SEESION 6
Project Cost Management
Eng.Mukhlis Mirghani
Project Cost Managements
It includes the processes involved in:
• planning
• estimating
• budgeting
• financing
• managing, and controlling
costs so that the project can be completed
within the approved budget
It is primarily concerned with the cost of the resources needed to
complete project activities Eng.Mukhlis Mirghani
Eng.Mukhlis Mirghani
7.1 Plan Cost Managements
Definition Key Benefit
THE process that establishes: • it provides guidance and
direction on HOW the project
• the policies
costs will be managed
• procedures throughout the project
• documentation
for planning, managing,
expending, and controlling
project costs.
Eng.Mukhlis Mirghani
.1 Project mgt
plan
.2 Project charter 1 Expert 1 Cost mgt. plan
.3 EEFs judgment
.4 OPAs 2 Meetings
3 Analytical
Techniques
Eng.Mukhlis Mirghani
Eng.Mukhlis Mirghani
INPUTS
1 Project mgt. plan (analysis subsidiary plans)
• Scope baseline includes the project scope statement and the WBS
details for cost estimation and mgt.
• Schedule baseline defines when the project costs will be incurred.
2 Project charter
• provides the summary budget from which the detailed project
costs are developed
3 EEF
(e.g. Currency exchange rates)
Eng.Mukhlis Mirghani
OUTPUTS
1 Cost management plan
• Level of accuracy
• Level of precision
• Units of measure (such as staff hours, staff days)
• Control thresholds.
• Rules of performance measurement
• Process descriptions
• Reporting formats
Eng.Mukhlis Mirghani
7.2 Estimate Costs
Definition Key Benefit
The process of : • it determines the amount of
cost required to complete
• developing an approximation
project work
of the MONETARY resources
needed to complete project
activities
Eng.Mukhlis Mirghani
1 Cost mgt plan
.2 HR mgt plan
.3 Scope baseline 1 Activity cost
.4 Project schedule 7 Cost of quality estimates
.5 Risk register .8 Project mgt .2 Basis of
.6 EEF software estimates
.7 OPA .9 Vendor bid .3 Project
analysis documents
.10 Group updates
decision-making
tech.
Eng.Mukhlis Mirghani
Eng.Mukhlis Mirghani
INPUTS
.2 HR mgt. plan .6 Risk register
• Personnel rates, rewards/recognition (Threats / opportunities usually increase or
.3 Scope baseline decrease the cost)
Project scope statements (assumptions .7 EEF
direct/indirect cost and constraints • Market conditions (supply/demand,
limited budget) resources availability…)
WBS • Published commercial info. (Resource
WBS dictionary cost rate).
.5 Project schedule .8 OPA
• type and quantity of resources and the Historical information,
amount of time which those resources Lessons learned
are used Cost estimating template
• Activity duration , IR/seasonal resources
Impact the cost
Eng.Mukhlis Mirghani
Tools and Techniques
8.Project Management Software
oused to assist with cost estimating.
osimplify the use of some cost-estimating techniques
oto facilitate the cost estimate alternatives.
oe.g. computerized spreadsheets, simulation
.9 Vendor Bid Analysis
analysis of what the project should cost, based on the responsive
bids from qualified vendors
Eng.Mukhlis Mirghani
OUTPUTS
.1 Activity cost estimates
• quantitative assessments of the probable costs required to
complete project work
• Costs are estimated for all resources that are applied to the
activity
.2 Basis of Estimates
• all assumptions made,
• any known constraints,
• Indication of the confidence level of the final estimate.
.3 Project documents updates
• e.g.Risk register
Eng.Mukhlis Mirghani
7.3 Determine Budget
Definition Key Benefit
• The process of : • it determines the cost
baseline against which
AGGREGATING the estimated
project performance can be
costs of individual activities or
monitored and controlled
work packages to establish an
authorized cost baseline
Eng.Mukhlis Mirghani
Project Budget & Cost Baseline
• A project budget includes all • * one of 3 BLs
the funds authorized to • is the approved version of
execute the project the time-phased project
budget, but excludes
management reserves.
• Cost baseline+ mgt
reserves= project budget .
Eng.Mukhlis Mirghani
.1 Cost mgt plan
.2 Scope baseline
.3 Activity cost
estimates
.4 Basis of .1 Cost .1 Cost baseline
estimates aggregation .2 Project funding
.5 Project schedule .2 Reserve analysis requirements
.6 Resource .3 Expert .3 Project
calendars judgment documents
.7 Risk register .4 Historical updates
.8 Agreements relationships
.9 OPA .5 Funding limit
reconciliation
Eng.Mukhlis Mirghani
Eng.Mukhlis Mirghani
Eng.Mukhlis Mirghani
Tools and Techniques
1 Cost aggregation
.2 Reserve analysis
• the contingency reserves and the management reserves for the project.
.4 Historical relationships
• used to develop mathematical models to predict total project costs.
