PMBOK® Guide – Sixth Edition

Cost Management Process

Saeed Moghaddasi, PMP Shahin
 Cost Management
Initiating Process Executing Monitoring and Closing Process
Knowledge Areas Planning Process Group
Group Process Group Controlling Process Group Group
7.1 Plan Cost Management
7. Project Cost
7.2 Estimate Costs 7.4 Control Cost
Management
7.3 Determine Budget

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.
 Cost Management

Plan Cost The process of defining how the project costs will be estimated,
Management budgeted, managed, monitored, and controlled.

The process of developing an approximation of the monetary resources needed to

Estimate Costs
complete project work.

The process of aggregating the estimated costs of individual activities or work

Determine Budget
packages to establish an authorized cost baseline.

The process of monitoring the status of the project to update the project costs and
Control Costs manage changes to the cost baseline.
 Cost Management
Key Concepts for Project Cost Management
• On some projects, especially those of smaller scope, cost
estimating and cost budgeting are tightly linked and can be
viewed as a single process that can be performed by a single
person over a relatively short period of time.

• The ability to influence cost is greatest at the early stages of

the project, making early scope definition critical.
 Considérations for Agile/Adaptive Environements
• Projects with high degrees of uncertainty or those where the scope is not
yet fully defined may not benefit from detailed cost calculations due to
frequent changes.

• Instead, lightweight estimation methods can be used to generate a fast,

high-level forecast of project labor costs, which can then be easily
adjusted as changes arise.
 Plan Cost Management

Plan Cost Management is the process of defining how the project costs
will be estimated, budgeted, managed, monitored, and controlled.

The key benefit : it provides guidance and direction on

how the project costs will be managed throughout the
project.
 Plan Cost Management

Input
•Project charter
Tools & Techniques
•Project management plan
•Expert judgment Outputs
•Schedule management plan
•Data analysis Cost management plan
•Risk management plan
•Meetings
•Enterprise environmental factors
•Organizational process assets
Plan Cost Management
 Plan Cost Management

Input
•Project charter
•Project management plan
•Schedule management plan
•Risk management plan
•Enterprise environmental factors
•Organizational process assets
 Plan Cost Management
Enterprise Environmental Factors
• Published commercial information
• Market conditions
• Published seller price lists
• Currency exchange
• Project management information system

Organizational Process Assets

• Financial controls procedures
• Historical information and lessons learned repository;
• Financial databases; and
• Existing formal and informal cost estimating.
 Plan Cost Management
• Developing the cost management plan may involve choosing strategic
options to fund the project such as:

• Self-funding,
• Funding with equity,
• Funding with debt.
Plan Cost Management

Tools & Techniques

•Expert judgment
•Data analysis
•Meetings
Plan Cost Management

Outputs
Cost management plan
 Plan Cost Management
Cost Management Plan can establish the following:
• 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), based on the scope of the activities and magnitude
of the project.
• 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;
 Plan Cost Management
• Organizational procedures links: The work breakdown structure (WBS) provides the framework
for the cost management plan, allowing for consistency with the estimates, budgets, and control of
costs. 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: Thresholds are typically expressed as percentage deviations from the baseline
plan.
• Rules of performance measurement :
• Define the points in the WBS at which measurement of control accounts will be performed;
• Establish the EV measurement techniques (e.g. weighted milestones, fixed formula, percent
complete, etc.) to be employed; and
• Specify tracking methodologies and the EVM computation equations for calculating projected
EAC forecasts to provide a validity check on the bottom-up EAC.
 Plan Cost Management
• Reporting formats: The formats and frequency for the various cost management
process are documented.
• Additional details: About cost management activities includes, but are not limited to:
• Description of strategic funding choices,
• Procurement to account for fluctuations in currency exchange rates, &
• Procedure for project cost recording.
 Estimate Costs
Process of developing an approximation of the cost of resources needed to
complete project work.

The key benefit: determines the monetary resources

required for the project.

