CHAPTER 7

PROJECT COST MANAGEMENT

Project cost management
 Project Cost Management includes the processes
involved in planning, estimating, budgeting,
financing, funding, managing, and controlling costs
so that the project can be completed within the
approved budget.
 In some projects, especially with smaller scope, cost
estimation and cost budgeting are so tightly linked
that they are viewed as a single process.
Project cost management
 7.1 Plan Cost Management —The process that establishes
the policies, procedures, and documentation for planning,
managing, expending, and controlling project costs.
 7.2 Estimate Costs —The process of developing an
approximation of the monetary resources needed to
complete project activities.
 7.3 Determine Budget —The process of aggregating the
estimated costs of individual activities or work packages to
establish an authorized cost baseline.
 7.4 Control Costs —The process of monitoring the status of
the project to update the project costs and managing
changes to the cost baseline.
Project cost management
 Different stakeholders will measure project costs in different ways and at different
times. For example, the cost of an acquired item may be measured when the
acquisition decision is made or committed, the order is placed, the item is delivered,
or the actual cost is incurred or recorded for project accounting purposes.
 Project Cost Management is primarily concerned with the cost of the resources
needed to complete project activities.
 Project Cost Management should also consider the effect of project decisions on the
subsequent recurring cost of using, maintaining, and supporting the product, service,
or result of the project.
 In many organizations, predicting and analyzing the prospective financial
performance of the project’s product is performed outside of the project. In others,
such as a capital facilities project, Project Cost Management can include this work.
When such predictions and analyses are included, Project Cost Management may
address additional processes and numerous general financial management
techniques such as return on investment, discounted cash flow, and investment
payback analysis.
 The cost management planning effort occurs early in project planning and sets the
framework for each of the cost management processes so that performance of the
processes will be efficient and coordinated.
7.1 Plan Cost Management
•Plan Cost Management is the process that establishes the policies,
procedures, and documentation for planning, managing, expending, and
controlling project costs.
•The key benefit of this process is that it provides guidance and direction
on how the project costs will be managed throughout the project.
7.1.1 Plan Cost Management: Inputs

7.1.1.1 Project Management Plan

 The project management plan contains information used
to develop the cost management plan, which contains,
but is not limited to:
 • Scope baseline. The scope baseline includes the project
scope statement and WBS detail for cost estimation and
management.
 • Schedule baseline. The schedule baseline defines when
the project costs will be incurred.
 • Other information. Other cost-related scheduling, risk,
and communications decisions from the project management
plan.
7.1.1 Plan Cost Management: Inputs

7.1.1.2 Project Charter

 Described in Section 4.1.3.1. The project charter

provides the summary budget from which the

detailed project costs are developed.
 The project charter also defines the project

approval requirements that will influence the

management of the project costs.
7.1.1.3 Enterprise Environmental Factors.
7.1.1.4 Organizational Process Assets
7.1.2 Plan Cost Management: Tools
and Techniques
7.1.2.1 Expert Judgment
 Expert judgment, guided by historical information,
provides valuable insight about the environment and
information from prior similar projects. Expert judgment
can also suggest whether to combine methods and how
to reconcile differences between them.
 Judgment based upon expertise in an application area,

Knowledge Area, discipline, industry, etc., as

appropriate for the activity being performed should be
used in developing the cost management plan.
7.1.2 Plan Cost Management: Tools
and Techniques
7.1.2.2 Analytical Techniques
 Developing the cost management plan may involve choosing strategic
options to fund the project such as:
 self-funding, funding with equity, or funding with debt.
 Detail ways to finance project resources such as making, purchasing, renting, or
leasing. These decisions, like other financial decisions affecting the project, may
affect project schedule and/or risks.
 Organizational policies and procedures may influence which financial techniques
are employed in these decisions.
 Techniques may include (but are not limited to): payback period, return on
investment, internal rate of return, discounted cash flow, and net present value.
7.1.2.3 Meetings
 Project teams may hold planning meetings to develop the cost management
plan. Attendees at these meetings may include the project manager, the
project sponsor, selected project team members, selected stakeholders,
anyone with responsibility for project costs, and others as needed.
7.1.3 Plan Cost Management:
Outputs
7.1.3.1 Cost Management Plan
 The cost management plan is a component of the

