07 - Project Cost Management - 4

Cost management - diagram of calculations

*ALPHABETICAL* Actual costs -- earned value -- planned value

7.4 - Control costs *t&t-earned value analysis (EVA)* knowledge area *project cost management* & * monitoring & controlling process group*

@ EVA is used to compare the performance management baseline to the actual schedule and cost performance @ determine if there is a less costly way to produce work @ see earned value management (EVM)

7.4 - Control costs *tools and techniques* knowledge area *project cost management* & * monitoring & controlling process group*

@ expert judgement @ data analysis - * earned value analysis* - *variance analysis* - *trend analysis* - *reserve analysis* @ *to-complete performance index* @ PMIS-project management information system

7.4 - Control costs *!! Watch out !!* knowledge area *project cost management* & * monitoring & controlling process group*

@ failure to effectively control costs could result in delays that arise from efforts to determine the most effective approach for the elimination of cost overruns

*Cost Variance (CV)*

@ represents the difference between what has been spent and what has been accomplished @ EV-AC @ -$1,000 @ in our case the result is *less than 0* therefore *the project is over budget by $1,000*

*Budget at completion (BAC)*

@ total budget is $4,000*5 days @ $10,000

Two types of analysis

@ *schedule analysis* SV & SPI @ *cost analysis* CV & CPI

*schedule variance (SV)*

@ EV-PV= SV @ $4,000-$6,000 = -$2,000 @ in our case the result *is -$2,000*, and the result is *less than 0*, so the project is *behind schedule by $2,000*

*sunk cost*

@ represents the cost that has already been spent on a project. @ *sunk cost is not considered when making future project decisions @for example if a project has a budget of $175,000 and has already spent $200,000 the $200,000 is not a consideration in deciding if the project should be continued

7.4 - Control costs *outputs* knowledge area *project cost management* & * monitoring & controlling process group*

@ *work performance information* @ *cost forecasts* @ *change requests* @ project management plan updates - cost management plan - *cost baseline* - performance measurement baseline @ project document updates - assumption log - basis of estimates - cost estimates - lessons learned register - risk register

*Earned Value (EV)*

@ 40% complete @ $4,000

*cost variance (CV)*

@ *a variance indicator that denotes the difference between the value of the work completed and the cost of the work completed* @ definition-*the amount of budget surplus or deficit at any time expressed as the difference between the earned value and the actual cost* @calculation-*EV-AC = CV* @ $40,000 - $80,000 = -$40,000* @ result interpretation - *if the result is 0* the project is *on track* - *if the result is greater than 0* the project is *under budget* - *if the result is less than 0* the project is *over budget* @ in our case the result is *less than 0* therefore *the project is over budget by $40,000*

7.3 - Determine budget *outputs* knowledge area *project cost management* & * planning process group*

@ *cost baseline* @ *project funding requirements* @ project document updates - cost estimates - project schedule - risk register

7.2 - Estimate costs *outputs* knowledge area *project cost management* & * planning process group*

@ *cost estimates* @ *basis of estimates* @ process documents update - assumption log - lessons learned register - risk register

7.3 - Determine budget *tools and techniques* knowledge area *project cost management* & * planning process group*

@ *expert judgement* @ *cost aggregation* @ data analysis - *reserve analysis* @ * historical information review* @ *funding limit reconciliation* @ financing

7.4 - Control costs *outputs-work performance information* knowledge area *project cost management* & * monitoring & controlling process group*

@ work performance information includes supplemental and contextualized information regarding the performance of the project scope in comparison to the scope baseline @ the information can contain important facets of scope control, such as - scope variances & their causes - how those variances impact cost & schedule - prognosis for future scope performance @ it is also used to depict trends graphically and to forecast a range if alternative project results

*earned value (EV)*

@aka *budgeted cost of work performed (BCWP)* @ definition-*a measurement of the project's cost* and the basis for cost analysis *including any work started ahead of schedule* @ the work product @ calculation-*BAC or PV multiplied by % complete* @ *40% x $100,000: $40,000* @ EXAMPLE | If we have 5 features that cost us $1k each and we did 3 it is 3 * $1 @ Scope leg of project. @ A work package can never be worth more than its initial estimated value