Input
•Project management plan
•Cost management plan
•Quality management plan
•Scope baseline
•Project documents
•Lessons learned register
•Project schedule
•Resources requirements
•Risk register
•Enterprise environmental factors
•Organizational process assets
Estimate Costs
Tools & Techniques
•Expert judgment
•Analogous estimating
•Parametric estimating Outputs
•Bottom-up estimating •Cost estimates
•Three-point estimating •Basis of estimates
•Data analysis •Project documents updates
•Alternatives analysis •Assumption log
•Reserve analysis •Lessons learned register
•Cost of quality •Risk register
•Project management information system
•Decision making
•Voting
 Estimate Costs

Saeed Moghaddasi, PMP Shahin

 Estimate Costs
• Cost tradeoffs and risks should be considered,
• Such as make versus buy, buy versus lease,

• Cost estimates are generally

expressed in units of some
currency (i.e., dollars, euros,
yen, etc.),
 Estimate Cost
• The accuracy of a project estimate will increase as the project progresses
through the project life cycle.

• 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%.
 Estimate Costs
• Costs are estimated for all resources that will be charged to the project.
This includes, but is not limited to:
labor,
materials,
equipment,
services,
facilities,
 Estimate Costs
Type of Costs:

Variable Costs: Costs rise directly with the

size and scope of the project.
Fixed Costs: Costs do not change; non-
recurring (e.g. project setup costs).
 Estimate Costs
Type of Costs:
Direct Indirect
•Are costs that can be directly related to •Are overheated items or costs that are not directly
producing the products and services of the related to the products or services of the project.
project • Are indirectly related to performing the project and
• Team’s travel incurred for the benefit of more than one project.
• Wages • Taxes,
• Fringe Benefits,
• Recognition
• Janitorial services and
• Cost of material used on the project • General, sales and administrative (GSA) or general
• Direct overhead costs-rental of a trailer for and administrative (GA).
the team
 Estimate Costs

Input
•Project management plan
•Cost management plan
•Quality management plan
•Scope baseline
•Project documents
•Lessons learned register
•Project schedule
•Resources requirements
•Risk register
•Enterprise environmental factors
•Organizational process assets
 Estimate Costs

Project Management Plan Project Documents

• Cost management plan. • Lessons learned register.
• Quality management plan. • Project schedule.
• Scope baseline. • Resource requirements.
• Risk register.
Enterprise Environmental Factors
• Market conditions.
• Published commercial information
• Published seller price lists are another source of information.
• Exchange rates and inflation.
 Estimate Costs

Tools & Techniques

•Expert judgment
•Analogous estimating
•Parametric estimating
•Bottom-up estimating
•Three-point estimating
•Data analysis
•Alternatives analysis
•Reserve analysis
•Cost of quality
•Project management information system
•Decision making
•Voting
 Estimate Costs
Analogous Estimating (Top-Down)
• Means using the actual cost of a previous, similar project.
• It is less costly and less precise.

Parametric Estimating
• Model to predict project costs. e.g. per square foot of living space.
• Can produce higher levels of accuracy depending on sophistication, resource
quantity and cost data.
 Estimate Costs
Three Point Estimating
• The accuracy of single point cost estimates can be improved by
considering estimation uncertainty and risk.
• Triangular Distribution: CE=(CO+ CM+CP)/3
• Beta Distribution: CE=(CO+4CM+CP)/6
 Estimate Costs
Bottom-up Estimating

• The cost of individual work packages or activities

• The detailed cost is then summarized or “rolled up” to
higher levels
 Estimate Costs

Bottom-up Estimating

Saeed Moghaddasi, PMP Shahin

 Estimate Costs
Bottom-up Estimating
Advantages Vs. Disadvantages
Objective Expensive and time consuming

Reduced uncertainty Tendency for team to pad estimate

Requests that project be defined and

More accurate understood

Gains buy-in from team Activity / work package could be forgotten

Based on a detailed

Provide a bases for monitoring and control

 Estimate Costs
Reserve Analysis
Contingency Reserves / Allowances (CR)
• Are estimated costs to be used to response RISKs.
• “Known Unknown”
• These are items you identify in risk management.
• Are part of the cost baseline and the overall funding
requirements for the project.
• Used for EV calculations.
• Can provide for a specific activity, for the whole
project, or both
Management Reserves (MR)
• Are an amount of the project budget withheld for
management control purposes and are reserved for
unforeseen work that is within scope of the project.
• “Unknown Unknowns”
• These are items you could not identify in risk
managements.
• Is not included in the cost baseline but is part of the
overall project budget and funding requirements.
• Not used for EV calculations.
• PM must get approval to spend it. Requiring an
approved change to the cost baseline.
 Estimate Costs
Reserve Analysis
Cost Budget

Management Reserve

Cost Base Line

Contingency Reserve
PROJECT
Project
W.B.S.

