Cost Management

• Cost management is concerned with the

process of planning and controlling the budget
of a project or business.

Project cost
management
processes

Resourece Determine
Estimate costs Control cost
planning budget
 Cost estimating

• Two approach - top-down approach, and the bottom-up.

First Approach: The Top-Down Estimate
Step 1: Direct Costs
1. Direct Labor Costs
2. Materials
3. Travel
4. Equipment
5. Facilities
6. Consumption of services

Step 2: Indirect Costs

1. Office Costs
2. Equipment
3. Administrative Costs
Second Approach: The Bottom-Up Estimate
1. Hourly Rates Versus Overall Charges
2. Simplifying Your Estimate
 Cost control
Earn Value Method (EVM)
1. Gather Work Performance Information
• Planned value (PV)
• Earned Value (EV)
• Actual Cost (AC)
2. Determine Schedule Status
• Schedule Variance (SV)
• Schedule Performance Index (SPI)
3. Determine Cost Status
• Cost Variance (CV)
• Cost Performance Index (CPI)
4. Forecasting
• Estimate to Complete (ETC)
• Estimate at Completion (EAC)
• Variance at Completion (VAC)
• To Complete Performance Index (TCPI)
5. Reporting
1. Gather Work Performance Information
Planned value (PV)
Earned Value (EV)
Actual Cost (AC)
• Planned value is the budgeted cost of the work schedule to
be completes on an activity or WBS component up to a
given point in the time.
• Earned value is the budgeted amount for the work actually
completed on the schedule activity or WBS component
during a given time period.
• Actual cost is the total cost incurred in accomplished work
on the schedule activity or WBS component during a given
time period.
 MON TUE WED THU FRI
A $50
B $100
C $200
D $100

PV = $50 + $ 100+ $ 100 (50% of $ 200) =$ 250

 MON TUE WED THU FRI
A $50 100%
B $100 80%
C $200 20%
D $100

EV = $50 (100% x 50)+ $80 (80% x 100) + $40 (20% x 200)= $170
 MON TUE WED THU FRI
A $50 100% $75
B $100 80% $120
$200 20% $40
$100

