PROJECT COST MANAGEMENT

PROJECT COST MANAGEMENT

1. Includes the processes involved in

   • planning, estimating, budgeting, financing, funding, managing, and controlling costs
     • So that the project can complete within the approved budget.

2. Plan Cost Management

   • Is the process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs.
   • Tools & Techniques
     • Expert Judgment
       • Provides valuable insight about the environment and information from prior similar projects
     • Analytical techniques
       • Developing the cost management plan may involve choosing strategic options to fund the project such as: self-funding, funding with equity, or funding with debt
     • Meetings
       • Project teams may hold planning meetings to develop the cost management plan
   • Inputs
     • Project management plan
       • Contains information used to develop the cost management plan, which contains
       • is not limited to:
         • Scope baseline
           • includes the project scope statement and WBS detail for cost estimation and management
         • Schedule baseline
           • defines when the project costs will be incurred
         • other information
           • Other cost-related scheduling, risk, and communications decisions from the project management plan
     • Project charter
       • Provides the summary budget from which the detailed project costs are developed
     • Enterprise environmental factors
       • are not limited to:
         • Organizational culture and structure can all influence cost management
         • Market conditions describe what products, services, and results
         • Currency exchange rates for project costs sourced from more than one country;
         • Published commercial information such as resource cost rate information is often available from commercial databases
         • Project management information system, which provides alternative possibilities for managing cost.
       • The enterprise environmental factors that influence the Plan Cost Management process include
     • Organizational process assets
       • Influence the Plan Cost Management process include
       • are not limited to:
         • Financial controls procedures
         • Historical information and lessons learned knowledge bases
         • Financial databases
         • Existing formal and informal cost estimating and budgeting-related policies, procedures, and guidelines.
   • Outputs
     • Cost Management Plan
       • Is a component of the project management plan and describes how the project costs will be planned, structured, and controlled.

3. Estimate costs

   • Is the process of developing an approximation of the monetary resources needed to complete project activities
   • Inputs
     • Cost management plan
       • Defines how project costs will be managed and controlled. It includes the method used and the level of accuracy required to estimate activity cost
     • Human resource Management Plan
       • Provides project staffing attributes, personnel rates, and related rewards/recognition, which are necessary components for developing the project cost estimates
     • Scope Baseline
       • is comprised of the following:
         • Project scope statement
         • Work breakdown structure
         • WBS dictionary
     • Project Schedule
       • The type and quantity of resources and the amount of time which those resources are applied to complete the work of the project are major factors in determining the project cost
     • Risk register
       • The risk register should be reviewed to consider risk response costs. Risks, which can be either threats or opportunities, typically have an impact on both activity and overall project costs
     • Enterprise Environmental Factors
       • The enterprise environmental factors that influence the Estimate Costs process include
       • are not limited to:
         • Market conditions
         • Published commercial information
     • organizational Process Assets
       • The organizational process assets that influence the Estimate Costs process include
       • are not limited to:
         • Cost estimating policies
         • Cost estimating templates
         • Historical information
         • Lessons learned
   • Tools & Techniques
     • Expert Judgment
       • Provides valuable insight about the environment and information from prior similar projects
     • Analogous Estimating
       • Analogous cost estimating uses the values such as scope, cost, budget, and duration or measures of scale such as size, weight, and complexity from a previous, similar project as the basis for estimating the same parameter or measurement for a current project
     • Parametric Estimating
       • Parametric estimating uses a statistical relationship between relevant historical data and other variables ( square footage in construction) to calculate a cost estimate for project work.
     • Bottom-up Estimating
       • Is a method of estimating a component of work. The cost of individual work packages or activities is estimated to the greatest level of specified detail
     • Three-Point Estimating
       • Most likely (cM)
       • optimistic (cO)
       • Pessimistic (cP)
       • Triangular distribution. cE = (cO + cM + cP) / 3
       • Beta distribution (from a traditional PERT analysis). cE = (cO + 4cM + cP) / 6
     • Reserve Analysis
       • Cost estimates may include contingency reserves (sometimes called contingency allowances) to account for cost uncertainty
     • Cost of Quality (coQ)
       • May be used to prepare the activity cost estimate.
     • Project Management Software
       • Project management software applications, computerized spreadsheets, simulation, and statistical tools are used to assist with cost estimating
     • Vendor Bid Analysis
       • Cost estimating methods may include analysis of what the project should cost, based on the responsive bids from qualified vendors
     • Group decision-Making techniques
       • Team-based approaches, such as brainstorming, the Delphi or nominal group techniques, are useful for engaging team members to improve estimate accuracy and commitment to the emerging estimates
   • Outputs
     • Activity cost Estimates
       • Are quantitative assessments of the probable costs required to complete project work. Cost estimates can be presented in summary form or in detail
     • Basis of Estimates
       • The amount and type of additional details supporting the cost estimate vary by application area.
         • Supporting detail for activity cost estimates may include:
           • Documentation of the basis of the estimate
           • Documentation of all assumptions made
           • Documentation of any known constraints,
           • Indication of the range of possible estimates (e.g., €10,000 (±10%) to indicate that the item is expected to cost between a range of values)
           • Indication of the confidence level of the final estimate
     • Project Documents Updates
       • Project documents that may be updated include, but are not limited to, the risk register

