7.

Project Cost Management

• Plan Cost Management

ECO Domain II- • Estimate Costs
Process • Determine Budget
Task 5- Plan &
• Control Costs
Manage Budget
& Resources

1
Project Cost Management

Project cost management includes the processes involved in planning ,

estimating, budgeting, financing, funding, managing and controlling costs
so that the project can be completed within the approved budget.

Project cost management is primarily concerned with the Cost of

Resources needed to complete project activities.

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Project Cost Management

 Key Concept For Project Cost Management:

 One aspect of cost management is recognizing that different stakeholders
measure project costs in different ways and at different times.
 Project Cost Management may address additional processes and numerous
general financial management techniques such as return on investment,
discounted cash flow, and investment payback analysis.

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Project Cost Management

 Trends & Emerging Practice In Project Cost Management :

 Trends include the expansion of earned value management (EVM) to
include the concept of earned schedule (ES).
 ES is an extension to the theory and practice of EVM.
 Earned schedule(ES) theory replaces the schedule variance measures used
in traditional EVM (earned value − planned value) with ES and actual time
(AT).
SV = ES-AT
SPI = ES/AT

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Project Cost Management

 Tailoring Considerations:
 Knowledge management
 Estimating and budgeting
 Earned value management
 Use of agile approach

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Project Cost Management

 Considerations For Agile/Adaptive Environments:

 Projects with high degrees of uncertainty or those where the scope is not
yet fully defined may not benefit from detailed cost calculations due to
frequent changes. Instead, lightweight estimation methods can be used to
generate a fast, high-level forecast of project labor costs, which can then be
easily adjusted as changes arise.
 In cases where high-variability projects are also subject to strict budgets,
the scope and schedule are more often adjusted to stay within cost
constraints.

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Project Cost Management

Monitoring
Initiating Planning Executing & Closing
Controlling

Plan Cost management

Estimate Costs
Determine Budget Control Costs

7
Project Cost Management ECO Domain II- Process
Task-05
 Plan Cost Management:

It is the process of defining how the project costs will be estimated,

budgeted, managed, monitored, and controlled.

The key benefits of this process is that it provides guidance and direction on
how the project costs will be managed throughout the project.

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Project Cost Management

 Plan Cost Management:

Project Charter Expert Judgment Cost management Plan

Output
Tools & Techniques
Input

Project Management Plan Data Analysis

Schedule Mgmt. Plan Meetings
Risk Mgmt. Plan
Enterprise Environmental
Factor
Organizational Process Assets

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Project Cost Management

 Plan Cost Management:

 Project Charter
 The project charter provides the preapproved financial resources from
which the detailed project costs are developed.
 The project charter also defines the project approval requirements that will
influence the management of the project costs.

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Project Cost Management

 Plan Cost Management:

 Project Management Plan
 Schedule Management Plan: The schedule management plan establishes the
criteria and the activities for developing, monitoring, and controlling the
schedule
 Risk Management Plan: The risk management plan provides the approach
for identifying, analyzing, and monitoring risks.

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Project Cost Management

 Plan Cost Management:

 Enterprise Environmental Factors
 Organizational culture and structure,
 Market conditions describe what products, services and results are
available in the regional or global market.
 Currency exchange rates project cost sources more than one country.
 Published commercial information such as resource cost rate info.

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Project Cost Management

 Plan Cost Management:

 Organizational Process Assets
 Financial controls procedures,
 Historical information, and lesson learned knowledge base,
 Financial database,
 Existing formal and informal cost estimating and budget related policies,
procedures and guidelines.

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Project Cost Management

 Plan Cost Management:

 Expert Judgment
Expertise should be considered from individuals or groups with specialized
knowledge or training in the following topics:
Previous similar projects;
Information in the industry, discipline, and application area;
Cost estimating and budgeting; and
Earned value management.

