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 “The processes involved in planning. budgeting. and controlling costs so that the budget can be completed within the approved budget” . estimating.

direct or indirect.    Profits are revenues minus expenses Life cycle costing is estimating the cost of a project plus the maintenance costs of the products it produces Cash flow analysis is determining the estimated annual costs and benefits for a project Benefits and costs can be tangible or intangible. .

can’t manage one without the others (scope. and quality) Plots of cost and scope against plan can help spot problems early Today Actual Costs (AC) Planned Value (PV) Cumulative Value Earned Value (EV) Time Is this project over/under budget? Is it ahead of/behind schedule? .  Part of triple constraint. time.

forecasted costs to complete job VAC – Variance at Completion. how much over/under budget do we expect to be? . estimated value of work done AC – Actual Cost. the budget for the total job EAC –Estimate at Completion. estimated value of the planned work EV – Earned Value. what is the total job expected to cost? ETC – Estimate to Complete.       PV . what you paid BAC – Budget at Completion.Planned Value.

 Three processes › Estimate Costs › Determine Budget › Control Costs Estimate Costs Determine Budget Control Costs .

Enterprise Environmental Factors Inputs Tools & Techniques Outputs  Analogous estimating  Determine resource cost rates Organizational Process Assets Activity Cost Estimates  Bottom up estimating Project Scope Statement Activity Cost Estimates Supporting Detail  Parametric estimating  Project management software Work Breakdown Structure Requested Changes  Vendor bid analysis WBS Dictionary  Reserve analysis Project Management Plan Cost Management Plan Updates  Cost of quality •Schedule Mgmt Pln •Staffing Mgmt Pln •Risk Register Estimate Costs Determine Budget Control Costs .

Analogous (Top Down) estimating – Managers use expert judgment or similar project costs [quick. forecasts efficiency gains . most accurate]  Parametric estimating – Use mathematical model (i. [accuracy varies]  Two types:  Regression analysis – based on analysis of multiple data points  Learning Curve – The first unit costs more than the 100th. cost per sq ft). less accurate]  Bottom-Up estimating – People doing work estimate based on WBS. rolled up into project estimate [slow.e.

accuracy depends on gaps] Reserve Analysis – Adding contingency to each activity cost estimates as zero duration item [slow.  Vendor Bid Analysis – Estimating using bids + allowances for gaps in bid scope [slow. overstates cost] .

    Barry Boehm helped develop the COCOMO models for estimating software development costs Parameters include source lines of code or function points COCOMO II is a computerized model available on the Web Boehm suggests that only parametric models do not suffer from the limits of human decision-making .

Tools & Techniques Project Scope Statement  Cost aggregation Work Breakdown Structure  Reserve analysis WBS Dictionary Activity Cost Estimates Outputs Cost Baseline  Parametric estimating Inputs Project Funding Requirements  Funding limit reconciliation Activity Cost Estimates Supporting Detail Cost Management Plan Updates Project Schedule Requested Changes Resource Calendars Contract Cost Management Plan Estimate Costs Determine Budget Control Costs .

  Budgeting is allocating costs to work packages to establish a cost baseline to measure project performance Remember Contingency items are for unplanned but required changes it is not to cover things such as: › Price escalation › Scope & Quality Changes  Funding Limit Reconciliation – Smoothing out the project spend to meet management expectations .

Inputs Tools & Techniques Cost Baseline  Cost change control system Project Funding Requirements  Performance measurement analysis Outputs Cost Baseline Updates Performance Measurements  Forecasting Performance Reports  Project performance reviews Forecasted Completion  Project management software Work Performance Information Requested Changes  Variance management Approved Change Requests Cost Estimate Updates Recommended Corrective Actions Organizational Process Assets Updates Project Management Plan Project Management Plan Updates Estimate Costs Determine Budget Control Costs .

final 50% at completion › 20/80 Rule – 20% at start › 0/100 Rule – No credit until complete Planned Value (PV) – Budgeted Cost Earned Value (EV) – Actual work completed Actual Cost (AC) – Costs incurred Estimate to Complete (ETC) – What’s Left Estimate at Completion (EAC) – What final cost will be .Progress is compared against the baseline to determine whether project is ahead of or behind plan  Percent complete can be difficult to measure. some managers use rules  › 50/50 Rule – Assumed 50% complete when task started.

Variance at Completion (VAC) Target Cost & Schedule Planned Value (PV) Schedule Variance (Time) Earned Value (EV) .

NAME FORMULA NOTES Cost Variance (CV) EV-AC Negative = Over budget Positive = Under budget Schedule Variance (SV) EV-PV Negative = Behind Schedule Positive = Ahead of Schedule Cost Performance Index (CPI) EV/AC How much are we getting for every dollar we spend? Schedule Perform Index (SPI) EV/PV Progress as % against plan Estimate to Complete EAC-AC (ETC) How much more do we have to spend? Variance at Completion (VAC) BAC-EAC At the end of the day. how close will we be to plan? Estimate at Completion (EAC) See following slide .

NAME Estimate at Completion (EAC) FORMULA BAC/CPI NOTES Use if no variances from BAC have occurred AC+ATC Use when original estimate was bad. Actuals + New estimate AC+BAC-EV Use when current variances are not expected to be there in the future AC+(BAC-EV)/CPI Use when current variances are expected to continue .

cost budgeting.   Spreadsheets are a common tool for resource planning. and cost control Many companies use more sophisticated and centralized financial applications software for cost information Project management software has many cost-related features . cost estimating.