*critical ratio*

CPI * SPI

*budget at completion (BAC)*

@ aka performance baseline @ definition-*the amount the project is expected to cost* @ calculation-*total the costs of each project activity without regard to completion status* @ *$100,000*

7.1 - plan cost management process *outputs* knowledge area *project cost management* & * planning process group*

@ *cost management plan* - is a component of the project management plan - details the manner in which project costs are planned, configured, and controlled - it documents the the processes and tools that will be used to manage project costs - it usually addresses metrics - the establishment of earned value management techniques - the junctures in the WBS that will be used to measure control accounts, acceptable cost performance variances, reporting configurations, satisfactory levels of accuracy (range) and precision (rounding) - and the unique codes that associates the control accounts to the accounting system

7.2 - Estimate costs *tools and techniques* knowledge area *project cost management* & * planning process group*

@ *expert judgement* @ *analogous estimating* (not as accurate) per mile/foot @ *parametric estimating* (uses algorithm) @ *bottom up estimating* (size and complexity impacts cost and accuracy) @ *three point estimating* (does not included weighted like PERT) @ data analysis - *alternatives analysis* (renting versus owning, purchasing versus creating) - *reserve analysis* (funds in the management reserve are not included in cost baseline until they are used for unforeseen work) - *cost of quality (prevention, appraisal, and failure costs | should be compared to cost of failure* @ PMIS-project management information system @ decision making - voting

7.1 - plan cost management process *tools and techniques* knowledge area *project cost management* & * planning process group*

@ *expert judgement* @ data analysis @ meetings

*earned value management EVM*

@ *is a technique for measuring the progress by looking at its scope, schedule, and cost in an integrated manner. @ many of these initial formulas were covered in the beginning of this chapter. @ these are the baseline

7.1 - plan cost management process *inputs* knowledge area *project cost management* & * planning process group*

@ *project charter* (has both assumptions and constraints) @ project management plan - *schedule management plan* (it delineates scheduling methodology needed, the degree of expected accuracy needed to estimate the duration of the activities, the mechanism used to produce the schedule, and the manner in which the schedule will be calculated) - *risk management plan* (addresses risk strategy, risk methodology, roles and responsibilities, financing, and timing. It also documents processes and controls that influence the estimation and administration of costs.) @ EEFs @ OPAs

*estimate to complete (ETC)

@ *represents the current total project cost REMAINING to be spent base on the current efficiency (CPI) of the project* @ definition-*the expected cost to finish all remaining project work* @ calculation - *ETC = EAC - AC* or *ETC = (BAC - EV) / CPI* or *ETC = BAC - EV @ *$200,000 - $80,000= $120,000* @ in our case the *ETC = $120,000; therefore the project is on pace to exceed the BAC amount after factoring in what has been spent* @ To calculate with a range of prior number and following - ETC based upon CPI & SPI ETC = (BAC-EV)/(CPI*SPI)

*estimate at completion (EAC)*

@ *represents the current total total project based on the current efficiency (CPI) of project spending @ definition-*the expected total cost of completing all work expressed as the sum of actual cost to date and the estimate to complete @ calculation -*EAC = BAC/CPI* @ *$100,000/.5 = $200,000 * @ result interpretation - if the *CPI*is greater than *>1* the number will *be less the BAC: therefore the project will likely finish under budget* - if the *CPI* is less than *<1* the number will be *more than the BAC: therefore he project will likely finish over budget* - if the *CPI* equals *=1* the number will *be equal to the BAC: therefore the project will finish on budget* @ in our case *EAC = $200,000; therefore the project is on pace to come in over the BAC $1,000,000*

