Professional Documents
Culture Documents
Cost Management Slides
Cost Management Slides
Management
Sections of this presentation were adapted
from A Guide to the Project Management
Body of Knowledge 4th Edition, Project
Management Institute Inc., © 2009
Project Cost Management
“The processes involved in planning,
estimating, budgeting, and controlling
costs so that the budget can be completed
within the approved budget”
Why Do We Manage Cost?
Part of triple constraint, can’t manage one without
the others (scope, time, and quality)
Plots of cost and scope against plan can help spot
problems early
Today
Actual
Costs (AC) Planned
Value (PV)
Cumulative
Value
Is this project
Earned over/under budget?
Value (EV)
Is it ahead of/behind
schedule?
Time
Cost Management Key Terms
PV - Planned Value, estimated value of the planned work
EV – Earned Value, estimated value of work done
AC – Actual Cost, what you paid
BAC – Budget at Completion, the budget for the total job
EAC –Estimate at Completion, what is the total job
expected to cost?
ETC – Estimate to Complete, forecasted costs to complete
job
VAC – Variance at Completion, how much over/under
budget do we expect to be?
How Do We Manage Cost?
Three processes
Estimate Costs
Determine Budget
Control Costs
Value
Completion
(VAC)
Graph Target
Cost &
Schedule
Planned
Schedule
Value (PV) Variance
(Time)
Earned
Value (EV)
Earned Value Formulas
NAME FORMULA NOTES
Cost Variance (CV) EV-AC Negative = Over budget
Positive = Under budget
Schedule Variance EV-PV Negative = Behind Schedule
(SV) Positive = Ahead of Schedule
Cost Performance EV/AC How much are we getting for every
Index (CPI) dollar we spend?
Schedule Perform EV/PV Progress as % against plan
Index (SPI)
Estimate to Complete EAC-AC How much more do we have to
(ETC) spend?
Variance at BAC-EAC At the end of the day, how close will
Completion (VAC) we be to plan?
Estimate at See following slide
Completion (EAC)
Earned Value Formulas (Cont’d)
NAME FORMULA NOTES
Estimate at
Completion (EAC)
BAC/CPI Use if no variances from
BAC have occurred
Project Current
Start Status BAC
PV
EAC
AC ETC
Terms to Remember
Present Value Working Capital
Net Present Value (NPV) Straight Line Depreciation
Internal Rate of Return Accelerated Depreciation
(IRR) Double Declining Balance
Payback Period Sum of Years Digits
Benefit Cost Ratio = Value Analysis (Value
BCR>1, Payback is greater Engineering)
than the cost
Opportunity Cost
Sunk Cost