Control Account 1 Control Account 2 ••• Control Account n Control Accounts

Schedule

WP 1 WP 2 ••• WP n Work Packages

Activities

Tasks
Estimate Costs

Outputs
•Cost estimates
•Basis of estimates
•Project documents updates
•Assumption log
•Lessons learned register
•Risk register
 Estimate Costs
Cost Estimates
Quantitative assessments of the probable costs required to complete project work.
This includes, but is not limited to:
Direct labor, materials, equipment, services, facilities, information technology,
Indirect costs, if they are included in the project estimate, can be included at the
activity level or at higher levels.
 Estimate Costs
Basis of Estimates

Supporting detail for activity cost estimates may include:

• Documentation of the basis of the estimate
• Documentation of all assumptions made,
• Documentation of any known constraints,
• Indication of the range of possible estimates (e.g., €10,000 (+/-10%)
• Indication of the confidence level of the final estimate.
 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: Determines the cost baseline against

which project performance can be monitored and
controlled.
 Determine Budget
Project Budget Elements
• A project budget includes all the funds authorized
to execute the project.
Contract/Project Price

• The cost baseline is the approved version of the

time-phased project budget, but excludes Budget
Profit
Contract budget base
management reserves.
Cost Baseline Management
Reserve

Control Account

Work Planning
Package Package
 Determine Budget

Input
•Project management plan
•Cost management plan
•Resource management plan Tools & Techniques
Outputs
•Scope baseline •Expert judgment
•Project documents •Cost aggregation •Cost Baseline
•Basis of estimates •Data analysis •Project Funding Requirements
•Cost estimates •Reserve analysis •Project documents updates
•Project schedule •Historical information review •Cost Estimates
•Risk register •Funding limit reconciliation •Project Schedule
•Business documents •Financing •Risk register
•Business case
•Benefits management plan
•Agreements
•Enterprise environmental factors
•Organizational process assets
Determine Budget
 Determine Budget

Input
•Project management plan
•Cost management plan
•Resource management plan
•Scope baseline
•Project documents
•Basis of estimates
•Cost estimates
•Project schedule
•Risk register
•Business documents
•Business case
•Benefits management plan
•Agreements
•Enterprise environmental factors
•Organizational process assets
 Determine Budget
Business Documents
Business case. the critical success factors for the project, including financial success
factors.

Benefits management plan.

the target benefits, such as net present value calculations
timeframe for realizing benefits,
metrics associated with the benefits.

Agreements
• Applicable agreement information and costs relating to products, services, or results that have been or
will be purchased are included when determining the budget.
Determine Budget

Tools & Techniques

•Expert judgment
•Cost aggregation
•Data analysis
•Reserve analysis
•Historical information review
•Funding limit reconciliation
•Financing
 Determine Budget
Historical Information Review

Any historical relationships that result in

parametric estimates or analogous
estimates involve the use of project
characteristics (parameters) to develop
mathematical models to predict total
project costs.
 Determine Budget
Funding limit reconciliation

The expenditure of funds should be reconciled with any

funding limits on the commitment of funds for the project.

This is accomplished by placing imposed date constraints for

work into the project schedule.
 Determine Budget
Financing
Financing entails acquiring funding for projects.

If a project is funded externally, the funding

entity may have certain requirements that are
required to be met
 Determine Budget
Life Cycle Costing
• This broader view of project cost management. Considers the total cost of ownership, or
development plus support costs, for a project.
• It is looking at the cost of the whole life of the product, not just the cost of the project.

Cost of Maintenance Total Cost

Quality Level Cost of Product
(After Project Completion) (Product + Maintenance)
Low 80,000 $ 40,000 $ 120,000 $
High 100,000 $ 10,000 $ 110,000 S

• $20.000 saved in project with a lower quality product, but with a $10.000 overall additional cost to
company
 Determine Budget
Value Analysis/Engineering (VE)
Finding less costly way of the same work.
If a team is looking at decreasing project cost but maintaining the same scope, they are performing value
analysis.
Determine Budget

Outputs
•Cost Baseline
•Project Funding Requirements
•Project documents updates
•Cost Estimates
•Project Schedule
•Risk register
 Determine Budget
Cost Baseline

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.
 Determine Budget
Cost Baseline

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.

Management reserves are added to the cost baseline to produce the project budget.
 Determine Budget
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.

