Chapter 7 - Project Cost Management
Plan Cost Management: Tools and Techniques (Data Analysis)
A data analysis technique that can be used for this process includes but is not limited to alternative analysis. Alternative analysis can include reviewing strategic funding options such as: self-funding, funding with equity, or funding with debt. It can also be include consideration of ways to acquire project resources such as making, purchasing, renting, or leasing.
Estimate Costs: Tools and Techniques (Data Analysis)
Alternative analysis Reserver analysis Cost of quality
Estimate Costs: Tools and Techniques (Analogous Estimating)
Analogous cost estimating 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 measures of scale.
Control Costs: Outputs (Change Requests)
Analysis of project performance may result in a change request to the cost and schedule baselines or other components of the project management plan.
Determine Budget: Inputs (Agreements)
Applicable agreement information and costs relating to products, services, or results that have been or will be purchased are included when determining the budget.
Estimate Costs: Outputs (Project Documents Updates)
Assumption Log Lessons learned Register Risk Register
Control Costs: Outputs (Project Documents Updates)
Assumption log Basis of estimates Cost estimates Lessons Learned Register Risk Register
Determine Budget: Inputs (Project Documents)
Basis of estimates Cost estimates Project Schedule Risk Register
Estimate Costs: Tools and Techniques (Bottom-Up Estimating)
Bottom-up estimating is a method of estimating a component of work. The cost of individual work packages or activities 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 purposes.
Determine Budget: Inputs (Business Documents)
Business Case - the business case identifies the critical success factors for the project, including financial success factors. Benefits management plan - The benefits management plan includes the target benefits, such as net present value calculations, timeframe for realizing benefits, and the metrics associated with the benefits.
Control Costs
Control Costs is the process of monitoring the status of the project to update the project costs and managing changes to the cost baseline. The key benefit of this process is that the cost baseline is maintained throughout the project. This process is performed throughout the project.
Control Costs: Input (Project Managment Plan)
Cost Management Plan Cost Baseline Performance measurement baseline - When using earned value analysis, the performance measurement baseline is compared to actual results to determine if a change, corrective action, or preventive action is necessary.
Control Costs: Outputs (Project Management Plan Updates)
Cost Management Plan Cost baseline Performance measurement baseline.
Determine Budget: Outputs (Project Documents Updates)
Cost estimates Project Schedule Risk Register
Estimate Costs: Outputs (Cost Estimates)
Cost estimates include quantitative assessments of the probable costs required to complete project work, as well as contingency amounts to account for identified risks, and management reserve to cover unplanned work. Cost estimates can be presented in summary form or in detail. Costs are estimated for all resources that are applied to the cost estimate.
Estimate Costs: Inputs (O.P.A)
Cost estimating policies, Cost estimating templates, Historical information and lessons learned repository.
Estimate Costs: Inputs (Project Management Plan)
Cost management plan - The cost management plan describes estimating methods that can be used and the level of precision and accuracy required for the cost estimate. Quality management plan - Describes the activities and resources necessary for the project management team to achieve the quality objectives set for the project. Scope baseline - Includes the project scope statement, WBS, and WBS dictionary.
Determine Budget
Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. The key benefit of this process is that it determines the cost baseline against which project performance can be monitored and controlled. This process is performed once or at predefined points in the project.
Control Costs: Tools and Techniques (Data Analysis) - Reserve Analysis
During cost control, reserve analysis is used to monitor the status of contingency and management reserves for the project to determine if these reserves are still needed or if additional reserves need to be requested.
Control Costs: Tools and Techniques (Data Analysis) - Earned value analysis
Earned Value Analysis (EVA) - Earned value analysis compares the performance measurement baseline to the actual schedule and cost performance. EVM integrates the scope baseline with the cost baseline and schedule baseline to form the performance measurement baseline. EVM develops and monitors three key dimensions for each work package and control account: Planned Value - Planned value (PV) is the authorized budget assigned to scheduled work. It is the authorized budget planned for the work to be accomplished for an activity or work breakdown structure (WBS) component, not including management reserve. Earned Value - Earned Value (EV) is a 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. Actual Cost - Actual cost (AC) is the realized cost incurred for the work performed on an activity during a specific time period. It is the total cost incurred in accomplishing the work that the EV measured.