*variance at completion (VAC)*

@ The variance at completion is the difference between the budget at completion (BAC) and the estimate at completion @ definition-*a projection of the amount of the budget deficit or surplus, expressed @ calculation*VAC = BAC-EAC* or *VAC% = VAC/BAC x100* @ *$100,000-$200,000 = -$100,000* @ in our case *VAC =-$100,000; therefore the project is on pace to be completed over budget based on the current spending*

Chart of accounts

@ a chart of accounts is the list of accounts used by the organization's accounting or project management system to establish and track budgets associated with work packages, projects, and other efforts that require defining a cost baseline and tracking actual costs against it. @ the determine budget process uses the chart of accounts to show where funds are allocated for the estimated work @ code of accounts is a numbering system that is applied to identify individual pieces of work in the WBS

Earned schedule theory-AT

@ actual time @ this is the duration from the beginning of the project to status date

*actual cost (AC)*

@ aka *actual cost of work performed (ACWP)* @ definition-*the cost of the work that has been completed* at any specific point *including any work started ahead of schedule* @ calculation-*total all the project costs at a specific point in time* @ *$80,000*

*planned work (PV)*

@ aka *budgeted cost of work scheduled (BCWS)* @ definition-*the value of work that should have been completed* at any point in time *excluding any work started ahead of schedule* @ calculation-*total value of each project scheduled for completion* @ *$60,000*

*S curve*

@ an S curve is a graphical representation of earned value management. @ the classic S curve shows the interaction between scope, cost, and time over the life of the project. @ the following example shows the project at a specific point in time and includes the cost variance and schedule variance @ one of the most common misunderstandings in performance reporting is that schedule, cost, and progress are directly related. @ it is important to know that each project will have its own S curve.

*cost performance index (CPI)*

@ an efficiency indicator that denotes the return on each dollar spent* @ definition-*a measure of of the cost efficiency of budgeted resources expressed as the ratio of earned value to to actual costs @ calculation-*EV/AC = CPI* or *AC x CPI = EV* or *EV/CPI = AC* @ *$40,000/$80,000 = .5* @ result interpretation - *if the result is 1.0* the return on the project is *on track* - *if result is greater than 1.0* the return on the project is *under budget* - *if result is less than 1.0* the return on the project is *over budget* @ in our case the result *is .5* means that *50 cents of project work is completed for every dollar spent*

7.4 - Control costs *inputs-project funding requirements* knowledge area *project cost management* & * monitoring & controlling process group*

@ are extrapolated from the cost baseline @ funding sources may also be documented

7.3 - Determine budget *outputs-cost project funding requirements* knowledge area *project cost management* & * planning process group*

@ both total and periodic are extrapolated from the cost baseline @ funding sources also may be documented @ total funds required are determined by adding the funds included in the cost baseline to the management reserve

*return on investment (ROI)*

@ choose the *largest number or percentage* @ can be either-or @ is calculated using a variety of formulas @ is the most common profitability ratio. @ the most frequently used method is to divide net profit by total assets.

*internal rate of return (IRR)*

@ choose the largest percentage

7.3 - Determine budget *t&t-funding limit reconciliation* knowledge area *project cost management* & * planning process group*

@ consists of accommodating the expenditure of funds to established funding limits for a specific period of time. Any variances between expenditures and funding limits can result in rescheduling work @ to prevent this, any date constraints for work should be included in the work schedule

7.4 - Control costs *inputs-cost baseline* knowledge area *project cost management* & * monitoring & controlling process group*

@ cost baseline is the authorized version of the time-phased budget for the project, excluding management reserves @ it is evolved from a summation if approved budgets for specific schedule activities @ is also known as *performance measurement baseline*

7.4 - Control costs *outputs-cost forecasts* knowledge area *project cost management* & * monitoring & controlling process group*

@ cost forecasts such as estimate at completion (EAC) and a bottom up EAC are documented and conveyed to stakeholders

