Project Cost Management: Any Project Can Be Estimated Accurately (Once It's Completed)

PROJECT COST
MANAGEMENT
Dr. Uzair Iqbal, CS Dept., CIIT, Islamabad
The content mainly based on the PMBOK guide, 5th and 6th
edition; and Software extension to the PMBOK guide, PMI, 2013.
Any project can be estimated accurately (once it’s

completed). 
Introduction
 Processes involved in estimating, budgeting, funding, managing, and controlling costs

 Project Cost Management should consider the stakeholder requirements for managing
costs
 It is primarily concerned with the cost of the resources needed to complete project
activities
 It should also consider the effect of project decisions on the subsequent recurring
cost
 Effort estimation is used as the basis for estimating the cost of a software project
 Many companies do not disclose the resource rates (dollar-value) to the project
manager
 The ability to influence costs is greatest at the early stages of the project
2
Process 1: Plan Cost Management
 The process that establishes the policies, procedures, and documentation for
planning, managing, expending, and controlling project costs
 It provides guidance and direction on how the project costs will be
managed throughout the project
3
Figure source: Software Extension to PMBOK® Guide – Fifth Edition, PMI, 2013, pp. 120
Plan Cost Management: Inputs
 Project management plan

 Scope baseline, schedule baseline, other information
 Project charter
 Enterprise environmental factors
 Organizational process assets
 Financial control procedures
 Cost drivers
 Size and complexity of software are highly correlated with the effort of software projects
 Skill and abilities of software developers
 Relationships with customers and other stakeholders
 Infrastructure technology
 Development tools and environments
 Configuration management and independent testing
 Complex problem domain and solution domain
 Governance policies
 Portfolio
4
Plan Cost Management: Tools and Techniques
 Expert judgment
 Analytical techniques
 Self-funding, funding with equity, or funding with debt
 Making, purchasing, renting, or leasing of project resources
 Payback period, return on investment, internal rate of return, discounted cash flow, and net present
value
 Meetings
5
Plan Cost Management: Outputs [1/2]
 Cost management plan

 How the project costs will be planned, structured, and controlled
 Units of measure
 Level of precision
 Level of accuracy
 Organizational procedure links
 Control thresholds
 Rules of performance measurement
 Reporting format
 Process descriptions
 Additional details
 Description of strategic funding choices
 Procedure to account for fluctuations in currency exchange rates
 Procedure for project cost recording
6
Plan Cost Management: Outputs [2/2]
 Accuracy of estimate
 Software estimation is error-prone
 Rough order-of-magnitude preliminary estimate (± 150% or even more)
 Productivity, skills, and motivation are widely variable among software developers
 ± 50% deviation if requirements and high-level design are stable and the schedule is set
 ± 10% deviation in case of definitive estimate for 2-4 weeks development cycle
 Units of measure
 Person-hours or person-days
 Function points, objects, user stories, use cases, features, and test cases
 Number of lines of software code written does not necessarily correspond to the business value of
software or as a measure of the completion of required software features
 Cost performance measurement method

 Estimated amount of work needed versus the actual effort performed
 Productivity in function points per staff-day or velocity in features delivered per staff-week
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Process 2: Estimate Costs
 Process of developing an approximation of the monetary resources needed

 It determines the amount of cost required to complete project work
 Prediction based on the information known at a given point in time
 Cost tradeoffs and risks should be considered
 Cost estimates are generally expressed in units of some currency
 Cost estimates may be presented at the activity level or in summary form
 Software project managers tend to use multiple estimation approaches
 Additional factors beyond development and deployment costs
 Project direct-cost factors
 Fiduciary requirements and government regulations
 Standards compliance
 Organizational changes
 Cost and value risk
 Funding costs
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Estimate Costs: Inputs