project management plan and describes how the

project costs will be planned, structured, and
controlled.
 The cost management processes and their

associated tools and techniques are documented in

the cost management plan.
Cost management plan details
 Units of measure. Each unit used in measurements (such as staff hours, staff days, weeks for
time measures; or meters, liters, tons, kilometers, or cubic yards for quantity measures; or lump
sum in currency form) is defined for each of the resources.
 Level of precision. The degree to which activity cost estimates will be rounded up or down
(e.g., US$100.49 to US$100, or US$995.59 to US$1,000),
 Level of accuracy. The acceptable range (e.g., ±10%) used in determining realistic activity
cost estimates is specified, and may include an amount for contingencies;
 Organizational procedures links. The WBS component used for the project cost accounting is
called the control account. Each control account is assigned a unique code or account number(s)
that links directly to the performing organization’s accounting system.
 Control thresholds. Variance thresholds for monitoring cost performance may be specified to
indicate an agreed-upon amount of variation to be allowed before some action needs to be
taken.
 Rules of performance measurement. Earned value management (EVM) rules of performance
measurement are set.
 Reporting formats. The formats and frequency for the various cost reports are
defined.
 Process descriptions. Descriptions of each of the other cost management processes
are documented.
 Additional details. Additional details about cost management activities
7.2 Estimate Costs
 Estimate Costs is the process of developing an
approximation of the monetary resources needed to
complete project activities.
 Cost can be Direct or Indirect
 Direct costs These costs are attributed directly to the project work
and cannot be shared among projects (Wages, Material,
Equipment etc).
 Indirect costs Overhead costs that incurred for the benefit of
more than one project (Taxes, Training, project management
software license, and so on).
 Cost can be Variable or fixed
 Variable costs: Costs that vary depending on the amount of
work or production (Cost of materials, supplies, wages etc..).
 Fixed costs These costs remain constant throughout the project
(Cost of office setup, rentals etc...).
Estimate Costs:
Inputs, Tools & Techniques, and Outputs
7.2.1 Estimate Costs: Inputs
7.2.1.1 Cost Management Plan
 Described in Section 7.1.3.1

7.2.1.2 Human Resource Management Plan

 Described in Section 9.1.3.1. The human resource
management plan provides project staffing attributes,
personnel rates, and related rewards/recognition,
which are necessary components for developing the
project cost estimates.
7.2.3 Scope Baseline
 scope statement.
 Work breakdown structure.
 WBs dictionary.
7.1.1 Estimate Costs: Inputs
7.2.1.4 Project Schedule
 Described in Section 6.6.3.2. The type and quantity of resources and the amount of
time which those resources are applied to complete the work of the project are
major factors in determining the project cost. Schedule activity resources and their
respective durations are used as key inputs to this process.
7.2.1.5 Risk Register
 Described in Section 11.2.3.1. The risk register should be reviewed to consider risk
response costs. Risks, which can be either threats or opportunities, typically have an
impact on both activity and overall project costs.
7.2.1.6 Enterprise Environmental Factors
 Market conditions.
 Published commercial information.
7.2.1.7 Organizational Process Assets
 Cost estimating policies, Cost estimating templates, Historical information, and
Lessons learned.
7.2.2 Estimate Costs:
Tools and Techniques
7.2.1 Expert judgment
7.2.2 Analogous Estimating
 Analogous cost estimating uses the values such as scope, cost, budget, and
duration or measures of scale such as size, weight, and complexity from a
previous, similar project as the basis for estimating the same parameter or
measurement for a current project.
 When estimating costs, this technique relies on the actual cost of previous,
similar projects as the basis for estimating the cost of the current project.
 Analogous cost estimating is frequently used to estimate a value when there
is a limited amount of detailed information about the project, for example,
in the early phases of a project.
 Analogous cost estimating uses historical information and expert judgment.
 Analogous cost estimating is generally less costly and less time consuming
than other techniques, but it is also generally less accurate.
 Analogous estimating is most reliable when the previous projects are similar
in fact and not just in appearance.
Advantages and disadvantages of
Analogous Estimating
7.2.2 Estimate Costs:
Tools and Techniques
7.2.3 Parametric Estimating
 Parametric estimating uses a statistical relationship between relevant historical data
and other variables (e.g., square footage in construction) to calculate a cost
estimate for project work.
 This technique can produce higher levels of accuracy depending upon the
sophistication and underlying data built into the model.
 Parametric cost estimates can be applied to a total project or to segments of a
project, in conjunction with other estimating methods.
7.2.4 Bottom-Up Estimating
 Bottom-up estimating is a method of estimating a component of work.

