TSA - 01 Project Cost Management PDF

Project Cost Management
Plan Cost Management – Estimate Costs – Determine Budget – Control Costs
May 9 - 10 th, 2020

Hello!
Cahyono Bintang Nurcahyo
Institut Teknologi Sepuluh Nopember
cbintangn@yahoo.com
2
Outline
Project
01 Definition – Characteristics – Project vs Routine – Constraints
Project Management
02 Project Life Cycle – PM Process Group – Knowledge Areas
Project Cost
03 Cost Categories & Classification – Factors Affecting – Method/Time vs
Cost

04 Plan Cost Management – Estimate Costs – Determine Budget –
Control Costs
PROJECT
o PMBOK® Guide 6th Edition 2017 (Project Management Institute)

o Project Management The Managerial Process 7th Edition 2017 (Erik W.
Larson, Clifford F. Gray)
o Et cetera
All of mankind’s greatest accomplishments
— from building the great pyramids, to
discovering a cure for polio, to putting a man
on the moon —
began as a project.
project
01 Millions watch Olympic Opening Ceremony
02 Citywide WiFi System Set to Go Live
03 Hospitals Respond to New Healthcare Reforms
04 Apple’s New iPhone Hits the Market
05 City Receives Stimulus Funds to Expand Light Rail System

Project Definition & Characteristics
Project is temporary endeavor undertaken to create a unique product or

service.
The major characteristics of a project are as follows:

⌕ An established objective.
⌕ A defined life span with a beginning and an end.
⌕ Usually, the involvement of several departments and professionals.
⌕ Typically, doing something that has never been done before.
⌕ Specific time, cost, and performance requirements.
Project Life Cycle
⌕ A project life cycle is the

series of phases that a
project passes through from
its start to its completion.
⌕ The phases can be
sequential, iterative, or
overlapping
⌕ The names, number, and
duration of the project
phases are determined by
the management
A Generic Life Cycle Structure
⌕ Cost and staffing levels are

low at the start, increase as
the work is carried out, and
drop rapidly as the project
draws to a close.
A limiting factor that affects the execution of a project, program, portfolio, or process.
PMBOK Guide 2008

11
PROJECT MANAGEMENT

Need Project Management
OWNER
CONSULTANT CONTRACTOR
Need Project Management Need Project Management
Interrelationship of
PMBOK® Guide
Key Components in Projects
Project Management
The project life cycle is managed by executing a series of project

management activities known as project management processes.
Project management is accomplished through the appropriate application

and integration of logically grouped project management processes.
The PMBOK® Guide groups processes into five categories called Process
Groups.
Project Management Process Group
5. Closing
4. Monitoring
2. Planning & Controlling
3. Executing
1. Initiating
Project Management Process Group
Initiating Process Group à to define a new project or a new phase of an
existing project by obtaining authorization to start the project or phase.
Planning Process Group à to establish the scope of the project, refine the
objectives, and define the course of action required to attain the objectives
that the project was undertaken to achieve.
Executing Process Group à to complete the work defined in the project

management plan to satisfy the project requirements.
Monitoring and Controlling Process Group à to track, review, and regulate

the progress and performance of the project; identify any areas in which
changes to the plan are required; and initiate the corresponding changes.
Closing Process Group à to formally complete or close the project, phase, or

contract.
10 Knowledge Areas
Project Integration Management
Project Scope Management
Project Schedule Management
Project Quality Management
Project Resource Management
Project Communications Management
Project Risk Management
Project Procurement Management
Project Stakeholder Management