 Human resource management plan
 Scope baseline
 Project schedule
 Risk register
 Enterprise environmental factors
 Software size and complexity
 Rate of work
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Estimate Costs: Tools and Techniques [1/3]
 Expert judgment
 Analogous estimating
 Less costly and less time consuming but generally less accurate
 Reliable when the previous projects are really similar
 Velocity becomes a more accurate predictor after a team has completed several iterations together
 Parametric estimating
 Higher levels of accuracy depending upon the sophistication and underlying data built into the model
 Bottom-up estimating
 Cost and accuracy are typically influenced by the size and complexity of the individual activity or work package
 Three-point estimating
 Most likely (cM), optimistic (cO), and pessimistic (cP) cost
 Triangular and beta distribution
 Software component size e.g. small and large
 Nodal or merge bias
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 Reserve analysis
 Cost of quality
 Cost of quality can exert a significant impact on the cost of a software project
 Initially identifying quality-critical features and functions can reduce overall cost
 Project management software

 Vendor bid analysis
 When projects are awarded to a vendor under competitive processes, additional cost estimating
work may be required
 Group decision-making techniques

 cost estimates should not be just Level of Effort (LOE) aggregates
 The current production rate and the resources that will be used determine cost
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 Function point and source lines of code estimating

 Function point estimates are considered more accurate and more easily applied
 Recent input measures include stories, story points, use cases, features, and architectural objects
 ISO/IEC 20926, Software and systems engineering—Software measurement
 Story point and use case point estimating

 Estimating reusable code effort
 Price-to-win
 Price the customer is willing to pay
 Price is computed as cost plus profit or fee
 It should be balanced with cost-to-build to produce a realistic bid
12
Estimate Costs: Outputs
 Activity cost estimates

 Quantitative assessments of the probable costs required
 Presented in summary form or in detail
 Costs are estimated for all resources that are applied to the activity cost estimate
 Basis of estimates
 The amount and type of additional details vary by application area
 Documentation of the basis of the estimate (i.e., how it was developed)
 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
 Project documents updates

 Assumption log
 Lesson learned register
 Risk register
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Process 3: Determine Budget
 Process of aggregating the estimated costs of individual activities

 It determines the cost baseline
 Project performance can be monitored and controlled against baseline
 Project budget includes all the funds authorized to execute the project
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Determine Budget: Inputs

 Scope baseline
 Activity cost estimates
 Basis of estimates
 Project schedule
 Resource calendars
 Risk register
 Agreements
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Determine Budget: Tools and Techniques
 Cost aggregation
 “Cone of uncertainty”
 Expert judgment
 Historical relationships
 The cost and accuracy of analogous and parametric models can vary widely
 Historical information used to develop the model is accurate
 Parameters used in the model are readily quantifiable
 Models are scalable, such that they work for large projects, small projects, and phases of a project
 Funding limit reconciliation
16
Determine Budget: Outputs
 Cost baseline
 The approved version of the time-phased project budget, excluding any management reserves
 Changes through formal change control procedures
 Project funding requirements

17
Figure source: PMBOK® Guide – Fifth Edition, PMI, 2013, pp. 213
Process 4: Control Costs
 Process of monitoring the status of the project to update the project costs
 It provides the means to recognize variance from the plan
 Effective software project managers constantly monitor changes
 Some changes will be in scope and require no changes to effort allocations
 Other changes may be out of scope and will require changes to effort
 Changes can occur rapidly as a project evolves
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Control Costs: Inputs
 Project management plan

 Project funding requirements
 Work performance data
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Control Costs: Tools and Techniques [1/3]
 Earned value management

 Combines scope, schedule, and resource measurements to assess project performance and
progress
 Forms the performance baseline based on integration of scope, schedule, and cost baselines
 Develops and monitors three key dimensions for each work package and control account
 Planned value (PV)
 The authorized budget assigned to scheduled work
 The total of the PV is sometimes referred to as the performance measurement baseline (PMB)
 The total planned value for the project is also known as budget at completion (BAC)
 Earned value (EV)
 Measure of work performed expressed in terms of the budget authorized for that work
 The EV measured cannot be greater than the authorized PV budget for a component
 Project managers monitor EV incrementally and cumulatively
 Actual cost (AC)
 The total cost incurred in accomplishing the work that the EV measured
 It will have no upper limit
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 Earned value management