Cost range

@ cost range tolerance varies from company to company @ a key principle is *in any environment that the less is known, earlier in the project, the wider the tolerance of the cost range should be; compared to when more in the later is know when the range is minimized. @ to align with the new project management standard the candidate must know that during initiation, a tolerance range for a *rough order of magnitude (ROM) estimate could be-25% to +75%* and as the project work evolves into *execution the tolerance could narrow to -5% to +20%* @ cost funnel depicts a "rough order of magnitude estimate" and a definitive estimate, sometimes known as *control estimate* @ the rough order of magnitude estimate occurs at the start, or the top of the project because it has the widest tolerance. @ the final definitive, or control, estimate occurs at the end of the bottom of the project. @ if a project has a $100,000 estimate (assuming doesn't change thru the estimating process) the - *rough order of magnitude tolerance is $75,000 to $175,000 - the definitive estimate tolerance is $95,000 to $110,000

Depreciation-*accelerated*

@ depreciates faster than standard @ two for the exam are - sum of the year's digits - double declining (DDB)

*7.3 - Determine budget* knowledge area *project cost management* & * planning process group*

@ during the determine budget process the primary activity is rolling up to the cost estimates for the activities or work packages to create a total project budget amount that will serve as the cost baseline. @ a detailed estimate of the project cost, as well as its individual pieces, is the result of this process @ the cost baseline created at this point should include a time-based approach to determine project cost needs as time passes. @ *it establishes the basis for measuring, monitoring, and controlling project cost*

Earned schedule theory-ES

@ earned schedule @ the duration from the beginning of the project to date the planned value is supposed to equal to the BAC @

7.3 - Determine budget *!! watch out !!* knowledge area *project cost management* & * planning process group*

@ failure to effectively execute the Determine budget process is likely to result in cost overruns @ an alternate possibility is that the project could be delayed due to a lacks of funds needed to acquire equipment or materials necessary for the project

7.1 - plan cost management process *!! Watch out !!* knowledge area *project cost management* & * planning process group*

@ failure to effectively perform the Plan Cost Management process can result in the project manager spending money without established controls or guidance, leading to inconsistency @ additionally the project would fail to align with other projects at the company which is critical to effective program and portfolio management

7.2 - Estimate costs *!! Watch out !!* knowledge area *project cost management* & * planning process group*

@ failure to effectively perform the estimate costs process can result in project termination if there is a funding shortfall, or if a subsequent cost analysis shows that the project is operating with an unacceptable profit margin @ additionally the project could be subject to delays due to uncertainty about obtaining funding for the resources necessary to complete the project in a timely fashion

*fixed formula progress reporting (earned value rules)*

@ fixed formula progress reporting is a technique that creates a consistent status report for project activities @ instead of having a "gut feel" for the % of completion from each person on a project, this type of reporting is essentially binary @ the project planning process defines the split of percentages (for example 25%/75% or 50%/50%) @ this process works as follows: when an activity starts, it receives the initial percentage (for example 25%) and it receives the remaining percentage only when the activity is complete. Then as summary activities are rolled up to create cumulative percentages and they are based on 0%, 25% or 100%, @ this formula can be used for *earned value management (EVM)* or less evolved means means of capturing the schedule status @ typically it is used on shorter duration activities or those generally *not exceeding two reporting periods*

*7.4 - Control costs* knowledge area *project cost management* & * monitoring & controlling process group*

@ focuses on how to control any project budget changes and can involve influencing and managing changes related to cost, managing cost levels compared to baseline, analyzing and managing cost variance, documenting cost records, and communicating with stakeholders regarding cost issues @ manage actual changes as they occur; after they have been signed off on @ this assures that potential cost overruns do not exceed the authorized funding periodically and in total for the project

FORECASTS

@ forecasts are estimates or predictions of the future based on past performance and expected future performance @ based on information and knowledge available at the time of forecast

*cost management plan*

@ helps the project manager and teams @ establish the cost of activities and work packages on the project @ establish the cost accounts, and the procedures necessary to use the chart of accounts with the WBS and schedule @ establish policies associated with updating the budget and distribution of the budget through the work of the project @ update actual costs and adjust the cost baseline @ establish the policies and procedures for changes to cost @ the cost management plan can be used to establish - level of accuracy - unit of measure - organizational procedures link (which includes control account (CA) links to the project WBS and company accounting system - control thresholds - reporting of cost performance @ the cost management plan and the project manager should be concerned with - life-cycle costing - opportunity costs - sunk costs @ this is part of project management plan - control thresholds - earned value rules - reporting formats