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Project Cost Management

 Plan Cost Management:

 Data Analysis
 A data analysis technique that can be used for this process includes but is
not limited to alternatives analysis.
 Alternatives analysis can include reviewing strategic funding options such
as: self-funding, funding with equity, or funding with debt. It can also
include consideration of ways to acquire project resources such as making,
purchasing, renting, or leasing.

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Project Cost Management

 Plan Cost Management:

 Meetings
 Project team may hold planning meetings to develop the cost management
plan.
 Participants at these meetings may include project manager, project
sponsor, selected project team members, selected stakeholders, any one
with responsibility for project cost, and others as needed.

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Project Cost Management

 Plan Cost Management:

 Cost Management Plan
 The cost management plan is a component of the project management plan
and describes how the project cost will be planned, structured, and
controlled.
• Units of measure,
• Control thresholds,
• Organizational procedures links,

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Project Cost Management

 Plan Cost Management:

 Cost Management Plan
• Level of precision,
• Level of accuracy,
• Rules of performance measurement,
• Reporting formats,
• Additional Details-
• Description of strategic funding choices,
• Procedure to account for fluctuations in currency exchange rates, and
• Procedure for project cost recording
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Project Cost Management

 Estimate Costs:
 Estimate costs is the process of developing an approximation of the Cost
Of resources needed to complete project work.
 The key benefits of this process is that it determines the monitory
resources required for the project.

ECO Domain II- Process

Task-05

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Project Cost Management

Project Management Plan Expert Judgment Cost Estimates

Output
Tools & Techniques
Input

Cost Management Plan Analogous Estimating Basis Of Estimates

Quality Mgmt. Plan Parametric Estimating Project Documents
Scope Baseline Bottom-Up estimating Updates
Project Documents Three-point Estimating Assumption Log
Lesson Learned Register T-shirt Sizing/ Planning Lesson Learned Reg.
Project Schedule Poker Risk Register
Resource Requirement Data Analysis
Risk Register Alternate Analysis
Enterprise Environmental Factor Reserve Analysis
Organizational Process Assets Cost Of Quality
Project Management
Information System
Decision Making
Voting 20
Project Cost Management

 Estimate Costs:
 Project Management Plan
 Cost Management Plan
 It describes estimating methods that can be used and the level of precision
and accuracy required for the cost estimate.
 Quality Management Plan
 The quality management plan describes the activities and resources
necessary for the project management team to achieve the quality
objectives set for the project.

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Project Cost Management

 Estimate Costs:
 Project Management Plan
 Scope Baseline
 Project scope statement
 Work breakdown structure
 WBS dictionary

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Project Cost Management

 Estimate Costs:
 Project Documents
 Lessons learned register
 Project schedule
 Resource requirements
 Risk register

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Project Cost Management

 Estimate Costs:
 Enterprise Environmental Factors
 Market conditions,
 Published commercial information,
 Exchange Rates & Inflation.

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Project Cost Management

 Estimate Costs:
 Organizational Process Assets
 Cost estimating policies,
 Cost estimating templates,
 Historical information, and
 Lesson learned.

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Project Cost Management

 Estimate Costs:
 Expert Judgment
Expertise should be considered from individuals or groups with specialized
knowledge or training in the following topics:
Previous similar projects;
Information in the industry, discipline, and application area; and
Cost estimating methods.

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Project Cost Management

 Estimate Costs:
 Analogous Estimating
 Analogous cost estimating is frequently used to estimate a value when
there is a limited amount of detailed information about the project, in the
early phases of a project.
 Analogous cost estimating is generally less costly and less time consuming
than other techniques, but it is also generally less accurate.

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Project Cost Management

 Estimate Costs:
 Parametric Estimating
 Parametric estimating uses a statistical relationship between relevant
historical data and other variables to calculate a cost estimate for project
work.

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Project Cost Management

 Estimate Costs:
 Bottom-Up Estimating
 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 specific details.
 The cost and accuracy of bottom-up cost estimating are typically
influenced by the size and complexity of the individual activity or work
package.