AC = $75 + $120 + $40= $ 235

2. Variance in EVM
• Schedule variance
• Cost variance
SV = EV – PV
CV = EV –AC
3. Performance Index in EVM
• Schedule performance index
• Cost performance index
SPI = EV/ PV
CPI = EV/ AC
PI<1 ( worst state)
4. Forecasting
There are four variables which allow the project
manager to forecast the future performance of the
project:
• Estimate to Complete (ETC) – 2 ways
• Estimate at Completion (EAC)- 4 ways
• Variance at Completion (VAC)
• To Complete Performance Index (TCPI)
Estimate to Complete (ETC)
ETC represents the expected cost required to complete
the project. There are two ways to calculate ETC:
(i) Based on past project performance:
ETC = (BAC – EV) / CPI
(ii) Based on a new estimate
This is called a Management ETC. This means that a
new estimate is created for the remaining tasks in the
project.
Estimate at Completion (EAC)
The EAC is the full task or project cost expected at
completion (the new project budget). There are
multiple ways to calculate it based on how you expect
the future of the performance of the project to be:
1. Future performance will be based on the
budgeted cost
EAC = AC + (BAC – EV)
2. Future cost performance will be based on past cost
performance
EAC = AC + [(BAC – EV) / CPI]
3. Future cost performance will be influenced by
past schedule performance
EAC = AC + [(BAC -EV) / (CPI x SPI)]
You could also use a combination of the past schedule
or cost performance to extrapolate the final project
cost. You could use only the schedule performance
(SPI). or In the formula below, 20% of the SPI and
80% of the CPI has been used to determine the final
project cost.
EAC = AC + [(BAC -EV) / (0.8·CPI x 0.2·SPI)]
4. A new estimate is produced
In this case a Management ETC can be added to the to-
date cost (AC) to determine the final EAC.
EAC = AC + ETC
Variance at Completion (VAC)
• The VAC is a forecast of what the variance,
specifically the Cost Variance (CV), will be upon the
completion of the project. It is the size of the
expected cost overrun or under run.
VAC = BAC – EAC
= Old Budget – New Budget
To Complete Performance Index (TCPI)
• The TCPI represents the efficiency level, specifically
the CPI, that will make the project finish on time.
• It can be a powerful indicator because it is generally
easy to ascertain if your people will be as productive
as the indicator tells you.
• This indicator tends to be a bigger red flag than other
indicators.
There are two ways to calculate the TCPI:
• To achieve the original budget
TCPI = (BAC – EV) / (BAC – AC)
• To achieve the revised budget
TCPI = (BAC – EV) / (EAC – AC)
• Example of EVM
Exercise
Let’s take a look at an example. Assume we’re halfway
through a year-long project that has a total budget of
$100,000. The amount budgeted through this six-month
mark is $55,000. The actual cost through this six-month
mark is $45,000.
Estimates for Landscape Works;
􀂉 Pre-growing
􀂉 Ground Preparation
􀂉 Planting (Softscape)
􀂉 Construction & Installation (Hardscape)
􀂉 Maintenance & Defects Liability Period
􀂉 Other works.
Pre-growing;
• In large scale projects, pre-growing of feature plants
have become the norm to ensure good quality and
established stocks are procured planted on site with
the full foliage coverage to achieve the ‘instant’
effect.
• Generally, pre-growing is specified for project at least
one year from actual implementation.
Pre-growing; (Continue)
Estimates are based upon the following factors;
• Duration of pre-growing period.
• The number of plants and types specified.
• The land area specified
• The manpower specified
Ground Preparation
• Ground preparation may include or limited to the
following;
􀂉 Tree cutting and demolition
􀂉 Earth mounds
􀂉 Grading
􀂉 Excavation and backfilling
􀂉 Stockpiling of topsoil
􀂉 Subsoil drainage/geotextile membrane
• Estimates for tree cutting depend on size and high;
􀂉 Tree saplings
􀂉 Small trees
􀂉 Large trees
􀂉 Very large trees
Demolition
• Demolition of structures/ hacking of concrete
of footpaths, slabs ,etc estimates are usually
provided by the Quantity Surveyor who have
standard rates in their contract document under
the main contract.
Earth mounds
• Shaping up of earth mounds are generally backfilled
with ‘earth’ and not topsoil because;
1. Topsoil cost much more than earth and not practical
for project where large quantity are specified
2. Availability/consistency of topsoil may be a problem.
3. Topsoil is too loamy and settlement rate is higher
than earth, thus requiring longer period for compacting.
If not compacted properly, it loses its shape and
specified levels.
Grading
• Generally, grading is specified when its more than
100mm more than the existing level or to proposed
levels specified by the landscape architect.
Excavation and Backfilling;
• The estimates for excavation and backfilling of
topsoil are calculated by volume ,i.e. in Cubic Metres
Stockpiling of topsoil
• The stockpiling of topsoil especially large
quantities of 1000 cu.m and above should
generally be cheaper but its not.
• Here, there is the element of space set aside
that is required. If contractor have not been
given a space to stockpile and he has to rent
space, cost is charged back to owner.
Subsoil Drainage and Geotextile Membrane
• There are many types of subsoil drainage used
locally. Generally, there are three main types used;
1. PVC/HDCI ( Heavy duty cast iron )pipes
2. Granite chippings
3. PVC drainage cells
Granite chippings
• The most common and cheapest method used in
Singapore
• Estimates for planting shall include if not limited
to the following classification;
1.Trees
2.Palms
3.Bamboos
4.Feature plants
5.Shrubs
6.Groundcovers
7.Turfing
• Estimates for trees, palms, bamboos and some shrubs
are governed by the following factors;
1. Availability of species;
2. Duration of procurement period;
3. Duration of implementation period;
4. Quantity;
5. Survival rate (i.e. mortality rate);
6. Types of contract;
7. Specification