•Funding limit reconciliation

 Funding limit reconciliation

Amir Masoud Shahri, PMP, PSM

56
 Determine Budget
Project Funding Requirements

Profit

Management Reserve
Project Funding
Requirements

(Unknown-Unknown)

Contingency Reserve
(Known-Unknown)

Risk Response Cost

(Planned)

Project Base Cost

 Control Costs
Control Costs is the process of monitoring the status of the project to
update the project costs and managing changes to the cost baseline.

The key benefit: the cost baseline is

maintained throughout the project. This
process is performed throughout the
project.
 Control Costs

Outputs
Input •Work performance information
Tools & Techniques •Cost forecasts
•Project management plan •Change requests
•Cost management plan •Expert judgment •Project management plan updates
•Cost baseline •Data analysis •Cost management plan
•Performance measurement •Earned value analysis •Cost baseline
baseline •Variance analysis •Performance measurement
•Project documents •Trend analysis baseline
•Lessons learned register •Reserve analysis •Project documents updates
•Project funding requirements •To-complete performance index •Assumption log
•Work performance data •Project management information •Basis of estimates
•Organizational process assets system •Cost estimates
•Lessons learned register
•Risk register
 Control Costs

Saeed Moghaddasi, PMP Shahin

 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

Input
•Project management plan
•Cost management plan
•Cost baseline
•Performance measurement
baseline
•Project documents
•Lessons learned register
•Project funding requirements
•Work performance data
•Organizational process assets
 Control Costs
Project Funding Requirements
Include projected expenditures plus anticipated liabilities.

Work Performance Data

Contains data on project status such as which costs have been authorized,
incurred, invoiced, and paid.
 Control Costs

Tools & Techniques

•Expert judgment
•Data analysis
•Earned value analysis
•Variance analysis
•Trend analysis
•Reserve analysis
•To-complete performance index
•Project management information
system
 Control Costs
Data Analysis
Trend Analysis:
•Examines project performance over time to determine if performance is improving
or deteriorating.

•Examples of the trend analysis techniques include but are not limited to:

•Charts.
•Forecasting.
 Control Costs
Data Analysis
Charts: In earned value analysis, three parameters of planned value, earned value, and actual cost can
be monitored and reported on both a period-by-period basis (typically weekly or monthly) and
on a cumulative basis.

Saeed Moghaddasi, PMP Shahin

 Earned Value Management
• 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.
 Earned Value Management (EVM)
• EVM develops and monitors three key dimensions for each work
package and control account:
• Planned Value (PV) is the authorized budget assigned to scheduled work.

• Earned Value (EV) is a measure of work performed expressed in terms of the

budget authorized for that work.

• Actual Cost (AC) is the realized cost incurred for the work performed on an
activity during a specific time period.
EVM
EVM
• PV= 18+10+16+6= 50
• EV= 18+8+14+0= 40
• AC= 45 (is calculated from project tracking)

• SV= EV-PV= -10

• CV= EV-AC= -5
• SPI= EV/PV= 0.8
• CPI= EV/AC= 0.89
 EVM

 Schedule Variance = EV – PV= 40 - 50 = -10 (behind schedule)

 Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan (a B-, at best)
 Cost Variance = EV - AC= 40 - 45 = -5
 Cost Performance Index = 40/45 = .89, or you’re getting an 89¢ return on every
$1.00 (or, person-hour) spent on this project

71
 Control Costs
Data Analysis

Understanding Earned Value Concepts by Looking Backward and Forward on a Project

Today

BAC
Original PV
Spending Plan

Actual AC
Spending Plan
EAC
Forecast ETC
Spending Plan
 EVM: Variance Analysis

• Schedule Variance: SV= EV-PV

• Cost Variance: CV= EV-AC

• Schedule Performance Index: SPI= EV/PV

• Cost Performance Index: CPI= EV/AC

 EVM
Actual Cost: what you Today
have actually spent to
this point in time.
Cost (Person-Hours)

Planned Value: what your

plan called for sending on
the tasks planned to be
completed by this date.

Earned Value: value (cost)

of what you have
accomplished to date, per
the base plan.