 The cost of individual work packages or activities is estimated with the greatest
level of specified detail.
 The detailed cost is then summarized or “rolled up” to higher levels for subsequent
reporting and tracking purposes.
 The cost and accuracy of bottom-up cost estimating is typically influenced by the
size and complexity of the individual activity or work package.
Advantages and disadvantages of
Bottom-up Estimating
7.2.2 Estimate Costs:
Tools and Techniques
7.2.5 Three-Point Estimates
 The accuracy of single-point activity cost estimates can be improved by
considering estimation uncertainty and risk.
 This concept originated with the program evaluation and review technique
(PERT).
 PERT uses 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 activity cost based on analysis of the best-case scenario
for the activity.
 • Pessimistic (cP). The activity cost based on analysis of the worst-case scenario
for the activity.
 Two commonly used formulas are triangular and beta distributions.
The formulas are:
 • Triangular Distribution. cE = (cO + cM + cP) / 3
 • Beta Distribution : cE = (cO + 4cM + cP) / 6
7.2.2 Estimate Costs:
Tools and Techniques
.6 Reserve Analysis
 Cost estimates may include contingency reserves (sometimes called
contingency allowances) to account for cost uncertainty.
 Reserves are added to costing to manage risks, cost overruns and
error associated with costing.
 More details about reserve analysis in Risk Management

 Padding is not a good project management practice.

.7 Cost of Quality (COQ) (Section 8.1.2.2

7.2.2.8 Project Management Software
 Project management cost estimating software applications,
computerized spreadsheets, simulation, and statistical tools are
becoming more widely accepted to assist with cost estimating.
 Such tools can simplify the use of some cost estimating techniques
and thereby facilitate rapid consideration of cost estimate
alternatives.
7.2.2 Estimate Costs:
Tools and Techniques
7.2.2.9 Vendor Bid Analysis
 Cost estimating methods may include analysis of what the project
should cost, based on the responsive bids from qualified vendors.
 Where projects are awarded to a vendor under competitive
processes, additional cost estimating work can be required of the
project team to examine the price of individual deliverables and to
derive a cost that supports the final total project cost.
7.2.2.10 Group Decision-Making Techniques
 Team-based approaches, such as brainstorming, the Delphi or
nominal group techniques, are useful for engaging team members
to improve estimate accuracy and commitment to the emerging
estimates.
 By involving a structured group of people who are close to the
technical execution of work in the estimation process, additional
information is gained and more accurate estimates are obtained.
7.2.3 Estimate Costs: Outputs
7.2.3.1 Activity Cost Estimates
 The output of cost estimating is the actual cost estimates
of the resources required to complete the project work.
 Each resource in the project must be accounted for and
assigned to a cost category. Categories include the
following:
 Labor costs
 Material costs
 Travel costs
 Supplies
 Hardware costs
 Software costs
 Special categories (inflation, cost reserve, and so on)
7.2.3 Estimate Costs: Outputs
Note : Project Cost Estimating - Estimating Accuracy
 Accuracy of estimate is normally refined ‫ مصفّى‬during
the course of project to reflect additional details as it
becomes available.
 Rough order of magnitude ِ‫الطلب القاسي للمقدار‬This
estimate is “rough” and is used during the initiating
processes and in top-down estimates.
 The range of variance for the estimate can be from +/-
50%.
 Later the estimate can be refined to a range of +/-
10%
 Refinements and range of accuracy depends on policies
of individual organizations.
Accuracy of Rough order of Budget Estimate Definitive Estimate
estimate Magnitude ( ROM )
Estimate
Time Made during the Made during the Made during the
initiating process planning phase project
Range +/- 50 from actual -10 /+ 25 from +/- 10 from actual
actual
7.2.3 Estimate Costs: Outputs
7.2.3.2 Basis of Estimates
 Once the estimates have been completed, supporting detail
must be organized and documented to show how the
estimates were created.
 Specifically, the supporting detail includes the following:

 Document basis of estimate (how it was developed)

 Information on the assumptions and constraints made while
developing the cost estimates.
 Information on the range of variance in the estimate For
example, based on the estimating method used, the project cost
may be $220,000 ± $15,000.
 Indication of the confidence level of the final estimate
7.2.3 Estimate Costs: Outputs
7.2.3.3 Project Documents Updates:
project documents that may get updated include, but
not limited to the risk register
7.3 Determine Budget
 Determine Budget is the process of aggregating the
estimated costs of individual activities or work
packages to establish an authorized cost baseline
 The key benefit of this process is that it determines the
cost baseline against which project performance can be
monitored and controlled.
 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, but excludes management
reserves.
Determine Budget: Inputs, Tools &
Techniques, and Outputs
7.2.1 Determine Budget: Inputs
7.3.1.1 Cost Management Plan
7.3.1.2 Scope Baseline
 • scope statement.. • Work breakdown structure. • WBs dictionary
7.3.1.3 Activity Cost Estimates
Cost estimates or each activity within a work package are aggregated to obtain a cost
estimate for each work package.
7.3.1.4 Basis of Estimates
7.3.4 Project schedule
7.3.1.6 Resource Calendars
7.3.1.7 Risk Register
7.3.1.8 Agreements
 Described in Section 12.2.3.2. Applicable agreement information and costs relating
to products, services, or results that have been or will be purchased are included
when determining the budget.
 7.3.1.9 Organizational Process Assets
7.3.2 Determine Budget:
Tools and Techniques
7.3.2.1 Cost Aggregation
 Activity costs are rolled up to work package costs. Work
package costs are rolled up to control account costs and
finally into project costs.
7.3.2.2 Reserve Analysis
 Budget reserves are kept for both contingency reserve and
management reserve.
 Contingency Reserves
 Monetary reserves kept for identified but unplanned changes (risks).
Project manager will normally have the authority
to utilize contingency reserves.
 Contingency reserves are placed for hanges
that can result from an identified risk.
7.3.2 Determine Budget:
Tools and Techniques
 Management reserve –
 Budget set aside to cover unforeseen risks or changes to the
project. This is the budget kept for unidentified risks.
 Management reserve will not be part of project budget and
hence project manager need approval from management
for using this reserve.
 The cost baseline will contain the contingency reserve
and the cost budget will include the management
reserve.
 Management reserves are not part of earned value
calculations (since it is not part of cost baseline &
measurements are based on baselines)
7.3.2 Determine Budget:
Tools and Techniques
7.3..23. Expert Judgment
7.3.2.4. Historical Relationships :
 A historical knowledge of previous projects of

similar nature can be used for determining budget.