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Project Cost Management

 Estimate Costs:
 Three Point Estimating
 Most likely (cM). The cost of the activity, based on realistic effort
assessment for the required work and any predicted expenses.
 Optimistic (cO). The cost based on analysis of the best-case scenario for
the activity.
 Pessimistic (cP). The cost based on analysis of the worst-case scenario for
the activity.
Triangular distribution. cT = (cO + cM + cP) / 3
Beta distribution. cB = (cO + 4cM + cP) / 6
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Project Cost Management

 Estimate Costs:
Data Analysis
Alternative Analysis
 Alternatives analysis is a technique used to evaluate identified options in
order to select which options or approaches to use to execute and
perform the work of the project.
 An example would be evaluating the cost, schedule, resource, and quality
impacts of buying versus making a deliverable.

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Project Cost Management

 Estimate Costs:
Data Analysis
Reserve Analysis
 Cost estimates may include contingency reserves to account for cost
uncertainty. Contingency reserve are often viewed as the part of the
budget intended to address the “known-unknown” that can affect the
project.
 Management reserve are intended to address the “unknown-unknown”
that can affect a project.

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Project Cost Management

 Estimate Costs:
Data Analysis
Cost Of Quality
 To maintain the quality of the product, how much you are spending
money is cost of quality.
 This includes evaluating the cost impact of additional investment in
conformance versus the cost of nonconformance.

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Project Cost Management

 Estimate Costs:
 Project Management Information System
 The project management information system can include spreadsheets,
simulation software, and statistical analysis tools to assist with cost
estimating.
 Such tools simplify the use of some cost-estimating techniques and
thereby facilitate rapid consideration of cost estimate alternatives.

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Project Cost Management

 Estimate Costs:
Decision-Making
 Voting is an assessment process having multiple alternatives with an
expected outcome in the form of future actions.
 These techniques are useful for engaging team members to improve
estimate accuracy and commitment to the emerging estimates.

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Project Cost Management

 Estimate Costs:
 Cost Estimates
 Activity cost estimates are quantitative assessments of the probable costs
required to complete project work.
 Eg. Direct labor, materials, equipment, services, facilities, information
technology and special categories such as cost of financing, an inflation
allowance, exchange rates, or cost contingency reserve.
 Direct Cost/Indirect Cost
 Fixed Cost/ Variable Cost

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Project Cost Management

 Estimate Costs:
 Basis Of Estimates
 The amount and type of additional details supporting the cost estimate
vary by application area.
 Regardless of the level of detail, the supporting documentation should
provide a clear and complete understanding of how the cost estimate was
derived.

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Project Cost Management

 Estimate Costs:
 Project Documents Updates
 Assumption log
 Lessons learned register
 Risk register

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Project Cost Management

 Determine Budget:
 Determine budget is the process of aggregating the estimated costs of
individual activities or work packages to establish an authorize cost
baseline.
 The key benefits of this process is that it determines the cost baseline
against which project performance can be monitored and controlled.

ECO Domain II- Process

Task-05

39
Project Cost Management
Project Management Plan
Input
Expert Judgment Cost Baseline

Output
Tools & Techniques
Cost Management Plan Cost Aggregation Project Funding
Resource Mgmt. Plan Data Analysis Requirements
Scope Baseline Reserve Analysis Project Documents
Project Documents Updates
Historical Information
Basis Of Estimates Review Cost Estimates
Cost Estimates Funding Limit Project Schedule
Project Schedule Reconciliation Risk Register
Risk Register Financing
Business Documents
Business Case
Benefits Management Plan
Agreements
Enterprise Environmental Factors
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Organizational Process Assets
Project Cost Management

 Determine Budget:
Project Management Plan
Cost Management Plan
 The cost management plan describes how the project costs will be
structured into the project budget.
Resource Management Plan
 The resource management plan provides information on rates (personnel
and other resources), estimation of travel costs, and other foreseen costs
that are necessary to estimate the overall project budget.

