Project managment 6

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Project ManagementProject ManagementProject ManagementProject ManagementKnowledge AreasKnowledge Areas

Section Section –– 33Chapter Chapter –– 77pp

Project Cost ManagementProject Cost ManagementSession Objectives…1. To identify Project Cost Managementy j g

Knowledge Area Processes2. How to estimate approximate costs of

the resources needed3. How to aggregate and determine

budgeted costs of project and to developthe Cost Baseline

4. How to Control the influencing factorsthat create variances to the projectbudget

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Project Cost ManagementProject Cost ManagementExam Objectives…

1 Estimating Costs of schedule 1. Estimating Costs of schedule activities

2. Developing Cost baseline3. Implementing Cost Control4 Measuring Project Performance4. Measuring Project Performance

Project Cost ManagementProject Cost ManagementIs primarily concerned with the cost of the resources needed to complete pschedule activities.Also considers

Cost of using,Cost of maintainingC t f ti th d t Cost of supporting the product, service or result

Is also called as Life-Cycle Costing

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Project Cost ManagementProject Cost ManagementThe Processes in Project Cost Management are:1. Estimate Costs2. Determine Budget3. Control CostThese processes interact with each other and with processes in the other knowledge areasEach process occurs once in every projectSmaller projects scope, estimating costs and determining budget are viewed as a single process

Project Cost ManagementProject Cost ManagementEstablishes…o Level of accuracyy

Rounding of data to a prescribed precisiono Units of measure

Each unit used in measurement, such as staffhours/staff days is defined

o Organizational proceduresThe WBS component used for the projectcost accounting is called a control account.This account is assigned a code that is linkedto organization’s accounting system

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Project Cost ManagementProject Cost ManagementEstablishes…o Control thresholdso Control thresholds

Variance thresholds for costs or other indicators such as person-days, can be defined to indicate the agreed amount of variation allowed

o Performance Measurements rulesEVM calculating formulas are defined

o Reporting formatso Process description

Estimate CostsEstimate CostsEstimate Costs is the process ofcalculating the costs of the identifiedgresources needed to complete theproject work.Estimate Costs is the cost of theresources required to complete theproject work & Pricing includes a profitp j g pmarginEstimates are generally expressed in unitsof currency

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Estimate CostsEstimate Costs

• 1. Scope Baseline• 2. Project Schedule• 3. Human Resource Plan• 4. Risk Register• 5. Enterprise Environmental

Factors• 6. Organizational Process

Assets

• 1. Expert Judgment• 2. Analogous Estimating• 3. Parametric Estimating• 4. Bottom-Up Estimating• 5. Three-Point Estimates• 6. Reserve Analysis

Tools & Techniques

• 1. Activity Cost estimates• 2. Basis of Estimates• 3. Project Document Updates

Input

• 7. Cost of Quality• 8. Project Management

Estimating Software• 9. Vender Bid Analysis

Output

Estimate CostsEstimate CostsInputs1. Scope Baselinep2. Project Schedule3. Human Resource Plan4. Risk Register5. Enterprise Environmental Factors6. Organizational Process Assets

Cost estimating policies & templatesHistorical informationLessons learned

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Estimate CostsEstimate CostsTools and Techniques1. Expert Judgmentp J g2. Analogous Estimating3. Parametric Estimating4. Bottom-up Estimating5. Three-Point Estimates6. Reserve Analysis7. Cost of Quality8. Project Management Estimating Software9. Vender Bid Analysis

Estimate CostsEstimate Costs

Outputs1 Activity Cost Estimates1. Activity Cost Estimates2. Basis of Estimates3. Project document Updates

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Cost Estimating TechniquesCost Estimating TechniquesThree Point Estimates is to improve accuracy and reduce risk factors, Program accuracy and reduce risk factors, Program Evaluation and Review Technique (PERT) is used

Most likely (Cm)Optimistic (Co)P i i i (C )Pessimistic (Cp)

Weighted average of the activity cost is(Co + 4 X Cm + Cp) / 6 stages of planning

Cost Estimating TechniquesCost Estimating TechniquesAnalogous Estimating

Relies on historical information to predict pthe cost of the current projectAlso knows as top-down estimatingIt’s a form of expert judgment

Bottom-up EstimatingCalculates cost of each component of the WBS d i t f th j tWBS, and arrives at a sum for the projectMost time consuming and expensive methodMost accurate method

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Cost Estimating TechniquesCost Estimating TechniquesParametric Estimating

