Professional Documents
Culture Documents
PMBOK Chapter 7
PROCESS GROUPS
I
Planning
Cost Estimating
Cost Budgeting
E Controlling
Cost Control
Cost Estimating
Cost estimating: how much will it cost the performing organization to provide the product or service involved? Pricing: how much will the performing organization charge for the product or service? Business decision.
Cost Estimating
Inputs
1. WBS 2. Resource requirements 3. Resource rates. 4. Act. duration est. 5. Historical info. 6. Chart of accounts 7. Risks
Tools
1. Analogous est. 2. Parametric modeling 3. Bottom-up est.
Outputs
Based on the WBS to increase the accuracy. Project managers should analyze the needs of the project, to compare and reconcile any differences with cost requirements from management.
Cost Estimating
Cost estimates for all resources that will be charged to the project.
Generally expressed in units of currency to facilitate comparisons both within and across projects. Generally includes appropriate risk response planning.
Reference to WBS. How it was developed? Assumptions made. Range of possible results.
Cost Budgeting
Allocate the overall cost estimates to individual activities or work packages to establish a cost baseline for measuring project performance.
Inputs Tools Outputs
1. 2. 3. 4.
1. Cost baseline
Cost Budgeting
The cost baseline will be used to measure and monitor cost performance of the project.
Time
Accuracy
-25% +75%
Budget Estimate
-10% +25
Definitive Estimate
-5% 10%
but reliable High cost (time) / WBS needed Buy-in from the team
Mathematical
models to predict costs Parametric Two types: REGRESSION ANALYSIS, Modeling and LEARNING CURVE Expert judgment Delphi Method Tasks need not to be identified (analogous) Considerable experience needed
Cost Control
Monitor
Cost Performance Detect and understand variances from plan Ensure all changes are recorded and agreed upon Prevent bogus changes from being included in cost baseline Inform stakeholders of authorized changes Bring costs within acceptable limits
Cost Control
Inputs Tools
1. Cost Change Control System 2. Performance Measurement 3. Earned Value Management 4. Additional Planning 5. Computerized Tools
Outputs
1. Revised Cost Estimates 2. Budget Updates 3. Corrective Action 4. Estimate at Completion 5. Project Closeout 6. Lessons learned
Understand what is driving variances, good and bad, and decide what action to take.
Cost Control
Work
completion methods:
0/100 Conservative approach. No work, no money. 20/80 20% at start of the project, the rest when it is completed. 50/50 Liberal approach.
Integrates cost, time and scope. Used to future performance and project completion dates Key concepts: EV = Earned Value (BCWP)
Estimated value of the work actually accomplished
forecast
Key Formulas:
CPI = Cost Performance Index = EV / AC SPI = Schedule Performance Index = EV / PV EAC = Estimate At Completion =
BAC / CPI Most often used formula AC + ETC AC + BAC - EV AC + (BAC - EV) / CPI
Cost Types
Direct Costs Related Directly to the project ex. Labor hours, material, equipment, food, travel. . . Indirect Costs Overhead used for more than one project ex. Building rent, taxes, janitorial services
Cost Types
A cost by any other name, really isnt the same!
Variable Cost Changes with volume Fixed Cost Stay the same, regardless of volume
TC = VC+FC
COST
VC
FC
Volume
Cost Types
Project Costs Are incurred while the project is being fulfilled. Life Cycle Costs Includes the costs after project completion. There may be temptation to lower project costs at the expense of long term costs. Life Cycle Costing gives the PM a way to consider costs outside of the scope of project fulfillment