7.2 - Estimate costs *outputs-cost estimates* knowledge area *project cost management* & * planning process group*

@ include quantitative estimates of work completion costs, contingency reserves for identified risks, and management reserves for unidentified work @ estimate should consider all resources involved including direct labor, equipment, facilities, IT, inflation, financing costs

7.2 - Estimate costs *outputs-basis of estimates* knowledge area *project cost management* & * planning process group*

@ includes documentations the manner in which the estimates were determined @ all assumptions and constraints @ identifies the range of estimates used and the degree of certainty @ details individual project risks that impact

7.4 - Control costs *t&t-reserve analysis* knowledge area *project cost management* & * monitoring & controlling process group*

@ is *used to determine the status of contingency and management reserves* for the project @ *contingency reserves account for budget uncertainties* and *are* included in the *cost baseline and project funding requirements* @ *management reserves are budget reserves set aside to account for unknown unknowns* (unforeseen work within the scope of the project) They *are part of overall project* and are considered in the funding requirements. Funds in management reserves *are not included in cost baseline* until they are used for unforeseen work.

*benefit cost ratio (BCR)*

@ is an analysis technique that compares the *benefits* to the *cost* of the initiative @ select the largest ratio @ if the BCR is 3.65:1 the benefits of the project outweigh the costs 3.65 to 1 @ if exam includes reference to profit, profit is a distractor @ the benefit, cost, and their ratio are the main components @ be prepared to calculate a BCR - divide revenue by cost and apply the quotient to one - for example $200,000 in revenue and $50,000 in cost - 200,000/50,000 has a BCR of 4:1

*schedule performance index (SPI)*

@ is analysis of the schedule @ definition-*measure of schedule efficiency expressed as the ratio of earned value to planned value, denotes the amount of work done* @ calculation-*EV/PV = SPI* or *PV x SPI = EV* or *EV/SPI = PV* @ *$40,000/$60,000 = .67* @ result interpretation - *if the result is 1.0*, the amount of work done on the project is *on track* - *if result is greater than 1.0* the amount of work done on the project is *better than expected* - *if less than 1.0* the amount of work done on the project is *less than expected* @ in our case the result is .67 therefore only *67% of the work scheduled to be done has been done*

*schedule variance (SV)*

@ is analysis of the schedule @ definition-*measure of schedule performance expressed as the difference of earned value and the planned value* @ calculation-*EV-PV = SV* or *PV + SV = EV* or *EV-SV = PV* @ *$40,000 - $60,000 = -$20,000* @ result interpretation - *if the result is 0* the project is *on track* - *if the result is greater than 0* the project is *ahead of schedule* - *if the result is less than 0* the project is *behind schedule* @ in our case the result *is -$20,000*, and the result is *less than 0*, so the project is *behind schedule by $20,000*

earned value management triangle

@ is ideal to memorize as it deals with the calculation of (cost or schedule) variances or performance indices. @ to read if start with EV and follow the arrows.

*present value (PV)*

@ is the amount that needs to be invested today to realize an expected value in the future @ the candidate should focus on the understanding the concept of present value, rather than the calculation @ its reasonable to expect a question with an incomplete formula, missing one or two components. In that case "not enough information is the best answer" @ PV = FV/(1+r)n @ note that PMI uses PV to represent both present value *and* planned value @ present value is used to measure an investment while planned value is used with earned value management to measure the amount of work that should have been done; at a specific point of time FORMULA

7.3 - Determine budget *t&t-cost aggregation* knowledge area *project cost management* & * planning process group*

@ is the process of collecting individual cost estimates into a whole @ specifically, cost estimates are aggregated by work packages, then into higher components (typically monitored by control accounts) of the work breakdown structure (WBS) and then for the entire project.