Control Costs: Outputs (Cost Forecasts)
Either a calculated EAC value or bottom-up EAC value is documented and communicated to stakeholders.
Estimate Costs
Estimate Costs is the process of developing an approximation of the cost of resources needed to complete project work. The key benefit of this process is that it determines the monetary resources required for the project. This process is performed periodically throughout the project as needed. A cost estimate is a quantitative assessment of the likely costs for resources required to complete the activity. It is a prediction that is based on the information known at a given point in time. Cost estimates should be reviewed and refined during the course of the project to reflect additional detail as it becomes available and assumptions are tested. Cost estimates are generally expressed in units of some currency. Cost are estimated for all resources that will be charged to the project.
Control Costs: Input (Project Documents)
Examples of project documents that can be considered as inputs for this process include but are not limited to the lessons learned register. Lessons learned earlier in the project can be applied to later phases in the project to improve cost control.
Determine Budget: Inputs (O.P.A.)
Existing formal and informal cost budgeting-related policies, procedures, and guidelines; Historical information and lessons learned repository. Cost budgeting tools; and Reporting methods.
Control Costs: Input (O.P.A.)
Existing formal and informal cost control-related policies, procedures, and guidelines; Cost control tools; and Monitoring and reporting methods to be used.
Plan Cost Management: Inputs (O.P.A.)
Financial controls procedures Historical information and lessons learned repository. Financial databases and existing formal and informal cost estimating and budgeting-related policies, procedures, and guidelines.
Determine Budget: Tools and Techniques (Financing)
Financing entails acquiring funding for projects. It is common for long-term infrastructure, industrial, and public services projects to seek external sources of funds. If a project is funded externally, the funding entity may have certain requirements that are required to be met.
Project Cost Management: Tailoring
Knowledge management - Does the organization have a formal knowledge management and financial database repository that a project manager is required to use and that is readily accessible. Estimating and budgeting - Does the organization have existing formal cost estimating and budgeting-related policies, procedures, and guidelines. Earned value management - Does the organization use earned value management in managing projects? Use of agile approach - Does the organization use agile methodologies in managing projects? How does this impact cost estimating? Governance - Does the organization have formal or informal audit and governance policies, procedures, and guidelines?
Estimate Costs: Inputs (Project Documents)
Lessons learned register Project schedule Resource requirements Risk Register
Determine Budget: Tools and Techniques (Cost Aggregation)
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. Management reserves are intended to address the unknowns that can affect a project. The management reserve is not included in the cost baseline but is part of the overall project budget and funding requirements.
Estimate Costs: Inputs - (E.E.F.)
Market conditions - These conditions describe what products, services, and results are available in the market, from whom, and under what terms and conditions. Published commercial information - Resources cost rate information is often available from commercial databases that track skills and human resource costs, and provide standard costs for material and equipment. Exchange rates and inflation - For large-scale projects that extend multiple years with multiple currencies, the fluctuations of currencies and inflation need to be understood and built into the Estimate Cost Process.
Plan Cost Management: Inputs (E.E.F.)
Organizational culture and structure can influence cost management. Market conditions describe what products, services, and results are available in the regional and global markets. Current exchange rates for project costs are sourced from more than one country. Published commercial information such as resource cost rate information is often available from commercial databases that track skills and human resource cost. Project management information system provides alternative possibilities for managing cost. Productivity differences in different parts of the world can have a large influence on the cost of the projects.
Estimate Costs: Tools and Techniques (Parametric Estimating)
Parametric estimating uses a statistical relationship between relevant historical data and other variables. This technique can produce higher levels of accuracy depending on the sophistication and underlying data built into the model.
Plan Cost Management
Plan Cost Management is the process of defining how the project costs will be estimated, budgeted, managed, monitored, and controlled. The key benefit of this process is that it provides guidance and direction on how the project costs will be managed throughout the project. This process is performed once or at predefined points in the project.
