Pmp Review Costs

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COST

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Project Cost Management

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Processes required to ensure that the project is completed within the approved budget.

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Processes required to ensure that the project is completed within the approved budget.

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Project Cost Management

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Cost Management (7)

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1.      Resource Planning

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Determining what resources and what quantities of each should be used to perform project activities.

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Determining what resources and what quantities of each should be used to perform project activities.

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Resource Planning

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2.      Cost Estimating

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Developing an approximation (estimate) of the costs of the resources needed to complete project activities. Cost estimating

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Developing an approximation (estimate) of the costs of the resources needed to complete project activities. Cost estimating

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2. Cost Estimating

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3.      Cost Budgeting

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Allocating the overall cost estimate to individual work items.

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Allocating the overall cost estimate to individual work items.

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Cost Budgeting

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4.      Cost Control

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Controlling changes to the project budget.

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Controlling changes to the project budget.

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4. Cost Control

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Resource Planning (7.1)

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1.      Inputs

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Work breakdown structure, Historical information, scope statement, resource pool description, organizational policies

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a.      Work breakdown structure

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The WBS identifies the project elements that will need resources and thus is the primary input to resource planing.

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b.      Historical information

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Information regarding what types of resources were required for similar work on previous project should be used if available.

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c.       Scope statement

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The scope statement contains the project justification and the project objectives, both of which should be considered explicitly during resource planning.

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d.      Resource pool description

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Knowledge of what resources are potentially available is necessary for resource planning.

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e.       Organizational policies

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The policies of the performing organization regarding staffing and the rental or purchase of supplies and equipment must be considered during resource planning.

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2.      Tools and Techniques

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a.      Expert judgment

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Expert judgment will be required to access the inputs to this process.

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b.      Alternatives identification

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3.      Outputs

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a.      Resource requirements

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The output is a description of what types of resources are required and in what quantities for each element of the WBS.

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Cost Estimating (7.2)

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1.      Inputs

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a.      Work breakdown structure

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b.      Resource requirements

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c.       Resource rates

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The individual or group preparing the estimates must know the unit rates for each resource in order to calculate project costs.

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d.      Activity duration estimates

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Activity duration estimates will affect cost estimates on any project where the project budget includes an allowance for the cost of financing.

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e.       Historical information

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Information on the cost of many categories of resources is available from the following sources:

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1)      Project files – Records from previous project may be detailed enough to aid in developing an estimate.

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2)      Commercial cost estimating databases

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3)      Project team knowledge – Individual team members may remember previous actuals or estimates.

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f.        Chart of accounts

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A chart of accounts describes the coding structure used by the performing organization to report financial information in its general ledger. Used to define where project element costs will be allocated to.

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2.      Tools and Techniques

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a.      Analogous estimating

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Also called top-down estimating using the actual cost of a previous, similar project as the basis for estimating the cost of the current project. It is less costly than other estimates, but generally is the least accurate. Is frequently used to estimate total project costs when there is a limited amount of detailed information.

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b.      Parametric modeling

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Involves using project characteristics in a mathematical model to predict project costs.

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c.         Bottom-up estimating

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Involves estimating the cost of individual work items and then rolling-up the individual estimates to get a project total. Smaller work items increase both the cost and accuracy of the estimate.

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d.         Computerized tools

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Tools such as project management software and spreadsheets are widely used to assist with cost estimating.

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3.      Outputs

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a.      Cost estimates

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Cost estimates are quantitative assessments of the likely costs of the resources required to complete project activities. Seven types of construction costs during engineering:

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Order of magnitude

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·        Conceptual

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·       

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Preliminary

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·        Budget

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·        Analogy

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·        Definitive

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·        Control

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b.      Supporting details

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Supporting details should include:

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1)      Description of the scope of work estimated

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2)      Documentation of the basis for the estimate

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3)      Documentation of any assumptions made

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4)      An indication of the range of possible results

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c.       Cost management plan

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The cost management plan describes how cost variances will be managed.

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Cost Budgeting (7.3)

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1.      Inputs

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a.      Cost estimates

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b.      Work breakdown structure

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c.         Project schedule

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Includes planned start and expected finish dates for the project elements that costs will be allocated to. This information is needed in order to assign costs to the time period when the costs will be incurred.

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2.      Tools and Techniques

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a.      Cost estimating tools and techniques

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3.      Outputs

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a.      Cost baseline

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The cost baseline is a time-phased budget that will be used to measure and monitor cost performance on the project. It is developed by summing estimated costs by period and is usually cost by period and is displayed in the form of an S-curve.

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Cost Control (7.4)

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1.      Inputs

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a.      Cost baseline

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b.      Performance reports

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Performance reports provide information on cost performance such as which budgets have been met and which have not.