Time (Date)

74
 EVM
Over Today

Budget

Cost (Person-Hours)

Behind
Schedule

Time (Date)

75
 EVM

Performance
Cost bad
Dollars

Cost schedule plan Sched. bad

(baseline)

AC

Cost
Actual cost PV
variance
Schedule
EV variance

Value completed (Earned Value)

Now
Time
 EVM

Performance
Cost bad
Dollars

AC Sched. good
PV

EV

Now
Time
 EVM

Performance
Cost good
Dollars

EV
Sched. good
PV

AC

Now
Time
 EVM

Performance
Cost good
Dollars

Sched. bad
PV

EV
AC

Now
Time
 EVM

Performance
Cost good
Dollars

Sched. good
PV

EV

AC

Now
Time
EVM: Trend Analysis
 Forecasting
• BAC: Budget At Completion
• EAC: Estimate At Completion
• VAC: Variance At Completion. VAC= BAC-EAC

EAC formula When to use

EAC= BAC/CPI If you will continue at the same rate of spending
EAC= AC+(BAC-EV) If current variances are thought to be atypical of the future
EAC= AC+ Bottom-up ETC If the original estimate are fundamentally flawed
𝐵𝐴𝐶−𝐸𝑉 If both the CPI and SPI influence the remaining work.
EAC= AC+𝐶𝑃𝐼×𝑆𝑃𝐼
 To Complete Performance Index
• is 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
𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑊𝑜𝑟𝑘
work to the remaining budget. 𝑇𝐶𝑃𝐼 = 𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝐵𝑢𝑑𝑔𝑒𝑡

𝐵𝐴𝐶−𝐸𝑉 𝐵𝐴𝐶−𝐸𝑉
• 𝑇𝐶𝑃𝐼 = or 𝑇𝐶𝑃𝐼 =
𝐵𝐴𝐶−𝐴𝐶 𝐸𝐴𝐶−𝐴𝐶
EVM

84
 Earn Value Management
 EVM is a project performance measurement
technique that integrates Scope, Time, and
Cost

Budgeted Cost of Work Scheduled (BCWS)=PV

Budgeted Cost for Work Performed (BCWP)=EV

Actual Cost of Work Performed (ACWP)=AC

Amir Masoud Shahri, PMP, PSM
Amir Masoud Shahri, PMP, PSM
Amir Masoud Shahri, PMP, PSM
Amir Masoud Shahri, PMP, PSM
Amir Masoud Shahri, PMP, PSM
Amir Masoud Shahri, PMP, PSM
Amir Masoud Shahri, PMP, PSM
 To Complete Performance Index
• is 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
𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑊𝑜𝑟𝑘
work to the remaining budget. 𝑇𝐶𝑃𝐼 = 𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝐵𝑢𝑑𝑔𝑒𝑡

𝐵𝐴𝐶−𝐸𝑉 𝐵𝐴𝐶−𝐸𝑉
• 𝑇𝐶𝑃𝐼 = or 𝑇𝐶𝑃𝐼 =
𝐵𝐴𝐶−𝐴𝐶 𝐸𝐴𝐶−𝐴𝐶

Amir Masoud Shahri, PMP, PSM

 Control Costs
Data Analysis
Acronym Term Interpretation
As of today, what is the estimated value of the work planned
PV Planned Value
to be done?
As of today, what is the estimated value of the work actually
EV Earned Value
Accomplished?
As of today, what is the actual cost incurred for the work
AC Actual Cost (total cost)
accomplished?
Budget at Completion
BAC How much did we BUDGET for the TOTAL project effort?
(The Budget)
What do we currently expect the TOTAL project to cost (a
EAC Estimate at Completion
forecast)?
From this point on, how much MORE do we expect it to cost
ETC Estimate to Complete
to finish the project (a forecast)?
As of today, how much over or under budget do we expect to
VAC Variance at Completion
Saeed Moghaddasi, PMP Shahin be at the end of the project?
 Control Costs
Example: You have a project to build a new fence. The fence is four sided as shown at left. Each side is to
take one day to build, and $1,000 has been budgeted per side. The sides are planned to be completed one
after the other. Today is the end of day 3.