 Parametric or Analogous estimates can be used. This
method uses the statistical relationship between
historical data and variable (Data multiplied by
variable)
7.3.2 Determine Budget:
Tools and Techniques
7.3.2.5. Funding Limit Reconciliation
 The expenditure of funds should be reconciled with

any funding limits on the commitment of funds for

the project.
 A variance between the funding limits and the

planned expenditures will sometimes necessitate the

rescheduling of work to level out the rate of
expenditures.
 This is accomplished by placing imposed date
constraints for work into the project schedule.
7.3.3 Determine Budget: Outputs
7.3.3.1 Cost Baseline
 The cost baseline is the approved version of the time-phased project
budget, excluding any management reserves, which can only be
changed through formal change control procedures and is used as a
basis for comparison to actual results.
 It is developed as a summation of the approved budgets for the
different schedule activities.
 The work package cost estimates, along with any contingency
reserves estimated for the work packages, are aggregated into
control accounts.
 The summation of the control accounts make up the cost baseline.

 Since the cost estimates that make up the cost baseline are directly
tied to the
 schedule activities, this enables a time-phased view of the cost
baseline, which is typically displayed in the form of an S-curve,
7.3.3 Determine Budget: Outputs
Cost Baseline, Expenditures, and Funding Requirements
 7.3.3 Determine Budget: Outputs
Project Budget Component

• Management reserves are added to the cost baseline to produce the project budget.
• As changes warranting the use of management reserves arise, the change control
process is used to obtain approval to move the applicable management reserve
funds into the cost baseline.
7.3.3 Determine Budget: Outputs
Project Budget Component
7.3.3 Determine Budget: Outputs
continu….

7.3.3.2 Project Funding Requirements

 Total funding requirements and periodic funding requirements (e.g.,
quarterly, annually) are derived from the cost baseline.
 The cost baseline will include projected expenditures plus anticipated
liabilities.
 Funding often occurs in incremental amounts that are not continuous, and
may not be evenly distributed, which appear as steps .
 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.

7.3.3..3 Project Document Updates

 • Risk register,

 • Cost estimates, and

 • Project schedule.
7.4 Control Costs
 Control cost is the processes of monitoring the status of project based on
cost baseline
 Any change in authorized funding shall only be done through integrative
change control.
 Project cost control includes:
 Influencing the factors that create changes to the authorized cost baseline;
 Ensuring that all change requests are acted on in a timely manner;
 Managing the actual changes when and as they occur;
 Ensuring that cost expenditures do not exceed the authorized funding by period,
by WBS component, by activity, and in total for the project;
 Monitoring cost performance to isolate and understand variances from the
approved cost baseline;
 Monitoring work performance against funds expended;
 Preventing unapproved changes from being included in the reported cost or
resource usage;
 Informing appropriate stakeholders of all approved changes and associated
cost; and
 Bringing expected cost overruns within acceptable limits.
Control Costs: Inputs, Tools &
Techniques, and Outputs
Progress reporting
7.4.1 Control Costs: Inputs
7.4.1.1 Project Management Plan
 The project management plan contains
 Cost baseline. compared with actual results to determine if a change, corrective
action or preventive action is necessary.
 Cost management plan. describes how the project costs will be managed .
7.4.1.2 Project Funding Requirements
7.4.1.3 Work Performance Information
 Work performance information includes information about project progress,
7.4.14 Organizational Process Assets
 • Existing formal and informal cost control-related
policies, procedures, and guidelines;
 • Cost control tools;
 • Monitoring and reporting methods to be used.
7.4.2 Control Costs:
Tools and Techniques
7.4.2.1 Earned Value Management
 Earned value management (EVM) in its various forms is a
commonly used method of performance measurement.
 Earned value management will indicate status and health of
project at any time and can predict possible outcomes.
 EVM can be used for analysis of cost and schedule baselines

 Earned Value Management is carried out using the three

main inputs
 - Planned Value (PV)
 - Earned Value (EV)
 - Actual Cost (AC)
7.4.2 Control Costs:
Tools and Techniques • Planned value

• Planned value. Planned value (PV) is the authorized

budget assigned to the work to be accomplished for
an activity or work breakdown structure component.
It means, value of planned work to be done as on today
 The total of the PV is sometimes referred to as the
performance measurement baseline (PMB).
 Total Planned Value for project will be approved
total budget and is known as Budget at Completion
(BAC)
7.4.2 Control Costs:
Tools and Techniques • Planned value

Sample :
 Work package XX have a 4 stages and each stage
will take one week to complete with $500
estimated cost per stage.
 What is the PV on 3rd Week = Total value of
planned work to be completed 3 on third week in
monetary terms (500 X 3 = 1500)
7.4.2 Control Costs:
Tools and Techniques • Earned value.