*life cycle costing-total cost of ownership*

@ is the process of examining all costs associated with a project plus the product's operational costs (production, maintenance, support) @ it is very important to consider the total cost of ownership when developing a project strategy @ to decrease operating costs/or extend the life of the product, it may be necessary to increase project costs @ vendor A - $50,000 to create prototype and then charges $2,000 per component - 25 devices 25 x 2,000 + 50,000 = $100,000 | 30 devices 30 x 2,000 + 50,000 = $110,000 @ vendor B - does not charge prototype but $4,000 per component = 25 devices 25 x 4,000 = $100,000 | 30 devices 30 x 4,000 = $120,000 @ *vendor A* is the right answer because the organization will recognize a cost savings if at least 26 components will be produced

*future value (FV)*

@ is the value of something at a specific point in the future @ the certification candidate should focus on understanding the concept of future value rather than the calculation. If question doesn't have all components choose "not enough information" @ FV = PV * (1+R)(n) power of n is number x number x number....) @ 24 = 2x2x2x2 = 16

* net present value (NPV)*

@ is used in capital budgeting @ is calculated by subtracting the present value of cash inflows from the present value of cash outflows @ compares the value of today versus the value of that same dollar in the future @ taking out inflation and discount rate into account @ *largest numbers* (years are already factored in @ generally NPV represent the income and expenses over time @ if the expenses include capital acquisitions, capital *COULD* be included in the NPV functionality

7.4 - Control costs *t&t-variance analysis* knowledge area *project cost management* & * monitoring & controlling process group*

@ is used to *compare the proposed project results to the actual project results* cost variance (CV) is the difference between earned value and actual value. @ at the *end of the project is is the difference between budget at completion (BAC) and the actual amount spent*

7.4 - Control costs *t&t-trend analysis* knowledge area *project cost management* & * monitoring & controlling process group*

@ is used to *project the future state of the project based on the present state of the project* @ in other words *to determine future results based ib past results* @ *can be used to predict issues*, such as cost variances to determine and effect corrective action. @ is an analytical technique that uses mathematical models to *forecast* future outcomes @ Typically relates to the schedule, budget, or deliverables

7.3 - Control costs *outputs-change requests* knowledge area *project cost management* & * monitoring & controlling process group*

@ modifications to the cost baseline maybe requested based on analysis or serve changes to the scope, resources, or cost estimates

Earned schedule theory

@ new for PMBOK 6 as *emerging practices in PCM @ provides formulas for forecasting the project completion date, using earned schedule, actual time, and estimated duration @ instead of focusing just on cost, and one of the other common variables

*payback period*

@ payback period is the amount of time needed to earn back the original investment @ if the payback is a priority select the project with the shortest payback period

Tailoring in Project Cost Management

@ predicted based on - knowledge management - estimating and budgeting - earned value management - use of agile approach - governance

Project cost management

@ primary entails the management of costs related to those resources required to complete the work of the project @ a strong secondary consideration i the impact that the project decisions could have on the entire product life cycle @ the project manager should also be cognizant of the costs once the project has gone life; can they pay for it? @ successful performance on the test requires - familiarity of the basic financial terms and concepts - a solid understanding of earned value analysis through the utilization of memorization tools - a knowledge of the basic calculations - adherence to the three main rules 1) first perform any calculations inside the parentheses 2) next perform all multiplications and divisions working left to right 3) additions and subtractions working left to right

7.4 - Control costs *inputs* knowledge area *project cost management* & * monitoring & controlling process group*

@ project management plan - *cost management plan* - *cost baseline* - performance measurement baseline @ project documents - lessons learned register @ *project funding requirements* @ work performance data @ OPAs *NOTE no EEFs, just OPAs*

7.3 - Determine budget *inputs* knowledge area *project cost management* & * planning process group*

@ project management plan - *cost management plan* - resource management plan - *scope baseline* @ project documents - *basis of estimates* - *cost estimates* - *project schedule* - *risk register* @ business documents - business case - benefits management plan @ *agreements* @ EEFs @ OPAs