Activity Day 1 Day 2 Day 3 Day 4 Status End of Day 3

Side 1 S------------F Complete, spent 1,000$

Side 2 S-----------PF -----F Complete, spent 1,200$
Side 3 PS---S------PF 50% done, Spent 600$
Side 4 PS---------PF Not yet started
 Control Costs
What is: Calculation Answer Interpretation of answer
PV 1000+1000+1000 3,000 $ We should have done $3,000 worth of work.
Completed, completed and
EV 2,500 $ We have actually completed $2,500 worth of work.
50% done (1000+1000+500)
AC 1000+1200+600 2,800 $ We have actually spent $2,800.
BAC 1000+1000+1000+1000 4,000 $ Our project budget is $4,000.
CV 2,500 - 2,800 -300 $ We are over budget by $300.
We are only getting about 89 cents out of every dollar we put
CPI 2,500 / 2,800 0.893
into the project.
SV 2,500 - 3,000 -500 $ We are behind schedule.
SPI 2,500 / 3,000 0.833 We are only progressing at about 83 percent of the rate planned.
EAC 4,000 / 0.893 4,479 $ We currently estimate that the total project will cost $4,479.
ETC 4,479 - 2800 1,679 $ We need to spend $1,679 to finish the project.
We currently expect to be $479 over budget when the project is
VAC 4,000 – 4,479 -479 $
completed.
 Control Costs
Reserve Analysis

As project progresses, these reserves may be used as planned to cover the cost of risk
mitigation events or other contingencies.

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.
 Control Costs
Important Notes for EVM formulas:

• EV comes first in formulas.

• If it is variance formula, formula is: EV-<sth>.
• If is an index formula, formula is EV / <sth>.
• If formula is related to cost, use AC.
• If formula is related to schedule, use PV.
• For variances, negative is bad and positive is good.
• For indexes, if it is greater than 1, it is good, except TCPI.
• For indexes, if it is lower than 1, it is bad, except TCPI.
Control Costs

Outputs
•Work performance information
•Cost forecasts
•Change requests
•Project management plan updates
•Cost management plan
•Cost baseline
•Performance measurement
baseline
•Project documents updates
•Assumption log
•Basis of estimates
•Cost estimates
•Lessons learned register
•Risk register
 Control Costs
Work Performance Information
• The calculated CV, SV, CPI, SPI, TCPI, and VAC values for WBS components, in
particular the work packages and control accounts, are documented and
communicated to stakeholders.

Cost Forecasts
• Either a calculated EAC value or a bottom-up EAC value is
documented and communicated to stakeholders.
 Control Costs
Change Requests
• Analysis of project performance may result in a change request to the cost and
schedule baselines or other components of the project management plan.
• Change requests are processed for review and disposition through the Perform
Integrated Change Control process
Project Management Plan Updates
• Include update cost management plan, cost baseline and performance measurement
baseline.
Project Documents Updates
• Include update assumption log, basis of estimates, cost estimates, lessons learned
register and risk register.
 Cost Management
Questions
Question # 1:

Estimate at completion (EAC) is a periodic evaluation of:

A) The cost of work completed.

B) The value of work performed.

C) The anticipated total cost at project completion.

D) What it will cost to finish the job.
 Cost Management
Questions
Question # 2:
The main focus of life cycle costing is to:

A) Estimate of installation cost.

B) Estimate the cost of operations and maintenance.

C) Consider the installation costs when planning the project costs.

 D) Consider operations and maintenance costs in making project

decisions.
 Cost Management
Questions
Question # 3:
A rough order of magnitude (ROM) estimate is made during which process management
process group?

A) Planning

B) Closing

C) Executing

D) Initiating
 Cost Management
Questions
Question # 4:
A schedule performance index (SPI) of 0.75 means:

A) Project is over budget

B) Project is ahead of schedule

 C) Project is progressing at 75% of the rate originally planned.

D) Project is progressing at 25% of the rate originally planned.
 Cost Management
Questions
Question # 5:
A cost baseline is an output of which cost management process?

A) Estimate activity resources.

B) Estimate costs

C) Determine budget

D) Cost control
 Cost Management
Questions
Question # 6:
Your cost forecast shows that you will exceed your planned budget at the end of your
project. Which action should you take?

 A) Eliminate risks in estimates and re-estimate.

B) Meet with sponsor for extra funding.

C) Cut quality.

D) Decrease scope.
 Cost Management
Questions
Question # 7:
Early in the life of your project, you are having a discussion with the sponsor about what
estimating technique should be used. You want a form of expert judgment, but the
sponsor argues for analogous estimating. It would be best to:
A) Agree to analogous estimating, as it is a form of expert judgment.
B) Suggest life cycle costing.

C) Determine why the sponsor wants such an accurate estimate.

D) Try to convince the sponsor to allow expert judgment because it is typically more
accurate.
 Cost Management
Questions
Question # 8:
A project manager needs to analyze the project costs to find ways to decrease costs. It
would be best if the project manager looks at:

A) Variable costs and fix costs.

B) Fix costs and indirect costs.

C) Direct costs and variable costs.

D) Indirect costs and direct costs.