Determine Budget: Tools and Techniques (Historical Information Review)
Reviewing historical information can assist in developing parametric estimates or analogous estimates. Historical information may include project characteristics (parameters) to develop mathematical models to predict total project costs. Both the cost and accuracy of analogous and parametric models can vary widely. Most likely to be reliable when: Historical information used to develop the model is accurate. Parameters used in the model are readily quantifiable, and Models are scalable, such that they work for large projects, small projects, and phases of a project.
Plan Cost Management: Tools and Techniques (Expert Judgment)
Previous similar projects Information in the industry, discipline, and application area. Cost estimating and budgeting and earned value management.
Estimate Costs: Tools and Techniques (Expert Judgment)
Previous similar projects. Information in the industry, discipline, and application area; and Cost estimating methods.
Determine Budget: Tools and Techniques (Expert Judgment)
Previous similar projects; Information in the industry, discipline, and application area; Financial principles; and Funding requirement and sources.
Project Cost Management
Project Cost Management includes the process involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget. Project Cost Management is primarily concerned with the cost of the resources needed to complete project activities. Project Cost management should consider the effect of project decisions on the subsequent recurring cost of using, maintaining, and supporting the product, service, or result of the project. Example: limiting the number of design reviews can reduce the cost of the project but could increase the resulting product's operating cost. Another aspect of cost management is recognizing that different stakeholders measure project costs in different ways and at different times. For example, the cost of an acquired item may be measured when the acquisition decision is made or committed, the order is placed, the item is delivered, or the actual cost is incurred or recorded for project accounting purposes.
Control Costs: Tools and Techniques (Project Management Information System -PMIS)
Project management information systems are often used to monitor the three EVM dimensions (PV, EV, and AC), to display graphical trends, and to forecast a range of possible final project results.
Determine Budget: Inputs (Project Management Plan)
Project management plan components: Cost management plan - Describes how the project costs will be structured into the project budget. Resource management plan - Provides information on rates (personnel and other resources), estimation of travel costs, and other foreseen costs that are necessary to estimate the overall project budget. Scope baseline - Includes the project scope statement, WBS, and WBS dictionary details for cost estimation and management.
Plan Cost Management: Tools and Techniques (Meetings)
Project teams may hold planning meetings to develop the cost management plan. Attendees may include the project manager, the project sponsor, selected project team members, selected stakeholders, anyone with responsibility for project costs, and others as needed.
Plan Cost Management: Inputs (Project Management Plan)
Schedule management plan: The schedule management plan establishes the criteria and the activities for developing, monitoring, and controlling the schedule. The schedule management plan provides processes and controls that will impact cost estimation and management. Risk management plan: The risk management plan provides the approach for identifying, analyzing, and monitoring risks. The risk management plan provides processes and controls that will impact cost estimation and management.
Estimate Costs: Tools and Techniques (Three-point estimating)
The accuracy of single-point cost estimates may be improved by considering estimation uncertainty and risk and using three estimates to define an approximate range for an activity's cost: Most likely (cM). The cost of the activity, based on realistic effort assessment for the required work and any predicted expenses. Optimistic (cO). The cost-based on analysis of the best-case scenario for the activity. Pessimistic (cP). The cost-based on analysis of the worst-case scenario for the activity. Depending on the assumed distribution of values within the range of the three estimates, the expected cost, cE, can be calculated using a formula. Two commonly used formulas are triangular and beta distributions. Triangular distribution. cE = (cO+cM+cP) / 3 Beta distribution. cE = (cO+4cM+cP) / 6 Cost estimates bases on three points with an assumed distribution provide an expected cost and clarify the range of uncertainity around the expected cost.
Estimate Costs: Outputs (Basis of Estimates)
The amount and type of additional details supporting the cost estimate vary by application area. Regardless of the level of detail, the supporting documentation should provide a clear and complete understanding of how the cost estimate was derived. Supporting detail for cost estimates: Documentation of the bases of the estimate Documentation of all assumptions made, Documentation of any known constraints, Documentation of identified risks included when estimating costs, Indication of the range of possible estimates Indication of the confidence level of the final estimate.