• Earned value. Earned value (EV) is the value of work performed

expressed in terms of the approved budget assigned to that work
for an activity or work breakdown structure component.
It is Estimated (not actual) value of work actually completed in monetary
terms

 The EV being measured must be related to the PV baseline (PMB),

and the EV measured cannot be greater than the authorized PV
budget for a component.
 The term EV is often used to describe the percentage completion of
a project.
 Project managers monitor EV, both incrementally to determine
current status and cumulatively to determine the long-term
performance trends.
7.4.2 Control Costs:
Tools and Techniques • Earned value.

Sample :
 Work package XX have a 4 stages and each stage
will take one week to complete with $500
estimated cost per stage. End of 2nd week 3 stages
were completed what is the PV and EV
 PV on 2nd Week = Total value of planned work to
be completed on second week in monetary terms
(500 X 2 = 1000)
 EV on 2nd week = Estimated value of work
completed (500 X 3 = 1500)
7.4.2 Control Costs:
Tools and Techniques • Actual cost.

• Actual cost. Actual cost (AC) is the total cost actually

incurred and recorded in accomplishing work
performed for an activity or work breakdown structure
component.
Actual cost spent to complete the work completed
 It is the total cost incurred in accomplishing the work
that the EV measured.
 The AC has to correspond in definition to whatever was
budgeted for in the PV and measured in the EV
 The AC will have no upper limit; whatever is spent to
achieve the EV will be measured.
7.4.2 Control Costs:
Tools and Techniques • Actual cost.

Sample :
 Work package XX have a 4 stages and each stage will take
one week to complete with $500 estimated cost per stage.
 End of 2nd week 3 stages were completed and contractor has

spend 1700. What is the PV, EV & AC

 PV on 2nd Week = Total value of planned work to be completed on
second week in monetary terms
(500 X 2 = 1000)
 EV on 2nd week = Estimated value of work completed
(500 X 3 = 1500)
 AC on 2nd Week = Actual cost spent of work already completed
(1700)
7.4.2 Control Costs:
Tools and Techniques Variances from the approved baseline
 Variances from the approved baseline will also be monitored:
 SV (Schedule Variance) = EV-PV (Difference between
estimated value of work completed and estimated value of
work planned)
SV = EV – PV
value of planned work
work actually completed
 Schedule variance (SV) is a measure of schedule performance
on a project.
 The EVM schedule variance is a useful metric in that it can indicate a project falling
behind its baseline schedule.
 The EVM schedule variance will ultimately equal zero when the project is completed
because all of the planned values will have been earned.
 EVM SVs are best used in conjunction with critical path methodology (CPM)
scheduling and risk management
7.4.2 Control Costs:
Tools and Techniques Variances from the approved baseline
 CV (Cost Variance) = EV-AC (Difference between estimated
value of work completed and actual cost of work
completed)
CV = EV-AC
 Cost variance (CV) is a measure of cost performance on a
project.
 The cost variance at the end of the project will be the
difference between the budget at completion (BAC) and the
actual amount spent.
 The EVM CV is particularly critical because it indicates the
relationship of physical performance to the costs spent. Any
negative EVM CV is often non-recoverable to the project.
7.4.2 Control Costs:
Tools and Techniques • schedule performance index.

