beta - O+4M+P/6

realized cost incurred for the work performed on an activity during a specific time period. incurred in accomplishing the work that the EV measured. no upper limit; whatever is spent to achieve the EV will be measured.

actual cost

Data Analysis: used to evaluate identified options in order to select which options or approaches to use to execute and perform the work of the project. ex: evaluating cost, schedule, resource, and quality impact of buying vs. making a deliverable

alternative analysis

uses values, attributes, of a previous project that are similar to the current project. Values and attributes of the project may include but are not limited to: scope, cost, budget, duration, and measure of scale

analogous est

est component of work. The cost of individual work packages or activities is estimated to the greatest level of specified detail. The detailed cost is then summarized or rolled up to higher levels for subsequent reporting and tracking perposes

bottomup estimating

Data analysis: used to prepare the estimates. evaluating the cost impact of additional investment on conformance versus the cost of nonconformance

cost of quality

Estimate at Completion: If both the CPI and SPI influence the remaining work

𝐴𝐶+((𝐵𝐴𝐶−𝐸𝑉))/((𝐶𝑃𝐼∗𝑆𝑃𝐼))

Estimate at Completion: If future work will be accomplished at the planned rate

𝐴𝐶+𝐵𝐴𝐶−𝐸𝑉 (remaining work)

Estimate at Completion: If the initial plan is no longer valid

𝐴𝐶+𝐵𝑜𝑡𝑡𝑜𝑚−𝑢𝑝 𝐸𝑇𝐶

Variance at Completion fomula? positive = under planned cost neutral = on planned cost negative = over planned cost

𝐵𝐴𝐶−𝐸𝐴𝐶

Cost Variance formula? positive = under planned cost neutral = on planned cost negative = over planned cost

𝐸𝑉 - 𝐴𝐶

Schedule Variance formula? Positive = ahead of schedule neutral = on schedule negative = behind schedule

𝐸𝑉 - 𝑃𝑉

To Complete Performance Index: The efficiency that must be maintained in order to complete on plan. Formula? > 1.0 = Harder to complete 1.0 = Same to complete < 1.0 = Easier to complete

((𝐵𝐴𝐶 −𝐸𝑉))/((𝐵𝐴𝐶−𝐴𝐶)) - on plan

Triangular Distribution Duration Estimate Formula

(𝐜𝑶+𝐜𝑴+𝐜𝑷)/𝟑

Beta Distribution Duration Estimate Formula

(𝐜𝑶+𝟒∗𝐜𝑴+𝐜𝑷)/𝟔

Assumptions about the costs that will be realized in order to achieve quality

Cost of Quality (COQ)

Knowledge Management Estimating and budgeting Earned Value Management Use of agile approach

Tailoring considerations

The estimated difference in cost at the completion of the project

Variance at Completion

The actual cost of all the work completed to a point in time

actual cost

when using the earned value analysis this is compared to actual results to determine if a change, corrective action, or preventative action is necessary

performance baseline

Estimate at Completion: If the CPI is expected to be the same for the remainder of the project. Formula?

𝐵𝐴𝐶/𝐶𝑃𝐼

More accurate Gains buy-in from team Base on detailed analysis Provides basis for and performance measurement

Bottom-Up Estimating - adv

Takes time More expensive Team tends to pad estimates Project must be defined and understood

Bottom-Up Estimating - dis

Detailed estimating done for each activity / work package, and the estimates are rolled up into overall project estimate An accurate method, but time consuming

Bottom-up Estimating

The value of total planned work, the project cost baseline

Budget at Completion