Construction Extension
Project Health Safety Security

Enviroment (HSSE) Management
Project Financial Management

PROJECT COST

o Cost Estimating Manual – issued June 2008 (NYC Department of
Environmental Protection - Bureau of Engineering Design and Construction)
o Project Management The Managerial Process 7th Edition 2017 (Erik W.
Larson, Clifford F. Gray)
o Et cetera
Cost Categories
01
People – Usually classified by the skills they bring to the project, for example, programmer,
mechanical engineer, welder, inspector, marketing director, supervisor
Equipment – Costs include rental/depreciation, maintenance/repair costs, operating costs (fuel,
02
oil, grease)
03 Material – All permanent and temporary material used in the project.
04 Subcontracts – The cost of specialty work performed by subcontractors to the prime contractor.
05 Other – All other costs that do not fit into one of the other cost categories
Cost Classification
l Supervisory Cost l Cost that changes with

the amount of work
l Equipment / Tools l Cost of material,

supplies, wages
l Direct Material
Indirect Cost Variable Cost
l Direct Labor Cost
l Equipment / Tools
l Cost that do not

l Fringe Benefits changes as production
Direct Cost changes
l Office & its facilities l Set up, rental
Overhead Cost Fixed Cost

Factors Affecting Project Cost (1)
01 Size of Project
02 Location
03 Easy of Material Supply
04 Availability of Labour (depend on time of year and region)
05 Access to Site and Working Space
06 Project Implementation Period & Timing

Factors Affecting Project Cost (2)
07 Constructability & Suitability of the Design (KISS)
08 Degree of Uncertainty (Risk Factor)
09 Scope of Responsibilities – Construction, Design Build, EPC/Turnkey, BOT
10 Type of Contract – Unit Rate, Lump Sum, Cost Plus Fee
11 Payment Terms – Down Payment, Milestone, Periodic/interim
12 Monetary Factors – Interest Rate, Exchange Rate, Escalation Clause

Work Method vs Cost
COST
C1 Inappropiate
Method
C2
Inappropiate
Method
Ci
Appropiate
Method
METHOD
M1 Mi M2
Asianto
Time vs Cost
COST
C1 Shorter Duration
C2
Longer Duration
Ci
Ideal Duration
TIME
T1 Ti T2
Asianto
Estimating Guidelines #1
1. Responsibility 3. Normal Conditions

• At the work package level, estimates • Estimates should be based on normal
conditions, efficient methods, and a normal
should be made by the person(s) most level of resources
familiar with the task. Draw on their • If the normal workday is eight hours, the time
expertise! estimate should be based on an eight-hour
day.
2. Use Several People to Estimate 4. Independence

• Cost estimate usually has a better • Estimators should treat each task as
chance of being reasonable and realistic independent of other tasks that might
when several people with relevant be integrated by the WBS.
experience and/or knowledge of the
task are used
Estimating Guidelines #2
5. Contingencies 6. Adding risk assessment to the

estimate helps to avoid surprises to
• Work package estimates should not
include allowances for contingencies.
stakeholders
• The estimate should assume normal or • Some tasks carry more cost risks than
average conditions even though every others.
work package will not materialize as • Simply identifying the degree of risk lets
planned. stakeholders consider alternative
• For this reason top management needs methods and alter process decisions.
to create an extra fund for • A simple breakdown by optimistic, most
contingencies that can be used to cover likely, and pessimistic could provide
unforeseen events. valuable information regarding cost.
Uncertainty and Risk
Total Risk Uncertainty No Risk
Unknown Known
Known
Unknown Unknown
No Information Partial Information Complete Information
o Close-out Report
o Feasibility Study
o Enter New Market o Project Succesfully
o Identifies Unknown Issues
Completed
PROJECT COST MANAGEMENT

The processes involved in planning, estimating, budgeting, financing,

funding, managing, and controlling costs so that the project can be
completed within the approved budget.
The Project Cost Management processes are:

⌕ Plan Cost Management
⌕ Estimate Costs
⌕ Determine Budget
⌕ Control Costs
Planning Planning Planning Monitoring & Controling
#01 #02 #03 #04
Plan Cost Management Determine Budget

The process of defining The process of
how the project costs will aggregating the
be estimated, budgeted, estimated costs of
managed, monitored, and Estimate Costs individual activities or Control Costs
controlled. The process of work packages to The process of
developing an establish an authorized monitoring the status of
approximation of the cost baseline the project to update the
monetary resources project costs and manage
needed to complete changes to the cost
project work. baseline.
In practise, The Project Cost Management processes are overlap and interact in ways that cannot be completely detailed.
These processes interact with each other and with processes in other Knowledge Areas.
#01 Plan Cost Management
Planning
Process
Group
• the process of • provides guidance • performed once

defining how the and direction on or at predefined
project costs will how the project points in the
be estimated, costs will be project.
budgeted, managed
managed, throughout the
monitored, and project.
controlled.
35
Planning
Process
Group
Tools & Techniques :