• schedule performance index. The schedule performance index (SPI)

is a measure of progress achieved compared to progress planned
on a project.
SPI = EV/PV
 It is sometimes used in conjunction with the cost performance index
(CPI) to forecast the final project completion estimates.

SPI < 1 less work was completed than was planned

SPI > 1 more work was completed than was planned

 the performance on the critical path must also be analyzed to

determine whether the project will finish ahead of or behind its
planned finish date.
7.4.2 Control Costs:
Tools and Techniques • Cost performance index.

• Cost performance index. The cost performance index (CPI) is

a measure of the value of work completed compared to the
actual cost or progress made on the project.
CPI = EV/AC
 It is considered the most critical EVM metric and measures
the cost efficiency for the work completed.

CPI < 1 a cost overrun for work completed

CPI > 1 a cost under run of performance to date

 The CPI is equal to the ratio of the EV to the AC.

Earned Value, Planned Value, and
Actual Costs
7.4.2 Control Costs:
Tools and Techniques .2 Forecasting
.2 Forecasting

 As the project progresses, the project team can develop a forecast for the estimate at
completion (EAC) that may differ from the budget at completion (BAC) based on the project
performance.
 Forecasts are generated, updated, and reissued based on work performance information
(provided as the project is executed.
 The work performance information covers the project’s past performance and any information
that could impact the project in the future.
 EACs are typically based on the actual costs incurred for work completed, plus an estimate to
complete (ETC) the remaining work.
 The most common EAC forecasting approach is a manual, bottom-up summation by the project
manager and project team.
 The personnel who are performing the project work have to stop working to provide a
detailed bottom-up ETC of the remaining work.
EAC = AC + bottom-up ETC.
7.4.2 Control Costs:
Tools and Techniques .2 Forecasting
 The project manager’s manual EAC can be quickly compared with a
range of calculated EACs representing various risk scenarios. While
EVM data can quickly provide many statistical EACs,
 Only three of the more common methods are described as follows:
 • EAC forecast for ETC work performed at the budgeted rate.
 This EAC method accepts the actual project performance to date
(whether favorable or unfavorable) as represented by the actual costs, and
predicts that all future ETC work will be accomplished at the budgeted rate.
EAC = AC + BAC – EV.
(BAC – EV ) ‫المبلغ الواجب إنفاقه من اآلن حتى انتهاء المشروع‬
 • EAC forecast for ETC work performed at the present CPI.
 This method assumes what the project has experienced to date can be
expected to continue in the future.

 The ETC work is assumed to be performed at the same cumulative cost

performance index (CPI) as that incurred by the project to date.
EAC = BAC / cumulative CPI.
7.4.2 Control Costs:
Tools and Techniques .2 Forecasting
 • EAC forecast for ETC work considering both SPI and CPI
factors.
 In this forecast, the ETC work will be performed at an efficiency
rate that considers both the cost and schedule performance
indices.
 It assumes both a negative cost performance to date, and a
requirement to meet a firm schedule commitment by the project.
This method is most useful when the project schedule is a factor
impacting the ETC effort.
 Variations of this method weigh the CPI and SPI at different
values (e.g., 80/20, 50/50, or some other ratio) according to the
project manager’s judgment.
AC + [(BAC – EV) / (cumulative CPI x cumulative SPI)].
7.4.2 Control Costs:
Tools and Techniques Table
7.4.2 Control Costs:
Tools and Techniques To-Complete Performance Index (TCPI)
.3 To-Complete Performance Index (TCPI)
 The to-complete performance index (TCPI) is the calculated projection of cost performance that must be
achieved on the remaining work to meet a specified management goal, such as the BAC or the EAC.
 If it becomes obvious that the BAC is no longer viable, the project manager develops a forecasted estimate
at completion (EAC).
 Once approved, the EAC effectively supersedes the BAC as the cost performance goal.
TCPI= (BAC – EV) / (BAC – AC).