7.1 - Estimate costs *inputs* knowledge area *project cost management* & * planning process group*

@ project management plan - *cost management plan* (see prior section. Includes t&t used, accuracy & precision) - *quality management plan* (details activities and resources to accomplish goals) - scope baseline @ project documents - lessons learned register - *project schedule* (can include cost of financing) - resource requirements - *risk register* (response to each risk) @ EEFs @ OPAs

*Schedule Performance Index (SPI)*

@ represents the current efficiency of the project @ EV/PV - SPI @ $4,000/$6,000 = .667 @ in our case the result is .67 therefore only *67% of the work scheduled to be done has been done*

*Cost performance index (CPI)*

@ represents the current efficiency of the spending on the project @ EV/AC = CPI @ $4,000/$5,000 @ .8 @ *if result is less than 1.0* the return on the project is *over budget* @ in our case the result *is .80* means that *80 cents of project work is completed for every dollar spent so we are over-budget*

7.3 - Determine budget *t&t-reserve analysis* knowledge area *project cost management* & * planning process group*

@ reserve analysis is used to determine the amount of contingency and management reserves required for the project @ by analyzing known unknowns (identified risks, typically with mitigation plan, contingency reserves can be determined to account for budget uncertainties and are included in the cost baseline and project funding requirements @ management reserves are set aside to account for unknown unknowns (unforeseen work within the scope of the budget) @ they are part of the overall project budget and are considered in the funding requirements @ funds in the management reserve are not included in the cost baseline until they are used for unforeseen work

7.3 - Determine budget *t&t-historical information review* knowledge area *project cost management* & * planning process group*

@ review of historical information can be used to develop parametric or analogous estimates @ historical information may include project characteristics to evolve mathematical to forecast total project costs. @ The models may be simple or complex with varied costs and accuracy @ the most reliable models depend on the accuracy of the historical data, easily quantitative parameters and scaleable

Earned schedule theory-SAC

@ schedule at completion @ this is the original planned completion duration of the project

*Earned Value Forecast Table*

@ shows many of the formulas setup as a tic-tac-toe table. @ you can map out where the variables go in the table and see that EAC makes a diagonal line. @ this table should be a quick reference for the PMP certification exam

Depreciation-*standard/straight line*

@ standard depreciation is a simple calculation. @ must know the - initial value or purchase price - scrap value - depreciation timeframe @ 10k copier that has a four year depreciation schedule with a scape value of 2k. - 8,000 /4 = $2,000 annual depreciation @ production based instead of straight line

*Actual cost (AC)*

@ sum of actual costs @ $5,000 has been spent

*to-complete performance index (TCPI)

@ the calculated projection of cost performance that must be achieved on the remaining work to meet a specified goal @ definition - *a measure of the cost performance required to be achieved with the remaining resources in order to meet a management goal, expressed as the ratio of the cost to finish the outstanding work remaining on the project* @ calculation - *TCPI = (BAC-EV)/(BAC-AC)* or * TCPI = (BAC-EV)/(EAC-AC)* @ *($100k-40k)/($100k-$80k) = 3.0 @ in our case *

7.3 - Determine budget *outputs-cost baseline* knowledge area *project cost management* & * planning process group*

@ the cost baseline is the authorized version of the time-phased budget for the project, excluding management reserves, and is subject to change control @ it is evolved form a summation of approved budgets for specific schedule activities @ cost estimates are aggravated by work packages, then into higher components of the WBS, and then for the entire project. @ because the estimates included in the cost baseline are linked to schedule activities, a time-phased view of the cost baseline is enabled @ it is usually depicted as an S-curve @ if project uses earned value management (EVM) the cost baseline is known as the performance measurement baseline. @ the budget consists of the cost baseline plus the management reserves

7.4 - Control costs *outputs-cost baseline* knowledge area *project cost management* & * monitoring & controlling process group*