4. Determine Budget

   • Is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline
   • Inputs
     • Cost Management Plan
       • Describes how the project costs will be managed and controlled.
     • Scope Baseline
       • Project scope statement
       • Work breakdown structure
       • WBS dictionary
     • Activity cost estimates
       • Cost estimates for each activity within a work package are aggregated to obtain a cost estimate for each work package
     • Basis of Estimates
       • Supporting detail for cost estimates contained in the basis for estimates should specify any basic assumptions dealing with the inclusion or exclusion of indirect or other costs in the project budget
     • Project Schedule
       • Includes planned start and finish dates for the project’s activities, milestones, work packages, and control accounts
     • Resource calendars
       • Provide information on which resources are assigned to the project and when they are assigned
     • Risk register
       • The risk register should be reviewed to consider how to aggregate the risk response costs.
     • Agreements
       • Applicable agreement information and costs relating to products, services, or results that have been or will be purchased are included when determining the budget
     • Organizational Process Assets
       • The organizational process assets that influence the Determine Budget process include, but are not limited to:
         • Existing formal and informal cost budgeting-related policies, procedures, and guidelines
         • Cost budgeting tools
         • Reporting methods.
   • Tools & Techniques
     • Cost Aggregation
       • Cost estimates 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 (such as control accounts) and ultimately for the entire project
     • Reserve Analysis
       • can establish both the contingency reserves and the management reserves for the project
     • Expert Judgment
       • Expert judgment, guided by experience in an application area, Knowledge Area, discipline, industry, or similar project, aids in determining the budget
         • is available from many sources, including, but not limited to:
           • Other units within the performing organization
           • Consultants,
           • Stakeholders, including customers
           • Professional and technical associations, and Industry groups.
     • Historical relationships
       • Any historical relationships that result in parametric estimates or analogous estimates involve the use of project characteristics (parameters) to develop mathematical models to predict total project costs
     • Funding Limit reconciliation
       • A variance between the funding limits and the planned expenditures will sometimes necessitate the rescheduling of work to level out the rate of expenditures
   • Outputs
     • Cost Baseline
       • Is the 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
     • Project Funding requirements
       • Total funding requirements and periodic funding requirements (e.g., quarterly, annually) are derived from the cost baseline. The cost baseline will include projected expenditures plus anticipated liabilities.
     • Project documents updates
       • Project documents that may be updated include, but are not limited to:
         • Activity cost estimates, and Project schedule.
         • Risk register

5. Control costs

   • Inputs
     • Project Management Plan
       • contains the following information that is used to control cost:
         • cost baseline.
         • cost management plan
     • Project Funding requirements
       • The project funding requirements include projected expenditures plus anticipated liabilities
     • Work Performance data
       • Includes information about project progress, such as which activities have started, their progress, and which deliverables have finished
     • organizational Process Assets
       • The organizational process assets that can influence the Control Costs process include, but are not limited to:
         • Existing formal and informal cost control-related policies, procedures, and guidelines;
         • Cost control tools; and Monitoring and reporting methods to be used.
   • Tools & Techniques
     • Earned Value Management
       • Is a methodology that combines scope, schedule, and resource measurements to assess project performance and progress. It is a commonly used method of performance measurement for projects.
         • The principles of EVM can be applied to all projects in any industry. EVM develops and monitors three key dimensions for each work package and control account:
           • Planned value
             • is the authorized budget assigned to scheduled work
           • Earned value.
             • Is a measure of work performed expressed in terms of the budget authorized for that work
           • Actual cost
             • Is the realized cost incurred for the work performed on an activity during a specific time period
         • Variances from the approved baseline will also be monitored:
           • Schedule variance
           • Cost variance
           • Schedule performance index
           • Cost performance index
     • Forecasting
       • As the project progresses, the project team may develop a forecast for the estimate at completion (EAC) that may differ from the budget at completion (BAC) based on the project performance
         • Forecasts are generated, updated, and reissued based on work performance data that is provided as the project is executed.
     • To-complete Performance Index (tcPI)
       • 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
     • Performance reviews
       • Compare cost performance over time, schedule activities or work packages overrunning and underrunning the budget, and estimated funds needed to complete work in progress.
         • If EVM is being used, the following information is determined:
           • Variance analysis.
           • Trend analysis
           • Earned value performance
     • Project Management Software
       • Is often used to monitor the three EVM dimensions (PV, EV, and AC), to display graphical trends, and to forecast a range of possible final project results
     • Reserve Analysis
       • Is used to monitor the status of contingency and management reserves for the project to determine if these reserves are still needed or if additional reserves need to be requested
   • Outputs
     • Work Performance Information
       • The calculated CV, SV, CPI, SPI, TCPI, and VAC values for WBS components, in particular the work packages and control accounts, are documented and communicated to stakeholders
     • Cost Forecasts
       • Either a calculated EAC value or a bottom-up EAC value is documented and communicated to stakeholders.
     • Project Management Plan updates
       • Elements of the project management plan that may be updated include, but are not limited to:
         • Cost baseline
         • Cost management plan
     • Change requests
       • Analysis of project performance may result in a change request to the cost baseline or other components of the project management plan
     • Project documents updates
       • Project documents that may be updated include, but are not limited to:
         • Cost estimates
         • Basis of estimates.
     • Organizational Process Assets updates
       • Organizational process assets that may be updated include, but are not limited to:
         • Causes of variances
         • Corrective action chosen and the reasons
         • Financial databases, and Other types of lessons learned from project cost control.
   • Is the process of monitoring the status of the project to update the project costs and managing changes to the cost baseline