Chapter 7 (Project Cost Management)

Scope Baseline, Key Things to Look At (Estimate Costs)

***One basic assumption that needs to be made is whether the estimates will be limited to direct project costs only or whether the estimates will also include indirect costs. WBS, and WBS Dictionary

Cost Baseline

A approved version of the time-phased project budget, excluding any management reserves, which can only be changed through formal change control procedures and is used as a basis for comparison to actual results

Cost Performance Index

A measure of cost efficiency (work completed compared to actual cost or progress made) on a project. It is the ratio of EV to AC; _____ = EV Divided by AC

Schedule Performance Index

A measure of schedule efficiency (progress achieved compared to progress planned) on a project. It is the ratio of EV to PV; _____ = EV divided by PV ***___ less than 1.0 = less work was completed than was planned. And ____ greater than 1.0 = more work was completed than was planned.

Earned Value Management (EVM)

A methodology that combines scope, schedule and resource measurements to assess project performance and progress. It integrates the scope baseline with the cost baseline, along with the schedule baseline, to form the performance measurement baseline, which helps the project management team assess and measure project performance and progress

Estimate Costs Ouputs

Activity Cost Estimates, Basis of Estimates, Project Document Updates

Cost Aggregation

Are aggregated by work packages in accordance with the WBS. The work package cost estimates are then aggregated for the higher component levels of the WBS and ultimately for the entire project

Activity Cost Estimates

Are quantitative assessments of the probable costs required to complete project work. Costs are estimated for all resources that are applied to the activity cost estimate.

Work Performance Measurements

Calculated CV, SV, CPI, and SPI values for the WBS components, in particular the work packages and control accounts

Performance Reviews

Compare cost performance over time, schedule activities or work packages overrunning and under running the budget, and estimated funds needed to complete work in progress.

Determine Budget Tools and Techniques

Cost Aggregation, Reserve Analysis, Expert Judgment, Historical Relationships, Funding Limit Reconciliation

Determine Budget Outputs

Cost Baseline, Project Funding Requirements, Project Document Updates

Plan Cost Management Outputs

Cost Management Plan

Determine Budget Inputs

Cost Management Plan, Activity Cost Estimates, Basis of Estimates, Scope Baseline, Project Schedule, Resource Calendars, Risk Register, Contracts, Agreements, Organizational Process Assets

Estimate Costs Inputs

Cost Management Plan, Scope Baseline, Project Schedule, Human Resource Management Plan, Risk Register, Enterprise Environmental Factors, Organizational Process Assets

Plan Cost Management Tools and Techniques

Expert Judgement, Analytical Techniques, Meetings

Estimate Costs Tools and Techniques

Expert Judgment, Analogous Estimating, Parametric Estimating, Bottom-Up Estimating, Three-Point Estimates, Reserve Analysis, Cost of Quality, Project Management Software, Vendor Bid Analysis

EAC forecast for ETC work considering both SPI and CPI factors

Here the ETC work will be performed at an efficiency rate that considers both the cost and schedule performance indices. It assumes both a negative cost performance to date, and a requirement to meet a firm schedule commitment by the project. this method is most useful when the project schedule is a factor impacting the ETC effort. Variations of this method weigh the CPI and SPI at different values. Equation: AC + [(BAC - EV) / (cumulative CPI x cumulative SPI)]

Project Cost Management

Includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget

Cost Management Plan

Is a component of the project management plan and describes how the project costs will be planned, structured, and controlled.

To-Complete Performance Index

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. It is the calculated cost performance index that is achieved on the remaining work to meet a specified management goal, such as the BAC or EAC. Equation based on BAC = (BAC - EV) / (BAC - AC)

Earned Value

Is the 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

Project Cost Management Processes

Plan Cost Management, Estimate Cost, Determine Budget, Control Cost

Control Costs

Process of monitoring the status of the project to update the project costs and managing changes to the cost baseline. ***Increase to authorized budget can only be approved through the Perform Integrated Change Control Process.