• cost per square foot of space
.5 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.
Eng.Mukhlis Mirghani
Project Budget Components
Eng.Mukhlis Mirghani
Cost Baseline, Expenditures, and
Funding Requirements
Eng.Mukhlis Mirghani
OUTPUTS
.1 Cost baseline
The approved version of the time-phased project budget,
excluding any management reserves.
.2 Project funding requirements
• Total and periodic funding requirements
• It appears as steps
• THE TOTAL FUNDS :cost baseline plus management reserves.
.3 Project documents updates
• Risk register, Activity cost estimates, and Project schedule.
Eng.Mukhlis Mirghani
7.4 Control Cost
Definition Key Benefit
The process of : • it provides the means to
recognize variance from the
• MONITORING the status of the
plan in order to take
project to update the project
corrective action
costs and managing changes to
the cost baseline.
Eng.Mukhlis Mirghani
.1 WPI
.2 Cost forecasts
.1 Earned value mgt
.3 Change requests
.2 Forecasting
.1 Project mgt plan .4 Project mgt plan
.3 To-complete
.2 Project funding performance index updates
requirements (TCPI) .5 Project
.3 WPD .4 Performance documents
.4 OPA reviews updates
.5 Project mgt .6 OPAs updates
software
.6 Reserve analysis
Eng.Mukhlis Mirghani
Eng.Mukhlis Mirghani
INPUTS
.1 Project mgt plan
• Cost baseline (actual results Vs plan)
• Cost mgt. plan describes how the project costs will be managed
and controlled
.2 Project funding requirements
• include projected expenditures plus anticipated liabilities
.3 WPD
• includes costs that have been authorized and incurred
Eng.Mukhlis Mirghani
Tools and Techniques
1 Earned Value Management
• combines scope, schedule, and resource measurements to assess
project performance and progress
.2 Forecasting (BAC,ETC)
.3 To-complete Performance Index (TCPI)
Eng.Mukhlis Mirghani
Tools and Techniques
4 Performance Reviews
• measure, compare, and analyze schedule performance e.g. actual
start and finish dates, percent complete..techniques used:
oTrend analysis
oVariance Analysis
oEarned value performance
.5 Project Management Software
• to monitor the three EVM dimensions (PV, EV, and AC)
• display graphical trends
• forecast a range of possible final project results
.6 Reserve Analysis
• to monitor the STATUS of contingency and management reserves
Eng.Mukhlis Mirghani
Budget
Planned Value
Cost
Actual Cost
Achievement
Earned Value
now time
•Are we ahead or behind schedule?
•Are you getting value for money?
•Did you spend money on the right things?
Planned Value
Actual Cost
Earned Value
now time
Planned Value
Earned Value
Actual Cost
now time
PMR Project Management Reserve
BAC: PV
Budget At Complete
SV < 0
AC CV = EV – AC
Cost Variance SV > 0
SV = EV – PV CV < 0
Schedule Variance
CV > 0
EV
project now project time
start end
Schedule Variance SV = EV–PV In currency. Negative means delay
Schedule Performance Index SPI = EV/PV < 1 means delay
Cost Variance CV = EV-AC In currency. Negative means
overcost.
Cost Performance Index CPI = EV/AC < 1 means overcost
Estimate At Completion EAC = BAC / CPI, Forecast final cost
= AC + BAC – EV
= AC + Bottom-up ETC,
= AC + [(BAC – EV)/ (CPI x SPI)]
To Complete Performance Index TCPIBAC = (BAC-EV)/(BAC-AC) Can we catch up?
OUTPUTS
.1 WPI .4 Project Mgt Plan Updates
• CV, SV, CPI, SPI, TCPI, and VAC oCost Baseline Updates.
in particular WP and control oCost management plan
accounts
.5 Project Documents Updates
.2 Cost Forecast
Cost estimates
Either a calculated EAC value or
Basis of estimates
a bottom-up EAC value is
documented and communicated .6 OPA updates
to stakeholders • Causes of variances,
• Corrective action chosen and
the reasons, and
• lessons learned
Eng.Mukhlis Mirghani
Quiz
• The EV measurement of work you planned to have accomplished at a
given point in time :
a. BCWP
b. ACSP
c. BCWS
d. ACWS
• True or False: At any point in time, the SPI tells you exactly how far
ahead or behind schedule you are on your project.
a. TRUE
b. FALSE
Eng.Mukhlis Mirghani
Quiz
• If EV is 20 pm and AC is 15 pm, CPI:
a. .75
b. 1.33
c. 1.0
d. 0
• If EV is 27 pm PV is 25 pm, you are probably:
a. On schedule
b. Ahead of schedule
c. Behind schedule
d. None of the above
Eng.Mukhlis Mirghani
Questions !!
ANY
Eng.Mukhlis Mirghani
Thanks for your
attention!!
Eng.Mukhlis Mirghani
