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Project Cost Management

5g mobile technology

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12 views18 pages

Project Cost Management

5g mobile technology

Uploaded by

zamachmangistu9
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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CHAPTER 4:

PROJECT COST MANAGEMENT

1
WHAT IS COST AND PROJECT COST
MANAGEMENT?
 Cost is a resource sacrificed or fore-gone to achieve
a specific objective or something given up in
exchange
 Costs are usually measured in monetary units like
dollars, birrs
 Project cost management includes the processes
required to ensure that the project is completed
within an approved budget 3
PROJECT COST MANAGEMENT
PROCESSES
 Resource planning: determining what resources
and quantities of them should be used
 Cost estimating: developing an estimate of the
costs and resources needed to complete a project
 Cost budgeting: allocating the overall cost
estimate to individual work items to establish a
baseline for measuring performance
 Cost control: controlling changes to the project
budget
4
BASIC PRINCIPLES OF COST
MANAGEMENT

 Profits are revenues minus expenses


 Profit margin is the ratio of revenues to profits
 Life Cycle Costing is estimating the cost of a
project over its entire life
 Cash Flow Analysis is determining the estimated
annual costs and benefits for a project
 Benefits and costs can be tangible or intangible,
direct or indirect
 Sunk cost should not be a criteria in project
5

selection
TYPES OF COST AND BENEFITS

6
1. RESOURCE PLANNING
 The nature of the project and the organization will
affect resource planning
 Some questions to consider:
 How difficult will it be to do specific tasks on the
project?
 Is there anything unique in this project’s scope
statement that will affect resources?
 What is the organization’s history in doing similar tasks?
 Does the organization have or can they acquire the 7

people, equipment, and materials that are capable and


2. COST ESTIMATING

 An important output of project cost management is a


cost estimate
 There are several types of cost estimates and tools
and techniques to help create them
 It is also important to develop a cost management
plan that describes how cost variances will be
managed on the project
8
TYPES OF COST ESTIMATES

definitive estimate type is one of the most


accurate

9
COST ESTIMATION TOOLS AND
TECHNIQUES
 3 basic tools and techniques for cost estimates:
 Analogous or Top-Down: use the actual cost of a
previous, similar project as the basis for the new
estimate
 takes less time to complete than other estimating
models, but is also less accurate.
 good for fast estimates to get a general idea of what

the project may cost.


 Bottom-up: estimate individual work items and sum
them to get a total estimate (aggregate)
 one of the most time consuming methods to predict
project costs.
 one of the most accurate
10
 Parametric: use project characteristics in a
mathematical model to estimate costs
CONSTRUCTIVE COST MODEL (COCOMO)

 Barry Boehm helped develop the COCOMO models


for estimating software development costs
 Parameters include source lines of code or function
points
 COCOMO II is a computerized model available on
the web
 Boehm suggest that only parametric models do not
suffer from the limits of human decision-making
11
TYPICAL PROBLEMS WITH IT/ISD COST
ESTIMATES
 Developing an estimate for a large software project is a complex
task requiring a significant amount of effort. Remember that
estimates are done at various stages of the project
 Many people doing estimates have little experience doing them.
Try to provide training and mentoring
 People have a bias toward underestimation. Review estimates
and ask important questions to make sure estimates are not
biased
 Management wants a number for a bid, not a real estimate.
12
Project managers must negotiate with project sponsors to create
realistic cost estimates
3. COST BUDGETING
 Cost budget involves allocating the project cost
estimate to individual work items and providing a
cost baseline
 For example, in the Business Systems Replacement
project, there was a total purchased costs estimate
for FY97 of $600,000 and another $1.2 million for
Information Services and Technology

13
4. COST CONTROL
 Project cost control includes
 monitoring cost performance
 ensuring that only appropriate project changes are
included in a revised cost baseline
 informing project stakeholders of authorized changes to
the project that will affect costs

 Earned value management is an important tool for


cost control

14
EARNED VALUE MANAGEMENT
(EVM)

 EVM is a project performance measurement


technique that integrates scope, time, and cost
data
 Given a baseline (original plan plus approved
changes), you can determine how well the project is
meeting its goals
 You must enter actual information periodically to
use EVM.
15
EARNED VALUE MANAGEMENT
TERMS
 The Planned Value (PV), formerly called the budgeted
cost of work scheduled (BCWS), also called the budget, is
that portion of the approved total cost estimate planned
to be spent on an activity during a given period
 Actual Cost (AC), formerly called actual cost of work
performed (ACWP), is the total of direct and indirect
costs incurred in accomplishing work on an activity during
a given period
 The Earned Value (EV), formerly called the budgeted
16
cost of work performed (BCWP), is the percentage of work
actually completed multiplied by the planned value
EARNED VALUE FORMULAS

To estimate what it will cost to complete a project or how


long it will take based on performance to date, divide the
budgeted cost or time by the appropriate index.
17
RULES OF THUMB FOR EVA
NUMBERS

 Negative numbers for cost and schedule variance


indicate problems in those areas. The project is
costing more than planned or taking longer than
planned
 CPI and SPI less than 100% indicate problems

18
EARNED VALUE CHART FOR PROJECT
AFTER FIVE MONTHS

19

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