 Schedule variance
 SV = EV – PV
 Cost variance
 CV= EV − AC
 Schedule performance index
 SPI = EV/PV
 Cost performance index
 CPI = EV/AC
 Forecasting
 Estimate at completion (EAC) rather than the budget at completion (BAC)
 EAC = AC + Bottom-up ETC
 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)]
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 To-complete Performance Index (TCPI)

 Measure of the cost performance that is required to be achieved with the remaining resources in order to meet a specified
management goal
 The ratio of the cost to finish the outstanding work to the remaining budget
 TCPI based on the BAC: (BAC – EV) / (BAC – AC)
 TCPI based on the EAC: (BAC – EV) / (EAC – AC)
 Performance reviews
 Variance analysis
 Trend analysis
 Earned value performance
 Project management software

 Management metrics
 Earned value graph
 Burnup and burndown charts
 Cumulative flow diagrams
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Control Costs: Outputs
 Work performance information

 Cost forecasts
 Change requests
 Project management plan updates
 Organizations process assets updates
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 https://www.projectsmart.co.uk/earned-value-management-explained.php
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EXTRA
 During the risk management planning process, you first identify and qualify the
risk. The next step is to calculate the contingen
 Calculating these reserves is an important part of your project management

planning. These reserves provide you with a cushion against known and unknown
risks. Without contingency and management reserves, you cannot estimate your
project cost and budget. These reserves are an inseparable part of your budget and
help you manage risks.cy and management reserve.
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 Since both reserves serve the same purpose, managing risks, many professionals
assume they are the same.
 Contingency Reserve
 You manage identified risks, or “known-unknown” (known = identified, unknown = risks), with the
Contingency Reserve. This reserve can be measured in either cost or time.
 Contingency reserve is identified; it is not a random reserve; it is an estimated reserve based on
various risk management techniques
 How to Calculate the Contingency Reserve

 Percentage of the Project’s Cost
 Expected Monetary Value
 Decision Tree Analysis
 Monte Carlo Simulation
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 Expected Monetary Value
 Expected Monetary Value (EMV) = Probability * Impact
27
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EMV of Choice A = 0.25*200 + 0.75*350

= 50 + 262.5
= 312.50 USD
EMV of Choice B = 0.45*300 + 0.55*400
= 135 + 220
= 355 USD
EMV of Choice C = 0.2*450 + 0.8*200
= 90 + 160
= 250 USD
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 Management Reserve
 Management reserve is the cost or time reserve that is used to manage the unidentified risks or
“unknown-unknown” (unknown = unidentified, unknown = risks).
 Management reserve is not a part of the cost baseline, and the project manager needs
management’s permission to use this reserve
 When You Are Over Budget

 If you are over budget, estimate the new budget and try to get it approved. When you are over
budget, you should never use the management reserve to compensate for cost overrun.
 The management reserve is for unidentified risks, not to cover cost overrun
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What is Earned Value Analysis
 Earned Value Analysis (EVA) is a method that allows the project manager to measure
the amount of work actually performed on a project beyond the basic review of cost
and schedule reports.
 EVA provides a method that permits the project to be measured by progress
achieved.
 The project manager is then able, using the progress measured, to forecast a
project’s total cost and date of completion, based on trend analysis or application
of the project’s “burn rate”.
 This method relies on a key measure known as the project’s earned value
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Earned Value Example
 In this example we will use a project with two tasks
 We would like to produce a weekly project update to the Chief Technology Officer.
 The earned value method will give us metrics that include:

 Schedule status
 Budget status
 End-of-project projections for both
 For this project, because this is an example we will simply produce all of the earned value metrics in
one table
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 Project Planning
 As we showed you during the introduction, earned value analysis requires four

things to be set up during the project planning phase:
 Dividing the project into tasks
 Assigning each task a start and end date
 Assigning each task a budget
 Choosing a project status period
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 Here is what our example project might look like after project planning:
At this point we also need to make a few assumptions.