@ the cost baseline is the authorized version of the time-phased budget for the project; excluding the management reserves @ changes to the scope, resources, or cost estimates, if severe can result in a revised cost baseline

*7.2 - Estimate costs* knowledge area *project cost management* & * planning process group*

@ the estimate costs process is vital because accuracy of cost estimates directly impacts the likelihood that a project does not exceed its budget @ the focus is on establishing the costs of either the work packages or the activities in order to establish the total project costs @ there are a number of cost estimating methods that can be used to establish activity cost estimates - analogous (comparison to previous, similar projects) - parametric (parameters for building the estimate use mathematics) - bottom-up (estimates of individual items that are added together to establish the total) - computerized tools

EXAMPLE-COST 2-TWO-2 W/ FORMULAS

@ the sunroom project is projected to be completed in three days @ Cost of $2,000 per day @ at the end of day three the project is 40% complete and $5,000 has been spent.

7.4 - Control costs *t&t-to-complete performance index* knowledge area *project cost management* & * monitoring & controlling process group*

@ the to-complete performance index measures the cost performance required to meet a defined management objective with the remaining resources. @ It is expressed as the ratio of remaining work to the remaining budget and is calculated as *TCPI = (BAC-EV)/(BAC-AC)

EXAMPLE-COST 1-ONE-1 W/ FORMULAS

@ the value of the project is *$100,000 (BAC)* @ as of today the house is *40% completed, thus $40,000 of work has been done* @ the amount of work that *should have been completed in $60,000* @ the *amount spent is $80,000*

*weighted milestone*

@ the weighted milestone approach is utilized for activities that typically are longer than *two reporting periods*. @ the work is divided into multiple milestones with a measurable output for each section of work and a fixed formula progress reporting is applied to each milestone.

Types of cost

@ there are four types of cost on a project. They may be combined by mixing direct or indirect with fixed or variable @ direct costs = is a cost that is directly attributable to the project and is incurred as a result of project work - example is salaries of coders on a software project @ indirect costs = is cost that is not directly attributable to the project, but is often allocated to the project. - such a cost could be security for the building where the work of the project is performed @ fixed cost = is cost that is *consistent throughout the project life cycle regardless of project activity - the leasing of office space for a software project is a fixed cost @ variable cost = is a cost that fluctuates with project activity - the cost of tile for a project to build twenty designers to build twenty homes fluctuates depending on the materials selected by the homebuyers

cost -based project selection techniques

@ there are many project selection techniques that can be utilized to ensure that the organization makes prudent selection decisions. @ while these techniques are financial you do not need to know how to calculate it, but you need to choose the correct one

Trend analysis

@ trend analysis determines if project performance is improving or worsening over time. @ the formulas are outside of this class @ introduced in Control costs *t&t-trend analysis* - knowledge area *project cost management* & * monitoring & controlling process group* @ generally use software to assist on this. Run charts are used

*Planned Value (PV)*

@ value of scheduled work @ $2,000 * 3 days @ $6,000 planned value

*depreciation*

@depreciation is the process of devaluing a capital asset in the tax system. @ capital assets are those that are purchased and depreciated over time @ examples of capital assets include: office equipment, vehicles, technology infrastructure @ when using depreciation over a period an asset's worth decreases until it has no value of a predefined value at the end of its depreciation schedule

*opportunity cost*

@is the cost of taking one opportunity over another @it is the cost of the opportunity that is not selected, left on the table @ for example if a person accepts a job of $75,000 in lieu of $60,000 job the opportunity cost of taking the $75k job is $60k. @ if three or more projects it is the the OC of the next highest job

*7.1 - plan cost management process* knowledge area *project cost management* & * planning process group*

@the plan cost management process is used to create the cost management plan. @ the cost management plan can be formal or relaxed and provides guidance for selecting the methods that will be used to establish and modify cost estimates, budget, performance baseline, and control thresholds @ it also establishes the appropriate degree of detail that will be applied to the budget. The cost management plan is part of the project management plan @ it defines how the team will manage money