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Project Cost Management

 Determine Budget:
Project Management Plan
Scope Baseline
 Project scope statement,
 WBS,
 WBS dictionary.

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Project Cost Management

 Determine Budget:
 Project Documents
 Basis of estimates
 Cost estimates
 Project schedule
 Risk register

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Project Cost Management

 Determine Budget:
 Business Documents
 Business Case
 Benefits management plan

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Project Cost Management

 Determine Budget:
 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.

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Project Cost Management

 Determine Budget:
 Enterprise Environmental Factors
 The enterprise environmental factors that can influence the Estimate
Costs process include but are not limited to exchange rates.
 For large-scale projects that extend multiple years with multiple
currencies, the fluctuations of currencies need to be understood and built
into the Determine Budget process.

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Project Cost Management

 Determine Budget:
 Organizational Process Assets
 Existing formal and informal cost budgeting-related policies, procedures,
and guidelines,
 Cost budgeting tools, and
 Reporting methods.

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Project Cost Management

 Determine Budget:
 Expert Judgment
Expertise should be considered from individuals or groups with specialized
knowledge or training in the following topics:
Previous similar projects
Information in the industry,
discipline, and application area;
Financial principles; and
Funding requirement and sources.
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Project Cost Management
 Determine Budget:
 Cost Aggregation

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Project Cost Management

 Determine Budget:
Data Analysis
Reserve Analysis
 A data analysis technique that can be used in the Determine Budget
process includes but is not limited to reserve analysis, which can establish
the management reserves for the project.
 Management reserves are an amount of the project budget withheld for
management control purposes and are reserved for unforeseen work that
is within scope of the project.

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Project Cost Management

 Determine Budget:
 Historical Information Review
 Reviewing historical information can assist in developing parametric
estimates or analogous estimates. Historical information may include
project characteristics (parameters) to develop mathematical models to
predict total project costs.

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Project Cost Management

 Determine Budget:
 Funding Limit Reconciliation
 The expenditure of funds should be reconciled with any funding limits on
the commitment of funds for the project.
 A variance between the funding limits and the planned expenditures will
sometimes necessitate the rescheduling of work to level out the rate of
expenditure.

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Project Cost Management

 Determine Budget:
 Funding Limit Reconciliation

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Project Cost Management

 Determine Budget:
 Financing
 Financing entails acquiring funding for projects.
 It is common for long-term infrastructure, industrial, and public services
projects to seek external sources of funds.
 If a project is funded externally, the funding entity may have certain
requirements that are required to be met.

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Project Cost Management

 Determine Budget:
 Cost Baseline
 The 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 result.
 The cost baseline is developed as a summation of the approved budgets for
the different schedule activities.

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Project Cost Management

 Determine Budget:
 Project Funding requirements
 Total funding requirements and periodic funding requirements are derived
from the cost baseline.
 The cost baseline will include projected expenditures plus anticipated
liabilities.

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Project Cost Management

 Determine Budget:
 Project Documents Updates
 Cost estimates,
 Project schedule.
 Risk register,

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Project Cost Management

 Control Costs:
 Control cost is the process of monitoring the status of the project to
update the project costs and managing changes to the cost baseline.
 The key benefit of this process is that the cost baseline is maintained
throughout the project.

ECO Domain II- Process

Task-05

58
Project Cost Management
 Control Costs:
Project Management Plan Expert Judgment Work Performance
Input

Output
Tools & Techniques
Cost Mgmt. Plan Data Analysis Information
Cost Baseline Earned Value Analysis Cost Forecasts
Performance Measurement Variance Analysis Change Requests
Baseline Trend Analysis Project Management Plan
Project Documents Updates
Reserve Analysis
Lesson Learned Register Cost Mgmt. Plan
TCPI
Project funding requirements Cost Baseline
Performance Review
Work Performance Data Performance
Project management Measurement Baseline
Organizational Process Assets Information System
Project Documents
Updates
Assumption Log
Basis Of Estimates
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Risk Register
Project Cost Management

 Control Costs:
 Project Management Plan
 Cost baselines,
 Cost management plan,
 Performance measurement baseline.