Uses mathematical model based on known parameters to predict the cost of a projectUsually calculated cost per unit

Types of parametric estimatingRegression analysis:- a statistical approach to predict future values, based on historical valuesvaluesLearning curve:- Cost per unit decreases the more units workers complete

Cost Estimating TechniquesCost Estimating Techniques

Reserve analysisIs also called as contingency reserveIs also called as contingency reserveUsed to meet cost overruns due to risks that have impacted the projects’ cost baseline

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Determine BudgetDetermine Budget

Determine budget is aggregating theestimated costs of individual scheduleestimated costs of individual scheduleactivities to determine total cost ofthe projectThe cost baseline is used formeasuring project performance

Determine BudgetDetermine Budget

• 1. Activity Cost Estimates• 2. Basis of Estimates• 3. Scope Baseline• 4. Project Schedule• 5. Resource Calendars• 6. Contracts• 7. Organizational Process

Assets

• 1. Cost Aggregation• 2. Reserve Analysis• 3. Expert Judgment• 4. Historical Relationships• 5. Funding Limit

Reconciliation

Tools & Techniques

• 1. Cost Performance Baseline

• 2. Project Funding Requirements

• 3. Project Document Updates

Input Output

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Determine BudgetDetermine Budget

Inputs1 Activity Cost Estimates1. Activity Cost Estimates2. Basis of Estimates3. Scope Baseline4. Project Schedule5 Resource Calendars5. Resource Calendars6. Contracts7. Organizational Process Assets

Determine BudgetDetermine Budget

Tools and Techniques1 Cost Aggregation1. Cost Aggregation2. Reserve Analysis3. Expert Judgment4. Historical Relationships5 Funding Limit Reconciliation5. Funding Limit Reconciliation

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Determine BudgetDetermine Budget

Outputs1 Cost Performance Baseline1. Cost Performance Baseline2. Project Funding Requirements3. Project Document Updates

Tools & TechniquesTools & TechniquesHistorical Relationshipso Result in parametric or analogouso Result in parametric or analogous

estimates involved to developmathematical models to predict total costs

o Models reliability can be improved byAccurate historical informationQuantifiable parametersScalable models

o Ex. Cost per sqr.ft.

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Control CostControl Cost

Cost control focuses on the ability ofcosts to change and on the ways ofcosts to change and on the ways ofallowing or preventing cost changes fromhappeningIs concerned with understanding the costvariances.As cost variances happen, they must beexamined, recorded, and investigated.

Control CostControl CostCost control focuses on…

Controlling causes of change to ensure Controlling causes of change to ensure the changes are actually neededControlling and documenting changes to the cost baseline as they happenControlling changes in the project and h fl their influence on cost

Performing cost monitoring to recognize and understand cost variance

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Control CostControl CostCost control focuses on…

Recording appropriate cost changes in Recording appropriate cost changes in the cost baselinePreventing unauthorized changes to the cost baselineCommunicating the cost changes to the proper stakeholdersp pWorking to bring and maintain costs within acceptable range

Control CostControl Cost

• 1. Project Management Plan

• 2. Project Funding Requirements

• 3. Work Performance Information

• 4. Organizational Process Assets

• 1. Earned Value Management

• 2. Forecasting• 3. To-Complete• Performance Index

4 P f R i

Tools & Techniques • 1. Work Performance

Measurements• 2. Budget Forecasts• 3. Organizational Process

Assets Updates• 4. Change Requests• 5. Project• Management Plan Updates• 6. Project Document Updates

Input

• 4. Performance Reviews• 5. Variance Analysis• 6. Project Management

SoftwareOutput

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Control CostControl CostInputs1 Project management plan1. Project management plan2. Project funding requirements3. Work performance information4. Organizational Process Assets

Control CostControl CostTools and Techniques1 Earned Value Management1. Earned Value Management2. Forecasting3. To-Complete Performance Index4. Performance reviews5 Project management software5. Project management software

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Control CostControl CostOutputs1 Work Performance Measurements1. Work Performance Measurements2. Budgeted Forecasts3. Organizational Process Assets Updates4. Change Requests5 Project Management Plan Updates5. Project Management Plan Updates6. Project Document Updates

Project Cost ManagementProject Cost ManagementTo Sum up…1. We know Project Cost Managementj g

Knowledge Area Processes2. We know how to estimate an

approximate costs of the resourcesneeded

3. We know how to aggregate theestimated costs of individual activities toestablish a Cost Baseline

4. We know how to Control the influencingfactors that create variances to theproject budget

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Questions ?