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c.         Change requests

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Change requests may occur in many forms:

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·        Oral or written

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·        Direct or indirect

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·        Externally or internally initiated

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·        Legally mandated or optional

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d.         Cost management plan

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2.      Tools and Techniques

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a.      Cost change control system

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Defines the procedure by which the cost baseline may be changed. It includes the paperwork, tracking systems, and approval levels necessary for authorizing changes.

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b.      Performance measurement

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Performance measurement techniques help to access the magnitude of any variations, which do occur. Earned value analysis is especially useful for cost control. An important part of cost control is to determine what is causing the variance and to decide if the variance requires corrective action.

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c.       Additional planning

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Prospective changes may require new or revised cost estimates or analysis of alternative approaches.

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d.      Computerized tools

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Tools such as project management software or spreadsheets are often used to track planned vs. actual costs and to forecast the effects of cost changes.

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3.      Outputs

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a.      Revised cost estimates

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Revised cost estimates are modifications to the cost information used to manage the project.

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b.      Budget updates

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Budget updates are changes to an approved cost baseline. These numbers are generally revised only in response to scope changes. Cost variance may be so severe that “rebaselining” is needed in order to provide a realistic measure of performance.

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c.       Corrective action

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Corrective action is anything done to bring expected future project performance into line with the project plan.

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d.      Estimate at completion

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Estimate at completion (EAC) is a forecast of total project costs based on project performance. The most common techniques are a variation of:

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·        EAC = Actuals to date plus the remaining project budget modified by a performance factor. This approach is most often used when current variances are seen as typical of future variances.

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·        EAC = Actuals to date plus a new estimate for all remaining work. This is most often used when past performance shows that the original estimating assumptions were fundamentally flawed or no longer relevant due to a change in conditions.

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·        EAC = Actuals to date plus remaining budget. This approach is used when current variances are seen as atypical and the expectation is a similar variance will not occur in the future.

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e.       Lessons learned

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The causes of variances, the reasoning behind the corrective action chosen and other lessons learned should be documented.

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Payback

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Payback represents the number of years required to return the original investment from the project’s net cash flow.

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Target Cost

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The cost for which the performing organization expects to spend to produce a product or service includes all direct and indirect costs.

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Target Price

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The price for which the performing organization expects to sell the product or service.

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Opportunity Costs

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The cost associated with an alternative choice.

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Contingency

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·        Can be used for both cost and schedule

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·        Represents time or costs that are likely to occur but we don’t know where. If we knew where, then it is not a contingency. (Called “known unknowns”)

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·        Does not improve the accuracy of the estimate. It only improves the chances of making the estimate.

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·        Is based on the uncertainty of remaining work

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·        Takes a project to the 50/50 point. Contingency above 50/50 should be treated as management reserve.

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Management Reserve

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A separately planned quantity used to allow for future situations, which are impossible to predict (called “unknown unknowns”). Management reserves are intended to reduce the risk of missing cost or schedule objectives.

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Monte Carlo Analysis

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A schedule risk assessment technique that performs a project simulation many times in order to calculate a distribution of likely results.

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Baseline

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The original plan plus or minus approved changes.

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S-Curve

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Graphic display of cumulative costs, labor workhours or other quantities plotted against time.

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Earned Value

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1.      BCWS (Budgeted Cost of Work Scheduled)

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Budgeted workhours we have planned to get to our progress status date.

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2.      BCWP (Budgeted Cost of Work Performed)

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Budgeted workhours we have earned to get to our progress status date.

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3.      ACWP (Actual Cost of Work Performed)

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Actual workhours we have spent to get to our progress status date.

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4.      SV (Schedule Variance)

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BCWP - BCWS

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5.      CV (Cost Variance)

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BCWP - ACWP

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6.      BAC (Budget at Completion)

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Total amount of workhours we budgeted for the work.

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7.      FAC/EAC (Forecast at Completion/Estimate at Completion)

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Based on current performance and expectations of future performance, it is the total amount of workhours we think the work will actually cost.

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8.      Earned Value Techniques

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a.         Short duration tasks

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1)      0/100 or 50/50

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2)      SWAG % Complete

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b.         Longer duration tasks

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1)      Quantities-in-place

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2)      Weighted milestones

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c.         Level of effort (Tasks that are time related rather than product or deliverable related)

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1)      % of scheduled time (0/100)

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9.      Forecasting Workhours at Completion

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a.         CPI (Cost Performance Index)

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BCWP / ACWP (Workhours Earned / Workhours Spent)

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b.         FAC (Forecasted Workhours at Completion)

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BAC / CPI

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10.  Forecasting Schedule at Completion

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a.         SPI (Schedule Performance Index)

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BCWP / BCWS (Workhours Earned / Workhours Planned)

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b.         Forecasted Duration

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Planned Duration / SPI

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