(PMBOK GUIDE ) Sixth edition - 3FOLD Education Centre · PDF fileProject Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) –Sixth Edition,
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Project Cost Management. *Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so the project can be completed within the approved budget.
Value engineering (VE) is a systematic method to improve the "value" of goods or products and services by using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be increased by either improving the function or reducing the cost.
Value Engineering
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Cost escalation is defined as changes in the cost or price of specific goods or services in a given economy over a period.
Cost Escalation
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-2, Page 235.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-4, Page 240.
7.3 Determine Budget. *The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-6, Page 248.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-8, Page 255.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-9, Page 255.
Cost Baseline, Expenditures, and Funding Requirements
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Cost management plan, cost baseline and performance measurement baseline are inputs to this process.Project
Management Plan
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The project funding requirements are an important input into the Control Costs process because they enable you to determine when expenditures will be incurred and when funding for the project will be available and to therefore assess actual versus planned project funding requirements and control any changes to these elements.
Project Funding Requirements
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
The types of organizational process assets that will be useful as inputs into the Control Costs process are any existing organizational policies, procedures, templates, or any other element relating to how costs will be monitored and reported on in your project.
Organizational Process Assets
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Work performance data contains data on project status such as which activities have started, their progress (e.g., actual duration, remaining duration, and physical percent complete), and which activities have finished.
Work Performance
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Examples of expert judgment during the Control Costs process include but are not limited to:
1. Variance analysis2. Earned value analysis3. Forecasting, and4. Financial analysis
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Earned Value Management. *A methodology that combines scope, schedule, and resource measurements to assess project performance and progress.
EVM develops and monitors three key dimensions for each work package and control account:
1. Planned Value2. Actual Cost3. Earned Value
Data Analysis
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Actual Cost (AC). *The realized cost incurred for the work performed on an activity during a specific time period.
Planned Value (PV). *The authorized budget assigned to scheduled work.
Earned Value (EV). *The measure of work performed expressed in terms of the budget authorized for that work.
Data Analysis
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Earned Value is calculated using the formula.
EV = % Completed x Budget
Percent Completed is the progress of the work package or control account for which the progress is measured using different measurement techniques.
Each work package has its own unique characteristics; therefore, there is not one single best way to measure progress. To accommodate the different types of work, there are several accepted methods to measure work performance. There are three classes of work, as follows:
1. Discrete effort
2. Apportioned effort
3. Level of effort
Progress Measurement
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Discrete Effort. * An activity that can be planned and measured and that yields a specific output.
Discrete effort is directly related to specific end products or services with distinct and measurable points, and outputs that result directly from the discrete effort.
The four discrete effort measurement methods are:
1. Fixed formula
2. Weighted milestone
3. Percent complete
4. Physical measurement
Progress Measurement
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Fixed formula assigns a specified percentage of the budget value of the work package to the start milestone of the work packages. The remaining budget value percentage is assigned when the work package is completed.
Another important point is to note is that this method is only used on smaller work packages that are planned to start and end within two reporting time periods.
Project Management Institute, Practice Standard for Earned Value Management– Second Edition, Project Management Institute Inc., 2011, Fig. 7-2, Page 37.
The weighted milestone method divides the work package into measurable segments, each ending with an observable milestone; it then assigns a weighted value to the achievement of each milestone.
The weighted milestone method ismore suitable for longer duration work packages (i.e., those longer than two time periods) that haveintermediate and tangible results, or milestones.
Project Management Institute, Practice Standard for Earned Value Management– Second Edition, Project Management Institute Inc., 2011, Fig. 7-3, Page 38.
The percent complete method shows an estimate of the percentage of work that is complete at the end of each measurement period. This method should be based on objective and quantifiable work completion.
The planned value is determined by the time-phased resources required to accomplish the work package. The earned value (EV) is determined by multiplying the work package BAC by the percent complete.
Project Management Institute, Practice Standard for Earned Value Management– Second Edition, Project Management Institute Inc., 2011, Fig. 7-4, Page 39.
The physical measurement, unlike the weighted milestone and the percent complete, can be related more explicitly to the completion of the work.
Measurement can include any units that can be explicitly related to the completion of the work.
Examples may include the length of cable laid, the area and quantity of concrete poured, and the quantity of spokes in the case of the bicycle’s wheel. The method of measurement and specific measurement with the cost or efforts spent should be defined and agreed upon in advance.
Apportioned Effort. Apportioned effort is used for work with a direct, supportive relationship to discrete work. The value for the support task is determined based on the earned value of the referenced base activity.