⌕ Expert Judgement
⌕ Data Analysis
⎋ Alternatives analysis can include reviewing strategic funding options such as: self-
funding, funding with equity, or funding with debt.
⎋ It can also include consideration of ways to acquire project resources such as
making, purchasing, renting, or leasing.
⌕ Meetings
Planning
Process
Group
Outputs :
⌕ Cost Management Plan
⎋ Units of measure
⎋ Level of precision
⎋ Level of accuracy
⎋ Organizational procedures links
⎋ Control thresholds
⎋ Rules of performance measurement
⎋ Reporting formats
⎋ Additional details
#02 Estimate Cost
Planning
Process
Group
• the process of • determines the • performed

developing an monetary periodically
approximation of resources throughout the
the cost of required for the project as needed.
resources needed project.
to complete
project work.
40
#02 Estimate Cost
Planning
Process
Group
A good estimate is important for the project.
What will happen when a project cost is

⌕ Underestimated?
⌕ Overestimated?
#02 Estimate Cost
Planning
Process
Group
A quantitative assessment of the likely costs for resources required to

complete the activity.
A prediction that is based on the information known at a given point in
time.
Cost trade-offs and risks should be considered such as make versus buy,
buy versus lease, and the sharing of resources in order to achieve optimal
costs for the project.
Cost estimates should be reviewed and refined during the course of the
project to reflect additional detail as it becomes available and assumptions
are tested.
#02 Estimate Cost
Planning
Process
Group
The accuracy of a project

estimate will increase as the
project progresses through
the project life cycle.
⌕ For example, a project in the
initiation phase may have a rough
order of magnitude (ROM)
estimate in the range of −25% to
+75%.
⌕ Later in the project, as more
information is known, definitive
estimates could narrow the range
of accuracy to −5% to +10%.
#02 Estimate Cost
Planning
Process
Group
T&T : Expert Judgement

⌕ Based on the figure given by an expert
⌕ Has vast experience and expertise in the subject
⌕ Based on intuition or “gut feeling”
⎋ e.g. “cost of building hospital of such a size at such a location is
roughly USD 150 million”
⌕ Accuracy can be OFF as much as 90% (i.e. + - 90%)
⌕ Suitable only during initial stages of project development
#02 Estimate Cost
Planning
Process
Group
T&T : Analogous Estimating

⌕ Analogous cost estimating uses values, or attributes, of a previous
project that are similar to the current project.
⌕ Values and attributes of the projects may include but are not limited to:
scope, cost, budget, duration, and measures of scale (e.g., size, weight).
⌕ Comparison of these project values, or attributes, becomes the basis for
estimating the same parameter or measurement for the current project.
⌕ Generally less costly and less time-consuming than other techniques,
but it is also less accurate.
#02 Estimate Cost
Planning
Process
Group

⌕ Estimate is developed by reviewing project costs from previous similar
projects
Proposed Cost = Analogous Cost x [ Proposed Capacity / Analogous Capacity ] 2/3
⌕ ”Capacity” indicates size of project e.g. number of beds for hospitals,
number of students for academic buildings, MGD for reservoirs, etc.
⌕ Exponent from experience, between 0.6-0.8
⌕ Must have good database on previous projects, else get data from
official sources
#02 Estimate Cost
Planning
Process
Group

#02 Estimate Cost
Planning
Process
Group

⌕ Example :
⎋ Suppose that you are proposing to build a Petrochemical Processing Plant
having a capacity of 5 million cu.m (cubic meters).
⎋ Reference made to previous similar project, but of size 2.5 million cu.m
shows that the cost is 20 million.
⎋ Estimate the cost of the proposed plant assuming an exponent of 2/3.
⌕ Answer:
⎋ Proposed Cost = Analogous Cost x [ Proposed Capacity / Analogous
Capacity ] assumed exponent
⎋ = 20,000,000 x [ 5 / 2.5 ] 2/3 = 20,000,000 x 1.5874 = 31,748,000
#02 Estimate Cost
Planning
Process
Group
T&T : Parametric Estimating

