7th

Lecture

Topics Today:

1. Control Cost Process. (Input, Tools & Techniques and

Outputs)
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 7.4 Control Costs

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
of this process is that the cost baseline is maintained throughout the project.
This process is performed throughout the project. The inputs, tools and
techniques, and outputs of this process are depicted in Figure 7-10,
Figure 7-11 depicts the data flow diagram of the process.

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 7.4 Control Costs
Inputs Tools & Outputs
Techniques
1. Project management plan 1. Work performance
● Cost management plan 1. Expert judgment information
● Cost baseline 2. Data analysis 2. Cost forecasts
● Performance 3. Change requests
● Earned value
measurement baseline 4. Project management
analysis
2. Project Documents updates
● Variance analysis
● lessons learned register ● Cost management plan
● Trend analysis
3. Project funding ● cost
baseline
● Reserve analysis
requirements
3. To-complete ● Performance measurement
4. Work performance data baseline
performance index
5. Organization process 5. Project documents updates
assets 4. Project
management ● Assumption log

information system ● Basis of estimates

● Cost estimates
● Lessons learned register

● Risk Register

Figure 7-10. Control costs: Input, Tools & Techniques, and Outputs 3
 Project Management
Plan 7.4 Control Costs
Project management plan updates
● Cost management plan 4.5
● Cost baseline Monitor and Control
● Work performance
● Performance measurement Project Work
baseline information

4.6
Project Documents ● Change request Perform Integrated
Change Control
● Lessons learned register
7.4
7.3 Control Costs Project Management
Determine Budget Plan

● Project funding requirements Project management plan updates

● Cost management plan
4.3 ● Cost baseline
● Performance measurement
Direct and Manage
baseline
Project Work
● Cost forecasts
● Work performance data
Project
Enterprise / Project documents updates
Documents
Organization ● Assumption log
● Basis of estimates
● Organizational process assets ● Cost estimates
● Project schedule
● Risk register

Figure 7-11. Control Costs: Data Flow Diagram 4

 Control Costs : Inputs
7.4.1.1 Project Management Plan

Project management plan components include but are not limited to:

 Cost management plan. The cost management plan describes how

the project costs will be managed and controlled.

 Cost baseline. The cost baseline is compared with actual results to

determine if a change, corrective action, or preventive action is
necessary.

 Scope baseline. When using earned value analysis, the performance

measurement baseline is compared to actual results to determine if a
change, corrective action, or preventive action is necessary.

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 Control Costs : Inputs
7.4.1.2 Project Documents

Examples of project documents that can be considered as inputs for this

process include but are not limited to the lesson learned register. Lessons
learned earlier in the project can be applied to later phases in the project to
improve cost control.

7.4.1.3 Project Funding Requirements

The project funding requirements include projected expenditures plus

anticipated liabilities.

7.4.1.4 Work Performance Data

Work performance data contains data on project status such as which costs
have been authorized, incurred, invoiced, and paid.

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 Control Costs : Inputs
7.4.1.5 Organizational Process Assets

The organizational process assets that can influence the Control Costs
process include but are not limited to:

 Existing formal and informal cost control-related policies,

procedures, and guidelines;

 Cost control tools; and

 Monitoring and reporting methods to be used.

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 Control Costs : Tools and Techniques
7.4.2.1 Expert Judgment

Examples of expert judgment during the Control Costs process include but
are not limited to:

 Variance analysis,

 Earned Value analysis,

 Forecasting, and

 Financial analysis.

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 Control Costs : Tools and Techniques
7.4.2.2 Data Analysis
Data analysis techniques that can be used to control costs include but are not
limited to:
 Earned Value Analysis(EVA). 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.

 Variance Analysis. Variance analysis, as used in EVM, is the

explanation (cause, impact, and corrective actions) for cost
(CV = EV – AC), schedule (SV = EV – PV), and variance at completion
(VAC = BAC – EAC) variances. Cost and schedule variances are the
most frequently analyzed measurements.

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 Control Costs : Tools and Techniques

Figure 7-12. Earned Value, Planned Value, and Actual Costs 10

 Control Costs : Tools and Techniques
 Trend Analysis. Trend analysis examines project performance
overtime 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 estimate at completion (EAC) and completion
dates.

 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.

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 How to Control Project Cost

Influencing  The factors that create changes to baseline

Ensuring  All change requests are acted on in a timely manner

Managing  The actual changes when and as they occur

 That cost expenditures do not exceed the authorized

Ensuring
funding by period, WBS, activity, in total
 Cost performance to isolate and understand
Monitoring
variances
Monitoring  Work performance against funds expended

Preventing  Unapproved changes reported or resource usage;

 Appropriate stakeholders of all approved changes

Informing
and associated cost;
Bringing  Expected cost overruns within acceptable limits
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 Earned Value Management (EVM)
7.4.2.1 Earned Value Management