Apportioned effort can include such work as quality assurance, inspection, and testing activities. An apportioned work effort is estimated as a percentage of the referenced discrete work effort.
The percent allocation to discrete effort is used when there are sufficient performance records and knowledge of the interrelationship between the apportioned effort and the discrete effort.
Progress Measurement
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
In this figure, the discrete effort at the second measurement point is 5,200. The apportioned effortis 10% of the discrete effort. Therefore the apportioned value at the second measurement point is 10% of 5,200 or 520.
In actuality, the actual discrete effort accomplished at the end of the second period was 7,800; therefore the apportioned earned value at the second measurement point is 10% of 7,800 or 780.
Project Management Institute, Practice Standard for Earned Value Management– Second Edition, Project Management Institute Inc., 2011, Fig. 7-5, Page 40.
Level-of-effort (LOE) activities do not directly produce definitive end products that can be delivered or measured objectively.
LOE work, such as project or program management and contract management, consume project resources and should be included in the EVM Planning, Executing, and Monitoring and Controlling Process Groups.
LOE is not necessarily characterized by a uniform rate of work over a period of time. A planned value is assigned to each LOE task for each measurement period, and this planned value is credited as EV at the end of the measurement period.
EV is accrued in line with PV which means LOE activities will not havea schedule variance. However cost variance can be incurred because the actual cost (AC) is usually different from EV.
Progress Measurement
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Earned value equal to the planned value at all measurement points.
Project Management Institute, Practice Standard for Earned Value Management– Second Edition, Project Management Institute Inc., 2011, Fig. 7-6, Page 41.
Schedule PlanSchedule: To complete the work in 4 weeks –work is equally distributed
Budgeted CostUSD 10000 / wall
Status at the end of week 3Wall 1 – Progress 100% - AC $12000Wall 2 – Progress 100% - AC $13000Wall 3 – Progress 50% - AC $7000Wall 4 – Progress 0% - AC $0
Variance Analysis. * A technique for determining the cause and degree of difference between the baseline and actual performance.
There are 4 formula to calculate variance
1. Cost Variance2. Cost Performance Index3. Schedule Variance4. Schedule Performance Index5. Variance At Completion (VAC). * A projection of the amount of budget
deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion. (Explained later)
Data Analysis
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Trend Analysis. An analytical technique that uses mathematical models to forecast future outcomes based on historical results.
Trend analysis uses Charts and Forecasting techniques to measure project performance over time to determine if performance is improving or deteriorating.
(Explained in subsequent slides)
Data Analysis
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
PMIS is often used to generate, capture and report project performance.PMIS
This chart uses S-curves to display EV data for a project that is performing over budget and behind the schedule.
Earned Value, Planned Value, and Actual Costs
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-12, Page 264.
* 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
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
To Complete Performance Index
TCPI TCPI
(BAC – EV)/(BAC – AC) (BAC – EV)/(EAC – AC)
The efficiency that must be maintained in order to complete on plan.
The efficiency that must be maintained in order to complete the current EAC.
The efficiency that must be maintained in order to complete on plan.
The efficiency that must be maintained in order to complete the current EAC.
TCPI
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
The easiest way to display work performance information based on the work performance data is by using the earned value calculations for cost variance (CV), schedule variance (SV), cost performance index (CPI), schedule performance index (SPI), and the to-complete performance index (TCPI).
Work Performance Information
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Cost Forecasts
2EAC and ETC will be communicated to the stakeholders.
Change Request
3Change requests may include preventive or corrective actions.
PMP and PD Updates
4 & 5Project Management Plan and Project Documents will be updated.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Fig. 7-10, Page 257.
Earned schedule (ES), developed by Lipke in 2003, extends the graphical method of projecting EV accrued onto the PV curve.
The idea of Earned Schedule is similar to Earned Value. However, instead of using cost for measuring schedule performance, we would use time.
Earned Schedule is determined by comparing the cumulative EV earned to the performance baseline. The time associated with EV, i.e. Earned Schedule, is found from the PV S-curve. The significance of using the Earned Schedule concept is that the associated schedule indicators behave appropriately throughout the entire period of project performance.
Schedule Performance Index (time) SPI(t)= 6/10 = 0.60
When the ES exceeds AT, the SV(t) is positive and negative when it lags. The SPI(t) is greater than 1.0 when ES exceeds AT, and less than 1.0 when ES is less than AT. SV(t) will only revert to zero and SPI(t) to unity at project completion
when the project completes on time.
Project Management Institute, Practice Standard for Earned Value Management– Second Edition, Project Management Institute Inc., 2011, Fig. D1, Page 100.