⌕ Uses a statistical relationship between historical data and other variables
(e.g., square footage in construction) to calculate an estimate for activity
parameters, such as cost, budget, and duration.
⌕ Can produce higher levels of accuracy depending on the sophistication
and underlying data built into the model.
#02 Estimate Cost
Planning
Process
Group

⌕ Example :
⎋ A statistical model relates the material cost, in US$, of constructing an
international-standard urban expressway by the following formula:
⎋ C = 937,237 + (83,987 x N) + (175,406 x L)
⎋ C = Material cost of constructing the highway, in US$
⎋ N = Number of lanes in the carriageway
⎋ L = Length of the proposed expressway, in km
#02 Estimate Cost
Planning
Process
Group

⌕ Question:
⎋ Using the above formula, estimate the material cost of constructing
a 17 km, four-lane, international standard urban expressway!
⌕ Answer:
⎋ C = 937,237 + ( 83,987 x N ) + ( 175,406 x L )
⎋ Given N = 4, L = 17
⎋ C = 937,237 + ( 83,987 x 4 ) + ( 175,406 x 17 ) = US$ 4,255,087
#02 Estimate Cost
Planning
Process
Group
T&T : Three-Point Estimating

⌕ The accuracy of single-point duration estimates may be improved by
considering estimation uncertainty and risk.
⌕ Using three estimates to define an approximate range for an activity’s
cost:
⎋ Most likely (cM). The cost of the activity, based on realistic effort assessment for
the required work and any predicted expenses.
⎋ Optimistic (cO). The cost based on analysis of the best-case scenario for the
activity.
⎋ Pessimistic (cP). The cost based on analysis of the worst-case scenario for the
activity.
#02 Estimate Cost
Planning
Process
Group
T&T : Cost Index

⌕ Takes known costs based on similar projects and brings these up to date
by applying indices for changes in the cost base over the intervening
years.
⌕ The formulas is:
Index2
C2 = C1
Index1
#02 Estimate Cost
Planning
Process
Group
T&T : Cost Index

IHPB Indonesia 2019 (BPS)
IHPB Indonesia 2019 (BPS)
Benchmark Statistik Konstruksi 2012-2017 (BPS)
PEDOMAN STANDAR MINIMAL TAHUN 2020
Ikatan Nasional Konsultan Indonesia (INKINDO)
Indikator Konstruksi, Triwulan IV-2019 (BPS)
Indeks Kemahalan Konstruksi 2019 (BPS)
Indeks Kemahalan Konstruksi 2019 (BPS)
#02 Estimate Cost
Planning
Process
Group
T&T : Cost Index

⌕ Example:
⎋ An office building in Surabaya constructed in Nopember 2017 for
US$ 25 Million, has a cost index at that time of 177.
⎋ The present May 2020 cost index is 284.
⎋ Using the formula, calculate the cost of constructing a similar
building this year.
⌕ Answer:
⎋ C = ( 284 / 177 ) x US$ 25 Million = US$ 40.11 Million
#02 Estimate Cost
Planning
Process
Group
T&T : Bottom-Up Estimating

⌕ A method of estimating project cost by aggregating the estimates of the
lower-level components of the WBS.
#02 Estimate Cost
Planning
Process
Group

⌕ Bottom-up estimating is a method of estimating a component of work.
⌕ The cost of individual work packages or activities is estimated to the
greatest level of specified detail.
⎋ Cost = Quantity x Unit Rate
⌕ The detailed cost is then summarized or “rolled up” to higher levels for
subsequent reporting and tracking purposes.
⎋ Total Project “Base Cost “ = Sum of Cost for all WBS items
WORK PACKAGE
Building Project
1.Work Preparation 2. Structure 3. Mech / Elect. 4. Finishing
2.1. Upper Structure 2.2. Lower Structure
2.2.1.Foundation 2.2.2. 1st Basement 2.2.3. 2nd Basement
2.2.1.1. Pile 2.2.1.2. Pilecap 2.2.1.3. Sloof
Activity Resources Activity Duration Department