 If the cumulative CPI falls below the baseline plan , all future work of the project will need to immediately be performed in
the range of the TCPI (BAC) to stay within the authorized BAC.
Once management acknowledges that the BAC is no longer attainable, the project manager will prepare a new estimate at
completion (EAC) for the work, and once approved, the project will work to the new EAC value.
 This level of performance is displayed as the TCPI (EAC) line. The equation for the TCPI based on the EAC
1. TCPI= (BAC – EV) / (EAC – AC).
7.4.2 Control Costs:
Tools and Techniques .4 Performance Reviews

7.4.2.4 Performance Reviews

 Performance reviews compare cost performance over time, schedule
activities or work packages overrunning and under running the
budget, and estimated funds needed to complete work in progress.
 If EVM is being used, the following information is determined:
 Variance analysis. Variance analysis as used in EVM compares actual
project performance to planned or expected performance. Cost and
schedule variances are the most frequently analyzed.
 Trend analysis. Trend analysis examines project performance over time
to determine if performance is improving or deteriorating. Graphical
analysis techniques are valuable for understanding performance to date
and for comparison to future performance goals in the form of BAC
versus EAC and completion dates.
 Earned value performance. Earned value management compares the
baseline plan to actual schedule and cost performance.
7.4.2 Control Costs:
Tools and Techniques .

7.4.2.5 Project Management Software

 Project management software is often used to monitor the three EVM
dimensions (PV, EV, and AC), to display graphical trends, and to
forecast a range of possible final project results.
7.4.2.6 Reserve 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 mitigation events or other
contingencies. Or, if the probable risk events do not occur, the
unused contingency reserves may be removed from the project
budget to free up resources for other projects or operations..
 7.4.3 Control Costs: Outputs
7.4.3.1 Work Performance Measurements
 The calculated CV, SV, CPI, and SPI values for WBS components, in particular the work packages
and control accounts, are documented and communicated to stakeholders.
7.4.3.2 Budget Forecasts
 Either a calculated EAC value or a bottom-up EAC value is documented and communicated to
stakeholders.
7.4.3.3 Change Requests
7.4.3.4 Project Management Plan Updates
 • Cost baseline.
 • Cost management plan.
7.4.3.5 Project Document Updates
 • Cost estimates, and
 • Basis of estimates.
7.4.3.6 Organizational Process Assets Updates
 • Causes of variances,
 • Corrective action chosen and the reasons, and
 • Other types of lessons learned from project cost control.
Till Now
 Projects are authorized by project charter
 SOW is issued as a preliminary scope guideline
 Project manager and project management team are appointed now
 Project manager & team decides whether projects need to be
divided in to phases.
 Stakeholders are identified
 Project management plan is prepared (determining how to do
planning)
 Requirements for the projects are collected
 Scope of the project is created (need iteration)
 Scope is too big to handle. Scope is now decomposed using WBS
(based on deliverables)
Till Now
 Scope is decomposed till work package level & Scope baseline is
created
 Control accounts are placed in WBS to link the work to accounting
system
 Work packages level is further decomposed to activities
 Activities are arranged in a logical sequence by creating network
diagram and PDM
 Leads or lags are introduced
 Activity resource is estimated
 Activity duration is estimated
 Critical path is now calculated (forward pass and backward pass)
 Resource leveling is carried out
Till Now
 Schedule compression methods (Crashing or fast tracking) to achieve
a milestone or completion date demanded by customer/client
 Critical path is revised
 Schedule baseline is prepared and floats are identified (free float,
total float and project float)
 Schedule is signed off by all parties.
 Cost of activities are estimated and rolled up to project level (or
reverse).
 Cost is now loaded to activities. PM software now can produce a
time based cost for the project (S Curve) and budget is created
 Contingency reserves and Management reserves are added (after
risk analysis).
Till Now
 Cost baseline is prepared (except management
reserve) and the project can be now monitored with
baseline for performance.
 Cost budget is now negotiated with organization to
ensure proper funding.
 Iterate from schedule if required
 Remember, Integration and change control is a
repeated process from starting to end