Plan Cost Management Inputs

Project Management Plan, Project Charter, Enterprise Environmental Factors, Organizational Process Assets

Control Costs Inputs

Project Management Plan, Project Funding Requirements, Work Performance Data, Organizational Process Assets

Scope Baseline Includes

Project Scope Statement, WBS, WBS Dictionary

Risk Register (Estimate Costs)

Should be reviewed to consider risk mitigation costs. Risks, which can be either threats or opportunities, typically have an impact on both activity and overall project costs. As general rule negative risks become more costly to fix as project approaches end date

Basis of Estimates

Supporting documentation that should provide a clear and complete understanding of how the cost estimate was derived. This may include: Documentation of basis of estimate (how it was developed), all assumptions made, known constraints, etc.

Planned Value

The authorized budget assigned to scheduled work. It is the authorized budget planned for the work to be accomplished for an activity or WBS component, NOT including management reserve

Funding Limit Reconciliation

The expenditure of funds should be reconciled with any funding limits on the commitment of funds for the project. A variance between the funding limits and the planned expenditures will sometimes necessitate the rescheduling of work to level out the rate of expenditures.

Estimate Costs

The process of developing an approximation of the monetary resources needed to complete project activities. *Cost trade-offs and risks must be considered such as make vs buy, buy vs lease, etc *Should ALWAYS be refined as new data comes in

Plan Cost Management

The process that establishes the policies, procedures, and documentation for planning, managing, expanding, and controlling project costs.

Actual Cost

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.

Schedule Variance

This is a measure of schedule performance. __ = EV - PV. The EVM _________ is a useful metric in that it can indicate a project falling behind its baseline schedule.

The Cost Management Plan can establish these...

Units of Measure, Level of Precision, Level of Accuracy, Organizational Procedures Links, Control Thresholds, Rules of Performance Measurements, etc.

Control Costs Outputs

Work Performance Info, Costt Forecasts, Organizational Process Assets Updates, Change Requests, Project Management Plan Updates, Project Document Updates

Resreve Analysis

During Cost Control, this is used to monitor the status of the 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

Earned Value Management, Forecasting, To-Complete Performance Index, Performance Reviews, Reserve Analysis, Project Management Software

Budget Forecasts

Either a calculated EAC value or a bottom-up EAC value

EVM develops and monitors three key dimensions for each work package and control account

Planned Value, Earned Value, Actual Cost

Determine Budget

Process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. **Includes all authorized budgets, but EXCLUDES MANAGEMENT RESERVES. Project budgets include the funds authorized to execute the project.

Estimate at Completion (EAC) forecast for Estimate to Complete (ETC) work performed at the budgeted rate

This EAC method accepts the actual project performance to date (whether favorable or unfavorable) as represented by the actual costs, and predicts that all future ETC work will be accomplished at the budgeted rate. When actual performance is unfavorable, the assumption that future performance will improve should be accepted only when supported by project risk analysis. Equation: EAC = AC + BAC - EV

Cost Variance

This is a measure of cost performance. ____ = EV - AC. **_______ at end of project will be the difference between the Budget At Completion (BAC) and the actual amount spent. ***EVM ____ is critical because it indicates the relationship of physical performance to the costs spent. Any NEGATIVE EVM ______ is often non-recoverable to the project.

Estimate at Completion (EAC) forecast for Estimate to Complete (ETC) work performed at the present CPI

This method assumes what the project has experienced to date can be expected to continue in the future. The ETC work is assumed to be performed at the same cumulative cost performance index (CPI) as that incurred by the project to date. Equation; EAC = BAC / cumulative CPI

Project Funding Requirements

Total funding requirements and periodic funding requirements are derived from the cost baseline. The cost baseline will include projected expenditures plus anticipated liabilities. Total funds required are those included in the cost baseline, plus MANAGEMENT RESeRVES, if any.