Let’s assume it’s March 3 today and we are doing the analysis up to the current point (today) 34
 The Earned Value Calculation

 To recap, the earned value calculation at each predefined status point is a 5 step
process. Each step has several variables that are calculated during that step
1. Gather Work Performance Information (the inputs)
 Budget at Completion (BAC)
 Planned Value (PV)
 Earned Value (EV)
 Actual Cost (AC)
2. Determine Schedule Status

 Schedule Variance (SV)
 Schedule Performance Index (SPI)
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 The Earned Value Calculation
3. Determine Cost Status

 Cost Variance (CV)
 Cost Performance Index (CPI)
4. Forecasting
 Estimate to Complete (ETC)
 Estimate at Completion (EAC)
 Variance at Completion (VAC)
 To Complete Performance Index (TCPI)
5. Reporting
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 Gather Work Performance Information

 To start, the project manager gathers the inputs to the earned value analysis.
37

 The Budget at Completion (BAC) simply refers to the budget of each task. Thus, we
will rename the budget column ‘BAC’
38

 Also called the Budgeted Cost of Work Scheduled (BCWS), the PV is the authorized,
time-phased budget assigned to accomplish the work.
 It is the amount that the project is supposed to be complete up to that status point.
 Let’s say it’s March 3 today.

 The planned percent complete is 30% based on the start and end dates. Therefore,
 Task 100: PV = 30% x $10,000 = $3,000.

Task 200: PV = $0. (On March 3, no work is planned yet)
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 Also called the Budget Cost of Work Performed (BCWP), the EV is the measure of the
work performed at a specific point in time, expressed in terms of the approved
budget authorized for that work. It is the amount that the project is actually
complete up to that status point.
 Let’s say that after discussions with the applicable project team members and
inspection of the progress, we determine that the first task is 20% complete and the
second task is 10% complete.
 Task 100: EV = 20% x $10,000 = $2,000.
Task 200: EV = 10% x $15,000 = $1,500.
40

 We will add another column to our table
41

 Also called the Actual Cost of Work Performed (ACWP), the AC is the realized cost
for the work performed during a specific time period.
 It is the actual cost of the work up to that status point.
 After reviewing our time and expense software and compiling any miscellaneous
expenses, we determine that the actual cost of the first task is $4,500 and the
second task is $2,000.
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 This is the end of the information gathering phase.

 At this point the project manager transitions from gathering project information to
calculating project status.
43
 Determine Schedule Status

 In order to determine the project’s status as it relates to the schedule, we will
calculate two variables from the initial four we gathered from the project data,
above:
44
 The schedule variance tells you how far ahead or behind schedule the task is in terms of the
task budget. The formula is:
 SV = EV – PV
 If SV is negative, the task is behind schedule.
 If SV is zero, the task is on schedule
 If SV is positive, the task is ahead of schedule.
 For example,
 SV = -$500 means the project is behind schedule.
 SV = $0 means the project is right on schedule.
 SV = $500 means the project is ahead of schedule.
 With the schedule variance, positive is good.
45
 As before, we will add a column to the table for Schedule Variance.

 Task 100: SV = $2,000 – $3,000 = -$1,000.
 Task 200: SV = $1,500 – $0 = $1,500.
 As you can see, the project has a positive schedule variance because one task is
ahead and the other is behind.
46

 The Schedule Performance Index (SPI) is similar to the Schedule Variance (SV). It also tells
you how far ahead or behind schedule the task is in terms of the task budget, but it is a
relative measure rather than an absolute one. It tells you the efficiency of the task.
 The formula is:
 SPI = EV / PV
 If SPI is less than 1, the task is behind schedule.
 If SPI is zero, the task is on schedule
 If SPI is greater than 1, the task is ahead of schedule.
47