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Project Cost Management

 Control Costs:
 Project Documents
 Examples of project documents that can be considered as inputs for this
process include but are not limited to the lessons learned register.

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Project Cost Management

 Control Costs:
 Project Funding Requirements
 Total funding requirements, and periodic funding requirement are derived
from cost baseline.
 The project funding requirements include projected expenditure plus
anticipated liabilities.

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Project Cost Management

 Control Costs:
 Work Performance Data
 Work performance data contains data on project status such as which costs
have been authorized, incurred, invoiced, and paid.

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Project Cost Management

 Control Costs:
 Organizational Process Assets
 Existing formal and informal cost control-related policies, procedures,
and guidelines,
 Cost control tools,
 Monitoring and reporting methods to be used.

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Project Cost Management

 Control Costs:
 Expert Judgment
 Financial analysis
 Variance analysis,
 Earned value analysis,
 Forecasting, and

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Project Cost Management

 Control Costs:
Data Analysis
Earned Value Analysis
 Earned value management is a methodology that combines scope,
schedule, and resources measurements to assess project performance and
progress.
 It is a commonly used method of performance measurements for projects.

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Project Cost Management

 Control Costs:
 Earned Value Analysis

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Project Cost Management

 Control Costs: Earned Value Management (EVM)

PV Planned Value Planned cost of work to be done at this point in time.
EV Earned Value Value of work actually accomplished.
AC Actual Cost Cost of work
BAC Budget At Completion Total planned value for the entire project.

EAC Estimate At Completion What do we think the project will actually cost.

ETC Estimate To Complete From this point, how much more will it cost to complete the project.

VAC Variance At Completion How much over/under budget do we expect to be at project end.

TCPI To Complete Performance What cost performance goals must be met to stay within the BAC.
Index

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Project Cost Management

 Control Costs:
 Earned Value Management (EVM)
Name Formulas
Cost Variance CV = EV-AC
Schedule Variance SV = EV-PV
Cost Performance Index CPI = EV/AC
Schedule Performance Index SPI = EV/PV
Cumulative cost Performance Index CPI = EV/AC (Cumulative)

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Project Cost Management

 Control Costs:
 Forecasting
1 EAC = AC + (BAC-EV) ETC work performed at the budgeted
rate.
2 EAC = BAC / CPI ETC work performed at the present CPI
3 EAC = AC + {(BAC-EV) / (CPI X SPI)} ETC work considering both CPI & SPI
4 TCPI = (BAC-EV) / (BAC-AC) Work remaining / funds remaining
5 ETC = EAC - AC Estimate to complete
6 VAC = BAC - EAC Variance at completion

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Project Cost Management

 Control Costs:
 Performance Reviews
 Variance analysis,
 Trend analysis,
 Earned value performance.

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Project Cost Management

 Control Costs:
 Project Management Information System
 Project management information systems are 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.

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Project Cost Management

 Control Costs:
 Work Performance Information
 The calculated CV, SV, SPI, CPI, TCPI, and VAC values for WBS
components, in particular the work package and control accounts, are
documented and communicated to stakeholders.

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Project Cost Management

 Control Costs:
 Change Requests
 Analysis of project performance may result in a change request to the cost
baseline or other components of the project management plan.

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Project Cost Management

 Control Costs:
 Project Management Plan Updates
 Cost management plan
 Cost baseline, and
 Performance measurement baseline.

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Project Cost Management

 Control Costs:
 Project Documents Updates
 Assumption log
 Cost estimates, and
 Basis of estimates
 Lessons learned register
 Risk register.

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