Determine Budget: Outputs (Cost baseline)
The cost baseline is the approved version of the time phased project budget, excluding any management reserves, which can only be changed through formal change control procedures. It is used as a bases for comparison to actual results. The cost baseline is developed as a summation of the approved budgets for the different schedule activities.
Plan Cost Management: Outputs (Cost Management Plan)
The cost management plan is a component of the project management plan and describes how the project costs will be planned, structured, and controlled. The cost management processes and their associated tools and techniques are documented in the cost management plan.
Estimate Costs: Tools and Techniques (Decision Making)
The decision making techniques that can be used in the Estimate Costs process include but are not limited to voting. Voting is an assessment process having multiple alternatives with an expected outcome in the form of future actions. These techniques are useful for engaging team members to improve estimate accuracy and commitment to the emerging estimates.
Determine Budget: Inputs (E.E.F.)
The enterprise environmental factors that can influence the Estimate Costs process include but are not limited to exchange rates. For large-scale projects that extend multiple years with multiple currencies, the fluctuations of currencies need to be understood and built into the Determine Budget process.
Determine Budget: Tools and Techniques (Funding Limit Reconciliation)
The expenditure of funds should be reconciled with any funding limits on the commitment of funds for the projects. A variance between the funding limits and the planned expenditures will sometimes necessitate the rescheduling of work to level out the rate of expenditures. This is accomplished by placing imposed date constraints for work into the project schedule.
Plan Cost Management: Inputs (Project Charter)
The project charter provides the preapproved financial resources from which the detailed project costs are developed. The project charter also defines the project approval requirements that will influence the management of the project costs.
Control Costs: Input (Project Funding Requirements)
The project funding requirements include projected expenditures plus anticipated liabilities.
Estimate Costs: Tools and Techniques (Project Management Information System) (PMIS)
The project management information system can include spreadsheets, simulation software, and statistical analysis tools to assist with cost estimating.
Control Costs: Tools and Techniques (To-Complete Performance Index)
The to-complete performance index (TCPI) is 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. TCPI is the calculated cost performance index that is achieved on the remaining work to meet a specified management goal, such as the BAC or the EAC.
Determine Budget: Outputs (Project Funding Requirements)
Total funding requirements and periodic funding requirements (e.g., quarterly, annually) are derived from the cost baseline. The cost baseline will include projected expenditures plus anticipated liabilities. Funding often occurs in incremental amounts, and may not be evenly distributed. The total funds required are those included in the cost baseline plus management reserves, if any.
Control Costs: Tools and Techniques (Data Analysis) - Trend Analysis
Trend analysis examines project performance over time to determine if performance is improving or deteriorating. Graphical analysis techniques are valuable for understanding performance to date and for comparison to future performance goals in the form of BAC versus estimate at completion (EAC) and completion dates.
Control Costs: Tools and Techniques (Expert Judgment)
Variance Analysis Earned Value Analysis Forecasting and Financial analysis
Control Costs: Tools and Techniques (Data Analysis) - Variance Analysis
Variance analysis - Variance analysis, as used in EVM, is the explanation (cause, impact, and corrective actions) for cost (CV = EV - AC), schedule (SV= EV-PV), and variance at completion (VAC = BAC - EAC) variances. Cost and schedule variances are the most frequently analyzed measurements. Schedule variance - Schedule variance (SV) is a measure of schedule performance expressed as the difference between the earned value and the planned value. It is the amount by which project is ahead or behind the planned delivery date, at a given point in time. It is a measure of schedule performance on a project. Cost variance - Cost variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost. It is a measure of cost performance on a project. Schedule performance index - The schedule performance index (SPI) is a measure of schedule efficiency expressed as the ratio of earned value to planned value. It measures how the project team is accomplishing the work. Cost performance index - The cost performance index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost. It is considered the most critical EVA metric and measures the cost efficiency for the work completed.
Control Costs: Input (Work Performance Data)
Work Performance Data contains data on project status such as which costs have been authorized, incurred, invoiced, and paid.
Control Costs: Outputs (Work Performance Information)
Work performance information includes information on how the project work is performing compared to the baseline. Variances in the work performed and the cost of the work are evaluated at the work package level and control account level.