Volume Requirement Estimates Responsibled
#02 Estimate Cost
Planning
Process
Group

⌕ Use rates for labour, material, equipment from many sources
⎋ e.g. Statistics Dept., price books, etc.
⌕ Most accurate, but requires most effort.
⌕ Must have detailed information regarding design.
⌕ Suitable during tendering or construction stage.
#02 Estimate Cost
Planning
Process
Group
Outputs : Cost Estimates

⌕ Cost estimates include quantitative assessments of the probable costs
required to complete project work, as well as contingency amounts to
account for identified risks, and management reserve to cover
unplanned work.
⌕ Cost estimates can be presented in summary form or in detail.
#03 Determine Budget
Planning
Process
Group
• the process of • it determines the • performed once

aggregating the cost baseline or at predefined
estimated costs of against which points in the
individual project project.
activities or work performance can
packages to be monitored and
establish an
authorized cost controlled
baseline
74
Planning
Process
Group
A project budget includes all the funds authorized to execute the project.
The cost baseline is the approved version of the time-phased project

budget that includes contingency reserves, but excludes management
reserves.
Planning
Process
Group
Outputs : Cost Baseline

⌕ The cost baseline is the approved version of the time-phased project
budget, excluding any management reserves.
⌕ Can only be changed through formal change control procedures.
⌕ It is used as a basis for comparison to actual results.
⌕ The cost baseline is developed as a summation of the approved budgets
for the different schedule activities.
Planning
Process
Group
Outputs : Cost Baseline (2)

Planning
Process
Group
Outputs : Cost Baseline (3)

Planning
Process
Group
Outputs : Project Funding Requirements

⌕ Total funding requirements and periodic funding requirements (e.g.,
quarterly, annually) are derived from the cost baseline.
⌕ The total funds required are those included in the cost baseline plus
management reserves, if any.
⌕ Funding requirements may include the source(s) of the funding.
#04 Control Cost Monitoring & Controling
Process Group
• the process of • the cost baseline • performed

monitoring the is maintained throughout the
status of the throughout the project.
project to update project
the project costs
and managing
changes to the
cost baseline.
83
Process Group
T&T : Earned Value Analysis

⌕ Earned value analysis compares the performance measurement baseline
to the actual schedule and cost performance.
⌕ EVM integrates the scope baseline with the cost baseline and schedule
baseline to form the performance measurement baseline.
⌕ EVM develops and monitors three key dimensions :
⎋ Planned Value (PV)
⎋ Earned Value (EV)
⎋ Actual Cost (AC)
Process Group
T&T : Earned Value Analysis (2)

Process Group
T&T : Variance Analysis

⌕ Variance analysis, as used in EVM, is the explanation (cause, impact, and
corrective actions) for cost, schedule, and variance at completion (VAC =
BAC – EAC) variances.
⎋ Cost Variance (CV = EV – AC) is the amount of budget deficit or surplus at a given
point in time
⎋ Schedule Variance (SV = EV – PV) is the amount by which the project is ahead or
behind the planned delivery date, at a given point in time.
⎋ Schedule Performance Index (SPI = EV / PV) is a measure of schedule efficiency
expressed as the ratio of earned value to planned value.
⎋ Cost Performance Index (CPI = EV / AC) is a measure of the cost efficiency of
budgeted resources.
Process Group
T&T : Variance Analysis (2)

Process Group
T&T : Charts
Process Group
T&T : Forecasting
⌕ As the project progresses, the project team may develop a forecast for
the estimate at completion (EAC) that may differ from the budget at
completion (BAC) based on the project performance.
⎋ EAC = AC + Bottom-up ETC
⌕ Three of the more common methods
⎋ EAC forecast for ETC work performed at the budgeted rate.
EAC = AC + (BAC – EV)
⎋ EAC forecast for ETC work performed at the present CPI.
EAC = BAC / CPI
⎋ EAC forecast for ETC work considering both SPI and CPI factors.
EAC = AC + [(BAC – EV) / (CPI × SPI)]
Process Group
T&T : To-Complete Performance Index (TCPI)