Earned value management (EVM) is a methodology that combines scope,

schedule, and resource measurements to assess project performance and
progress. It is a commonly used method of performance measurement for
projects. It integrates the scope baseline with the cost baseline, along with
the schedule baseline, to form the performance baseline, which helps the
project management team assess and measure project performance and
progress. It is a project management technique that requires the formation of
an integrated baseline against which performance can be measured for the
duration of the project. The principles of EVM can be applied to all projects
in any industry. EVM develops and monitors three key dimensions for each
work package and control account:
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 Elements of Cost
 Planned Value. Planned value (PV) is the authorized budget assigned to
scheduled work. It is the authorized budget planned for the work to be
accomplished for an activity or work breakdown structure component, not
including management reserve. This budget is allocated by phase over the life
of the project, but a given moment, planned value defines the physical work
that should have been accomplished. 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. Earned value (EV) is a measure of work performed
expressed in terms of the budget authorized for that work. It is the budget
associated with the authorized work that has been completed. The EV being
measured needs to be related to the PMB, and the EV measured cannot be
greater than the authorized PV budget for a component. The EV is often used
to calculate the percent complete of a project. Progress measurement criteria
should be established for each WBS component to measure work in
progress. Project managers monitor EV, both incrementally to determine
current status and cumulatively to determine the long-term performance
trends. Cont….. 14
 Elements of Cost
 Actual cost. Actual cost (AC) is the realized cost incurred for the work
performed on an activity during a specific time period. It is the total cost
incurred in accomplishing the work that the EV measured. The AC needs to
correspond in definition to what was budgeted in the PV and measured in the
EV (e.g., direct hours only, direct costs only, or all costs including indirect
costs). The AC will have no upper limit; whatever is spent to achieve the
EV will be measured.

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Actual value of completed or in-process work
Performance Measurement Baseline

PV and BAC
EV
Chart
PV EV AC
AC PV
January 0 0 0

February 2500 3800 6000

March 8000 8000 8000

EV April 13000 10000 8000

May 42000 38000 48000

June 62000

July 70700

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 Schedule Variance

 PV = $42, 000

 EV = $ 38,000

 AC= $ 48,000

 SV = EV – PV

= $ 38,000 - $ 42,000 = - $4,000

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 Cost Variance

 PV = $42, 000

 EV = $ 38,000

 AC= $ 48,000

 CV= EV – AC

= $ 38,000 - $ 48,000 = - $10,000

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CV Cost The amount of budget deficit or
Variance surplus at given point in time,
expressed as the difference
between the earned value and
the actual cost.
SV Schedule The amount by which the
Variance project is ahead or behind the
planned delivery date, at a
given point in time, expressed
as the difference between the
earned value and the planned
value.
Variances
The difference between the CV=EV-AC Positive=Under planned cost
value of work completed to a Neutral=On planned cost
point in time, usually the data Negative=Over planned cost
date, and the actual costs to
the same point in time.
The difference between the SV=EV-PV Positive=Ahead of Schedule
work completed to a point in Neutral=On schedule
time, usually the data date, Negative=Behind Schedule
and the work planned to be
completed to the same point in
time.

Index
CPI Cost A measure of the A CPI of 1.0 means the project is exactly CPI=EV/AC Greater than 1.0=Under
Performance cost efficiency of on budget, that the work actually done so planned cost
Index budgeted resources far is exactly the same as the cost so far. Exactly 1.0=On planned cost
expressed as the Other values show the percentage of how Less than 1.0=Over planned
ratio of earned much costs are over or under the cost
value to actual cost. budgeted amount for work accomplished.
SPI Schedule A measure of An SPI of 1.0 means that the project is SPI=EV/PV Greater than 1.0=Ahead of
Performance schedule efficiency exactly on schedule, that the work schedule
Index expressed as the actually done so far is exactly the same Exactly 1.0=On schedule
ratio of earned value as the work planned to be done so far. Less than 1.0=Behind schedule
to planned value. Other values show the percentage of how
much costs are over or under the
budgeted amount for work planned.

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PV = $42, 000

EV = $ 38,000

AC= $ 48,000

CPI= EV / AC
= $ 38,000 / $ 48,000 = $0.79

$0.79 worth of work was actually done for each $1.00 spent

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Earned Value Calculations for One Activity After Week One

ACTIVITY WEEK 1

Earned Value (EV) 7.500

Planned Value (PV) 10,000
Actual Cost (AC) 15,000
Cost Variance (CV) - 7,500
Schedule Variance (SV) - 2,500
Cost Performance Index (CPI) 50%
Schedule Performance Index (SPI) 75%

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 Project Management Question EVM Performance Measures

How are we doing time-wise? Schedule Analysis & Forecasting

-Are we ahead or behind schedule? -Schedule Variance (SV)

-How efficiently are we using time? -Schedule Performance Index (SPI)

How are we doing cost-wise? Cost Analysis & Forecasting

-Are we under or over our budget? -Cost Variance (CV)

-How efficiently are we using our resources? -Cost Performance Index (CPI)

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 Practice Qs
Your organization has won a Govt. funded four week project. Details of Budget
approved are given below,

Week 1

Budget Deliverable A alone $11,500

Find SV.

Week 2
CV, SPI,
Week 4

Budget Budget CPI of the

Deliverable Cricket Ground Deliverable
Project.
D alone B alone
Fencing Project
$15,500 $14,500 As on
status
Budget Deliverable C alone $17,500 date

Week 3

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 Practice Qs

Today is end of 3rd week and following work could be performed till date:

 Budgeted Cost of work performed for Deliverable A = 100% of Planned Work.

 Budgeted Cost of work performed for Deliverable B = 100% of Planned Work.

 Budgeted Cost of work performed for Deliverable C = 80% of Planned Work.

 Budgeted Cost of work performed for Deliverable D = Zero% of Planned Work.

 Cumulative Actual cost of work performed till status date = $42,200.

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Thank You