 For example,
 SPI = 0 means the project work has not started.
 SPI = 0.5 means the project has performed half the work it was supposed to at this point.
 SPI = 1.0 means the project is on schedule.
 SPI = 2.0 means the project has performed twice the work it was supposed to at this point.
 With the SPI, greater than 1.0 is good.
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 We will add a column to the table for SPI.
 Task 100: SPI = $2,000 / $3,000 = 0.67.
Task 200: SPI = $1,500 / $0 = N/A.
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 It is easy to see that the first task has accomplished only two thirds of what it should have at
this point. Its efficiency is two thirds of that which was planned.
 But task 200 did not have any planned value at this point, therefore its SPI is effectively
infinity.
 It can simply be ignored in the rest of the analysis
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 Determine Cost Status

 In order to calculate the project’s status as it relates to the budget, we will
calculated two more variables:
51

 The Cost Variance (CV) is the amount that the task is over or under its budget. The formula
is:
 CV = EV – AC
 If CV is negative, the task is over budget.
 If CV is zero, the task is on budget.
 If CV is positive, the task is under budget.
 For example,
 CV = -$1,000 means the project is over budget.
 CV = $0 means the project is right on budget.
 CV = $1,000 means the project is under budget.
 In the case of both CV and SV, positive is good.
52

 We will add a column to the table for CV.
 Task 100: CV = $2,000 – $4,500 = -$2,500.
Task 200: CV = $1,500 – $2.000 = -$500.
 The project is $3,000 over budget on a project value of $25,000. There is clearly a budget
problem, but not a schedule problem.
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 The Cost Performance Index (CPI), like the Cost Variance, is a measure of the cost
performance of the project, but it is a relative instead of an absolute measure.
 It tells you the cost efficiency of the project. The formula is:
 CPI = EV / AC
 If CPI is less than 1, the task is over budget.
 If CPI is zero, the task is on budget.
 If CPI is greater than 1, the task is under budget
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 For example,
 CPI = 0 means the project work has not started.
 CPI = 0.5 means the project has spent twice amount that it should have at this
point.
 CPI = 1.0 means the project is on schedule.
 CPI = 2.0 means the project has spent half the amount that it should have at this
point.
 In the case of both CPI and SPI, greater than 1.0 is good.
55

 We will add a column to the table for CPI.
 Task 100: CPI = $2,000 / $4,500 = 0.44.
Task 200: CPI = $1,500 / $2,000 = 0.75.
TOTAL: CPI = $3,500 / $6,500 = 0.54.
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 The first task has spent more than twice what it should have at this point because
CPI < 0.5.
 The second task is better but has spent one quarter too much. The project as a
whole has spent just under twice what it was budgeted to at this point (CPI = 0.54).

 Note that in the case of SPI and CPI, the ‘total’ is an average, not a total.
 This is the end of the metrics that tell you the current status.
 The last four variables give you projections (forecasts) to the end of the project
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 Forecasting
 There are four variables which allow the project manager to forecast the future
performance of the project:
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 ETC represents the expected cost required to complete the project. It measures only
the future budget needed to complete the project, not the entire budget (that’s the EAC,
next).
 It allows the project manager to compare the funding needs to finish the project with
funding available.
 There are two ways to calculate ETC:
 Based on past project performance: ETC = (BAC – EV) / CPI
 Based on a new estimate
This is called a Management ETC. This means that a new estimate is created for the
remaining tasks in the project.
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 In our example task we will calculate the ETC based on the past performance of the
project. Again, we will add a column to the table for ETC.
 Task 100: ETC = ($10,000 – $2,000) / 0.44 = $18,182.
Task 200: ETC = ($15,000 – $1,500) / 0.75 = $18,000
 .
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 Many project managers wouldn’t concern themselves too much about this project
yet. It has spent $6,500 out of a project budget of $25,000. It’s still early, so
there’s plenty of time to make up for it, right?
 Wrong. The ETC of $36,182 is the expenditure to complete the project assuming
the prior efficiency levels (a safe assumption). It also does not include the money
already spent. If this project is not brought under control soon, it will go wildly over
budget and schedule.
 Often there are unique circumstances which don’t allow for a simple extrapolation to
the end of the project. That’s where the Estimate at Completion (EAC) comes in
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 The EAC is the full task or project cost expected at completion (the new project budget).
There are multiple ways to calculate it based on how you expect the future of the
performance of the project to be:
1. Future performance will be based on the budgeted cost
If you think the existing variance was a unique event and the rest of the project should go
according to plan, simply add the remaining project budget to the actual cost incurred to
date (AC). This method does not assume the project finishes on budget. Rather it takes
into account the one time event and adjusts the whole project plan upward or downward
to determine the final result.
EAC = AC + (BAC – EV)
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2. Future cost performance will be based on past cost performance
If you think the past performance is not unusual and there is no reason to expect the project
to perform any differently than it already has, you would use this formula.
 EAC = AC + [(BAC – EV) / CPI]
3. Future cost performance will be influenced by past schedule performance
Since schedule and cost performance are usually related, there could be a reason to adjust
the cost performance by the schedule performance. In this case an average of the CPI and
SPI are used to extrapolate the final project cost.
 EAC = AC + [(BAC -EV) / (CPI x SPI)]
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3. Future cost performance will be influenced by past schedule performance
You could also use a combination of the past schedule or cost performance to extrapolate
the final project cost. You could use only the schedule performance (SPI). Or you could
figure in a small influence of the schedule performance. In the formula below, 20% of the SPI
and 80% of the CPI has been used to determine the final project cost.
 EAC = AC + [(BAC -EV) / (0.8·CPI x 0.2·SPI)]
4. A new estimate is produced

