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