⌕ A measure of the cost performance that is required to be achieved with
the remaining resources in order to meet a specified management goal,
expressed as the ratio of the cost to finish the outstanding work to the
remaining budget.
⎋ The equation for the TCPI based on the BAC: (BAC – EV) / (BAC – AC)
⎋ The equation for the TCPI is based on the EAC: (BAC – EV) / (EAC – AC)
Process Group
T&T : Forecasting & TCPI

Process Group
T&T : To-Complete Performance Index (TCPI)

Process Group
T&T : Reserves Analysis

⌕ During cost control, reserve analysis is used to monitor the status of
contingency and management reserves for the project to determine if
these reserves are still needed or if additional reserves need to be
requested.
⌕ As work on the project progresses, these reserves may be used as
planned to cover the cost of risk responses or other contingencies.
⌕ Conversely, when opportunities are captured and resulting in cost
savings, funds may be added to the contingency amount, or taken from
the project as margin/profit.
Thank You
cbintangn@yahoo.com
May 9 - 10 th, 2020

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Project Cost Management

Plan Cost Management – Estimate Costs – Determine Budget – Control Costs

May 9 - 10 th, 2020

Project Cost Management

o PMBOK® Guide 6th Edition 2017 (Project Management Institute)

01 Millions watch Olympic Opening Ceremony

02 Citywide WiFi System Set to Go Live

03 Hospitals Respond to New Healthcare Reforms

04 Apple’s New iPhone Hits the Market

05 City Receives Stimulus Funds to Expand Light Rail System

Project is temporary endeavor undertaken to create a unique product or

The major characteristics of a project are as follows:

⌕ A project life cycle is the

⌕ Cost and staffing levels are

PMBOK Guide 2008

o PMBOK® Guide 6th Edition 2017 (Project Management Institute)

The project life cycle is managed by executing a series of project

Project management is accomplished through the appropriate application

Executing Process Group à to complete the work defined in the project

Monitoring and Controlling Process Group à to track, review, and regulate

Closing Process Group à to formally complete or close the project, phase, or

Project Scope Management

Project Schedule Management

Project Cost Management

Project Quality Management

Project Resource Management

Project Communications Management

Project Risk Management

Project Procurement Management

Project Stakeholder Management

Project Health Safety Security

Project Financial Management

o PMBOK® Guide 6th Edition 2017 (Project Management Institute)

03 Material – All permanent and temporary material used in the project.

l Supervisory Cost l Cost that changes with

l Equipment / Tools l Cost of material,

l Cost that do not

Overhead Cost Fixed Cost

03 Easy of Material Supply

04 Availability of Labour (depend on time of year and region)

05 Access to Site and Working Space

06 Project Implementation Period & Timing

07 Constructability & Suitability of the Design (KISS)

08 Degree of Uncertainty (Risk Factor)

09 Scope of Responsibilities – Construction, Design Build, EPC/Turnkey, BOT

10 Type of Contract – Unit Rate, Lump Sum, Cost Plus Fee

11 Payment Terms – Down Payment, Milestone, Periodic/interim

12 Monetary Factors – Interest Rate, Exchange Rate, Escalation Clause

1. Responsibility 3. Normal Conditions

2. Use Several People to Estimate 4. Independence

5. Contingencies 6. Adding risk assessment to the

Total Risk Uncertainty No Risk

No Information Partial Information Complete Information

o PMBOK® Guide 6th Edition 2017 (Project Management Institute)

The processes involved in planning, estimating, budgeting, financing,

The Project Cost Management processes are:

#01 #02 #03 #04

Plan Cost Management Determine Budget

• the process of • provides guidance • performed once

Tools & Techniques :

• the process of • determines the • performed

A good estimate is important for the project.

What will happen when a project cost is