 In this case a Management ETC can be added to the to-date cost (AC) to determine the final
EAC.
 EAC = AC + ETC
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 In our example we will predict that the current problems were caused by a one time event that
isn’t likely to repeat itself. Thus, the EAC will use formula #1.
 Task 100: EAC = AC + (BAC – EV) = $4,500 + ($10,000 – $2,000) = $12,500.
Task 200: EAC = AC + (BAC Now
– EV) = $2,000
it looks a lot +better.
($15,000
– $1,500) = $15,500.
The assumption of a one time cost expenditure near the beginning of the project results in
a final project budget of $28,000 versus the $25,000 original budget.
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 The VAC is a forecast of what the variance, specifically the Cost Variance (CV), will
be upon the completion of the project.
 It is the size of the expected cost overrun or underrun.
 In many situations the project manager must request additional funding as early as
possible, or at least report the potential for an overrun.
 The VAC represents the size of this request.
 The formula is:
 VAC = BAC – EAC
= Old Budget – New Budget
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 This one is relatively simple. If you’ve calculated the EAC you’ve done the big math
already, and the ‘new budget’ can simply be subtracted from the ‘old budget’ to
determine the cost overrun or underrun.
 The Variance at Completion is simply a future projected Cost Variance.
 It has the same units as CV. It is the same type of element.
 We will once again add another column to the table:
 Task 100: VAC = $10,000 – $12,500 = -$2,500.
Task 200: VAC = $15,000 – $15,500 = -$500.
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Hence, the projected variance is -$3,000, and the project manager could obtain approval for the expected
overrun as early as possible, if necessary.
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 The TCPI represents the efficiency level, specifically the CPI, that will make the project finish
on time.
 It can be a powerful indicator because it is generally easy to ascertain if your people will be
as productive as the indicator tells you.
 This indicator tends to be a bigger red flag than other indicators.
 If it says your people need to be twice as efficient as the schedule, it tends to make you take
notice that action needs to be taken.
69
 There are two ways to calculate the TCPI:

1. To achieve the original budget
2. To achieve the revised budget
 To achieve the original budget

If the goal is to achieve the original project budget, that is, the overrun or underrun
has not resulted in a change to the project schedule and/or budget, the following
formula applies:
 TCPI = (BAC – EV) / (BAC – AC)
70
 To achieve the revised budget

