Project Cost Management

• Cost Estimating (Planning) - The process of developing an approximation of the cost of the resources needed to complete project activities

• Cost Budgeting (Planning) - The process of aggregating the estimated costs ofmindividual activities or work packages to establish a cost baseline

• Cost Control (Monitoring and Controlling) - The process of influencing the factors that create variances, and controlling changes to the project budget

The bare minimum that you must be able to report as a project manager is where the project actually is in terms of cost against the planned budget, today

Example:

• The fully loaded cost of an employee is double their base salary

• All actual IT costs and timescales will tend to be close to double the estimated costs

• Assume 180 to 200 effective working days per year per full-time employee

• assume that projects have at most a 50% chance of delivering on time and on budget and to user expectations

• Prior probability is the best guide to future probabilities

• Project scope statement

• Work breakdown structure

• Organizational process assets

• WBS dictionary

• Enterprise environmental factors

• Project management plan

Conference method:

• Analogous estimatin

• Vendor bid analysis

Account analysis method:

• Determine resource cost rates

• Project management software

Engineering methods or quantitative analysis:

• Bottom-up estimating

• Parametric estimating

• Reserve analysis

• Activity cost estimates

• Activitiy cost estimates, supporting detail

• Required changes

• Cost management plan

Budgeting takes as its key input the cost estimates for activities or work packages that were the outputs of the cost estimation process.

The main output is a costed plan, aka COST BASELINE

Includes:

• Projected costs at regular periods throughout the life of the project, in aggregate and down to the level of cost package

• Costs for each work package, and costs risks for each package

• Cost for each resource

• Mechanisms and criteria for releasing future blocks of conditionally approved project funding

• Cost warning and indicator limits

• Budget and accounting codes, authorizations, limits

• Cost process interfaces between the project and the performing organization

Project cost control depends on your knowing four things:

• Planned costs

• Actual costs

• Causes of variance

• Things you can do to reduce future costs.

Unfortunately, on its own, AV does not give us useful information.

Only at the end of the project does a deviation greater than zero havean absolutely negative meaning.

• EV = %phisical advance * BAC

• Actual Variance (AV) = AC - PV

• CV = (EV - AC) = (BCWP - ACWP)

• SV = (EV - PV) = (BCWP- BCWS)

• Budget At Completion (BAC) - The overall budget

• Schedule At Completion (SAC) - The total duration

• Planned Accomplishement Rate (PR) = (BAC/SAC) - average planned cost per period [€/period].

• Time Variance (TV) = (SV/PR)

A deviation AV = 0 could in fact mean that:

• Everything is going as planned (or you are not controlling progresses effectively)

• More work was done but with lower cost (efficiencies in both time and cost)

• Less work was done with higher cost (inefficiencies in both time and cost)

• We are in an intermediate situatio

CV:

• It answers this question, "Am I spending more than I budgeted?"

• If it is positive, you are cost efficient

SV:

• Answers the following question, "Did I do less work than planned?"

• If it is positive, you are efficient in terms of production/work done

In advance and at a lower cost#

Late, but cheaper

Late and at greater cost