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Software Project Management(SPM)
Lecture 7
Cost Management
Dr. Daniel Keret
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Reading Assignment
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Software Project Management, Bob Hughes and Mike
Cotterell, McGraw-Hill, 3rd Edition.
Chapter 9
A Guide to the Project Management Body of
Knowledge, PMI Publications, 3rd Edition, 2004
Chapter 7
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Cost Management Cost Management includes:
Cost Estimation Cost Budgeting
Cost Control
Estimation & Budgeting Main Tools & Techniques
Estimation Techniques Reserve Analysis ( Risk, Unknown, Cost of Quality)
Cost Baseline
Funding Requirements & Cash Flow
Cost Control. Performance Measurement Analysis: Planned value, Actual
Cost, Cost Variance, Cost Performance Index, Estimate toComplete
Approved Change Requests
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Estimating Schedule Activity
Estimation Cost of the Resources Needed to complete theactivity
Includes variations to the cost estimate (Risk, Etc)
Take into consideration Alternative Costing for the overallproject time period
Cost of extended design effort VS. additional maintenance costs
Cost estimates include ALL resources that will be charged to theproject including Inflation Forecast, Salary Increase,
Contingency cost. ROM (Rough Order of Magnitude, E.G:50/+100%) is allowed
in the first stages. Refinement is required at later stages ( E.G:-10/+15%).
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Activity EstimatingInputs & Tools
Inputs External Factors: Marketplace Condition, External Cost
Information Databases
Organization Assets: Historical Information, EstimatingPolicies and Templates, Team Knowledge
Project Factors: Scope, WBS, Management Plan, SchedulePlan, Staffing Plan, Risk
Tools
Analogous Estimates Resource Cost Rates
Parametric Estimates ( Function Points Etc)
Vendor Bid Analysis
Project Management Software
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Activity EstimatingInputs & Tools
(Cont.) Reserve Analysis (Contingency Allowance) Will Be Used at the Discretion of the Project Manager
Budgeting Project Unknowns
Risks Will Be budgeted according to their severity level and
probabilities
The budget will cover mitigation activities and workaroundsand will be implemented upon the project manager decision.
Cost of Quality (COQ) Costs added to the project in order to ensure conformance
with quality standards
Cost of Non QualityFailure Cost/Rework. Costs that willadded as a result of bugs and non-quality project activities
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Activity Estimating - Output
Activity Cost EstimatingMost likely estimates of allthe activity resources
Estimate Details Basis for the estimate (how it was developed) Assumptions made
Constraints
Possible range of the estimate ( 100000$ -10%/+15%)
Requested Changes ( If the estimate analysisrecommends a change)
CAControl Account (the corporate accountingnumber that will incur the cost of the activity)
Cost Management Plan (Update)
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Cost Baseline Aggregating the estimated costs of the individual
scheduled activities to establish a total COSTBASELINE for measuring and budgeting the project
Inputs: WBS, Activity Cost Estimate, ProjectSchedule, Resource Calendar, Contracts, Cost
Management Plan Tools & Techniques: Cost Aggregation, Reserve
Analysis, Parametric Estimating ( adjustment to theaggregate cost), Funding Limit Reconciliation (canimpact the schedule and overall cost)
Output: Cost Baseline, Expected Cash Flow, FundingRequirements (including Management Reserve),Requested Changes, Updated Cost ManagementPlan
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Cost control Assuring the Potential Cost Overrun do not exceed
the authorized funding PERIODICALLY and inTOTAL
Monitoring cost PERFORMANCE to detect andunderstand Variances from the Baseline
Detect Changes as they occur Prevent unapproved changes
Ensuring Requested Changes are Agreed Upon
Report Changes to Stakeholders
Acting to bring expected overruns within acceptablelimits
Influencing factors that creates changes to the costbaseline
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Performance Measurements Planned Value (PV) or Budget Cost of Work
Schedule (BCWS)
baseline budget up to a givenpoint in time.
Earned Value of an Activity 0/100% technique ( The Recommended One): 0 if the
activity is not fully completed. Full Actual Cost if the activity
was completed. 50/50% technique: 50% of the planned cost if the activity
started, 100% of the actual cost if it was completed
Milestone Technique: Actual Cost at the milestone date.
Earned Value (EV) or Budget Cost of Work
Performed (BCWP)
the sum of the baseline costs ofthe work performed up to a given point in time
Actual Cost (AC) or Actual Cost of Work Performed(ACWP)up to a given point in time
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Performance Indicators
Cost Variance
The difference between actual andbudget cost spent up to a given point in time: EV AC.
Schedule VarianceThe difference of the baselinebudget actually spend up to a given point of time and
the baseline budget that was originally planned up tothe same date: EVPV
CPI (Cost Performance\Overrun Indicator): EV/ACEarned Value/Actual Cost. CPI < 1 indicates budget
overrun SPI (Schedule Performance\Overrun Indicator):
EV/PV Earned Value/Planned Value SPI
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Example
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Forecasting
Making Predictions or Estimates of theProject future Schedule or Cost based on theproject available information at the time of theForecasting.
Forecasting is USED TOGETHER withManual Forecasting of the remaining work.(which is considered to be more accurate)
Definitions: BAC (Budget At Completion): Cost baseline at the
end of the project
ETC (Estimate To Complete)
EAC (Estimate At Completion)
ADEActivity Duration Estimate
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Forecasting Techniques - Cost
Recalculate Cost of Future ScheduledActivities Based on Typical Variance (History performance
is a good prediction for the future performance)EV(NEW)=EV/CPI
Based On Atypical Variance ( History deviation ofplanned performance is irrelevant for this activity)EV(NEW)=EV
ECT = SIGMA(Future Activities PV(NEW)).
If all the future activities are typical thenETC=(BAC-EV)/CPI
EAC = AC + ETC (actual cost to date +estimated cost to completion)
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Forecasting Techniques - Time Recalculate Time of Future Activities
Based on Typical Variance (History performanceof activity duration estimate is a good predictionfor the future performance) ADE(NEW) = ADE/SPI
Based On Atypical Variance ( History deviation of
planned performance is irrelevant for this activity)ADE(NEW)=ADE
Estimate Time To Completion will becalculated according to the project work
schedule and the critical path. If the variance is typical across the project we
can use a rough estimate : ADE = Plannedtime to completion/SPI
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Example
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Cost Control Workflow
Input: Cost Baseline, Funding Requirements,Performance Information and Reports, ApprovedChange Requests, Project Management Plan
Tools & Techniques: Cost Change Control System,Performance Measurement Analysis, Forecasting,
Project Performance Review/Meeting, VarianceManagement
Output: Cost Estimate Update, Cost BaselineUpdate, Performance Measurements, Forecasted
Completion, Requested Changes, RecommendedCorrective Actions, Organization Process Assets(lessons learned), Project Management Plan (update)
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Approved Change Requests
Changes in the Scope of the System Requirements Requested By the Users and by
Project Management.
May Change the Baseline Cost of the project aswell as the Planned Completion Date.
Requires Stakeholders Approval
Changes that do not affect the project Scope Usually Changed due to the project team requests
Changed in Design, Architecture, Delays, Etc.
Stakeholders will be notified if the changes aresignificant enough.