 If the goal is to achieve the project’s EAC, that is, the budget has been revised and
an approved change to the project schedule/budget has occurred, use this formula.
If additional funds covering the cost overrun have been requested and approved by
the project sponsor, the EAC becomes the target of the project, and this scenario
applies.
 TCPI = (BAC – EV) / (EAC – AC)
71
 Obviously, the closer the project is to completion the higher the CPI that will be
necessary to complete on budget. It can become extreme near the end.
 Also, if the project has already spent more than its budget the TCPI will be negative.
 TCPI is the last column in the table. We will assume the project budget has not
been revised (EAC is simply a projection) and the goal is still the original project
budget (formula #1, above).
 Task 100: TCPI = ($10,000 – $2,000) / ($10,000 – $4,500) = 1.45.
Task 200: TCPI = ($15,000 – $1,500) / ($15,000 – $2,000) = 1.04.
TOTAL: TCPI = ($25,000 – $3,500) / ($25,000 – $6,500) = 1.16
72
This project team must be 16% more efficient than they have been to finish on budget.
This table can be reported directly to management.
They might need some training on what the numbers mean but this is not an onerous task.
73
 Conclusion
 Congratulations, you have now completed our earned value management tutorial.
 We hope you’ve broadened your knowledge base and can use this information to
get better results on real projects.
 Drop us a line in the Contact Us section to let us know how you’re applying this
information, and we wish you good luck and much success.
74
Reference
 http://www.projectengineer.net/tutorials/earned-value-tutorial/earned-value-
example/
75
 Project Governance
 https://
www.pmi.org/learning/library/project-governance-principles-corporate-perspective-
6528
 Project Portfolio Management
 https://www.planview.com/resources/articles/project-portfolio-management-defin
ed
/
 https://meisterplan.com/blog/difference-project-management-project-portfolio-
management/
76

Project Cost Management: Any Project Can Be Estimated Accurately (Once It's Completed)

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Project Cost Management: Any Project Can Be Estimated Accurately (Once It's Completed)

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PROJECT COST

Any project can be estimated accurately (once it’s

 Processes involved in estimating, budgeting, funding, managing, and controlling costs

 It provides guidance and direction on how the project costs will be

managed throughout the project

 Project management plan

 Cost management plan

 Cost performance measurement method

 Process of developing an approximation of the monetary resources needed

 Cost management plan

 Project management software

 Group decision-making techniques

 Function point and source lines of code estimating

 Story point and use case point estimating

 Activity cost estimates

 Project documents updates

 Process of aggregating the estimated costs of individual activities

 Cost management plan

 Funding limit reconciliation

 Project funding requirements

 Project management plan

 Earned value management

 Earned value management

 To-complete Performance Index (TCPI)

 Project management software

 Work performance information

 Calculating these reserves is an important part of your project management

 How to Calculate the Contingency Reserve

EMV of Choice A = 0.25*200 + 0.75*350

 When You Are Over Budget

 In this example we will use a project with two tasks

 The earned value method will give us metrics that include:

 End-of-project projections for both

 As we showed you during the introduction, earned value analysis requires four

At this point we also need to make a few assumptions.

 The Earned Value Calculation

2. Determine Schedule Status

 The Earned Value Calculation

3. Determine Cost Status

 Gather Work Performance Information

 Budget at Completion (BAC)

 Planned Value (PV)

 Let’s say it’s March 3 today.

 Task 100: PV = 30% x $10,000 = $3,000.

 Earned Value (EV)

 Earned Value (EV)

 Actual Cost (AC)

 It is the actual cost of the work up to that status point.

 Actual Cost (AC)

 This is the end of the information gathering phase.

 Determine Schedule Status

 As before, we will add a column to the table for Schedule Variance.

 Schedule Performance Index (SPI)

 Schedule Performance Index (SPI)

 Schedule Performance Index (SPI)

 Schedule Performance Index (SPI)

 Determine Cost Status

 Cost Variance (CV)

 In the case of both CV and SV, positive is good.

 Cost Variance (CV)

 Cost Performance Index (CPI)

 Cost Performance Index (CPI)

 Cost Performance Index (CPI)

EMV of Choice A = 0.25200 + 0.75350