Project Cost Management

Saad Almeri, PMP, MSc

Cost Control Engineer
The Lecturer: Saad Almeri
• Civil Engineer
• Currently Working as Cost Control Engineer in a
multibillion infrastructure project in Sweden
• Master’s in Construction Project Management
from Chalmers University of Technology
• Graduated 2010, PMP Certified since 2015.
• Linkedin: https://www.linkedin.com/in/saadmerie/
Cost Management Course – Saad Almeri

Project Cost Management

Cost
Management
the process that establishes the policies, procedures, and
documentation for planning, managing, expending, and
controlling project costs. (PMBOK)

Estimate Determine Control

Costs Budget Costs
Cost Management Course – Saad Almeri

Project Cost Management

1. Estimate Costs

Costs Types:
• Indirect: All the costs that are not linked with the project’s activities
directly, like mobilization, office preparation, taxes, telephones.
• Direct: All the costs that are linked to project’s activities directly like
material costs that are subject to the variable quantities in the project.
Cost Management Course – Saad Almeri

Project Cost Management

1. Estimate Costs
Estimate Costs: Tools and Techniques
Analogous Estimating

• Use data from old project for same activity

• Activity should be same quantity
• Used when we don’t have a lot of information
• Pros: Low cost and Time
• Cons: Lack of Accuracy
Cost Management Course – Saad Almeri

Project Cost Management

1. Estimate Costs
Estimate Costs: Tools and Techniques
Parametric Estimating

• Depends on unit estimate

• Like square meter cost in construction
• Higher Accuracy
Cost Management Course – Saad Almeri

Project Cost Management

1. Estimate Costs
Estimate Costs: Tools and Techniques
Three-Point Estimating

Depend on Pert Technique:

cO: Optimistic cP: Pessimistic cM: Most Likely
Cost Management Course – Saad Almeri

Project Cost Management

1. Estimate Costs
Estimate Costs: Tools and Techniques
Reserve Analysis

Contingency Reserves Management Reserves

Known-unknowns Unknown-Unknowns

Accepted Identified Risks which have response Strategies

Unseen work inside scope

Can be % or fixed number

Not part of Cost Baseline
Included in Cost Baseline

Part of Overall Project Cost Requirements

Visited while executing

Documented When used it moves to Cost baseline through CR

Cost Management Course – Saad Almeri

Project Cost Management

1. Estimate Costs
Estimate Costs: Tools and Techniques
Cost of Quality (COQ)

Cutting off this costs

may increase Risks
Cost Management Course – Saad Almeri

Project Cost Management

1. Estimate Costs
Estimate Costs: Tools and Techniques
Vendor Bid Analysis

By offer the job or part of it to vendors

Group Decision-Making Techniques

• Brainstorming
• Nominal Group Techniques
• Delphi Technique
Cost Management Course – Saad Almeri

Project Cost Management

1. Estimate Costs
Estimate Costs: Outputs
Activity Cost Estimates

• Direct and Indirect Costs

• Inflation influence
• Contingency Reserves

Basis of Estimates

• How estimate done

• Assumptions and Constraints
• Level of Accuracy
Cost Management Course – Saad Almeri

Project Cost Management

2. Determine Budget
Determine budget: Outputs
Cost Baseline

• It is the Approved version of (Time Phased Project Budget)

• Used as basis of comparison

Project Budget

Cost Baseline

Management Reserves Work Package Cost Estimate

Contingency Reserves
Activity Contingency
Activity Cost Estimate
Reserves
Cost Management Course – Saad Almeri

Project Cost Management

2. Determine Budget
Determine budget: Outputs
Project Funding Requirements
Cost Management Course – Saad Almeri

Project Cost Management

Control • Check influences on Cost Baseline

Costs
• Manage Changes when happened
• Monitor expenses and compare it to funds
• Control cost performance and variance
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs

Tools &
Inputs Outputs
Techniques
.1 Earned value management .1 Work performance information
.1 Project management plan

.2 Forecasting .2 Cost forecasts

.2 Project funding requirements

.3 To-complete performance index (TCPI) .3 Change requests

.4 Performance reviews .4 Project management plan updates

.3 Work performance data

.5 Project management software .5 Project documents updates

.4 Organizational process assets

.6 Reserve analysis .6 Organizational process assets updates
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Earned Value Management

Term Definition Term Definition

EV Earned Value SV Schedule Variance

AC Actual Cost CV Cost Variance

PV Planned Value
SPI Schedule Performance Index
BAC = Budget Budget At Completion
CPI Cost Performance Index
EAC Estimate At Completion

ETC Estimate to Complete Budget of Remaining Work BAC – EV

VAC Variance at completion Remaining Funds BAC - AC

Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Earned Value Management

EV
SPI = SV = EV PV
PV
EV
CPI = CV = EV AC
AC
 Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Earned Value Management

SPI
Over Budget Under Budget
Ahead of Schedule Ahead of Schedule

0 1
CPI
Over Budget Under Budget
Behind Schedule Behind Schedule

0
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Earned Value Management

+
SV
Over Budget Under Budget
Ahead of Schedule Ahead of Schedule

- 0 +
CV
Over Budget Under Budget
Behind Schedule Behind Schedule

-
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Earned Value Management

Activity: Cutting the Grass

Budget Cost: 1000 SAR
Duration: 10 Days

After 5 Days:
• We spent 600 SAR
40
• We Finished 40% of the Field %
What is SPI,CPI,CV,SV for this activity?
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Earned Value Management

Actual Cost = 600 SAR

Planned Value= 5 Days x 100 SAR= 500 SAR
Cost= 600
Earned Value= 40% x 1000 SAR= 400 SAR

SPI = EV / PV = 400 / 500 = 0.8 40

CPI = EV / AC = 400 / 600 = 0.67

SV = EV – PV = 400 – 500 = -100

%
Value= 400
CV = EV – AC = 400 – 600 = -200
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Earned Value Management

1200

Over Budget
1000 AC
EV

Behind Schedule AC
EV

800 AC
EV

AC
EV

600 AC AC
EV
PV

400 EV

200

0
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Forecasting
1st Scenario: Continue as Planned
1400 Budget of Remaining Works = BAC -
EV EAC
1200

ETC = (BAC – EV) (/CPI=1) 1

1000 SPI = AC
EV AC
EV
,
= 1 BAC
CPI AC
EV
800 EAC = ETC + AC AC
EV
AC
EV
600 AC AC
EV

= 0.67 PV
400 CPI EV

200 VAC = BAC - EAC

0
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 + Day 10
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Forecasting
2nd Scenario: Consider Prev. CPI
1600 Budget of Remaining Works = BAC -
EAC
EV
1400

ETC = (BAC – EV) / CPI PI =1

1200
, S
0. 67 BAC
1000 = AC
EV AC
EV
EAC = ETC + AC CPI AC
EV
800 AC
EV
AC
EV
600
= 0.67 AC AC
EV
CPI PV
400 EV

200
VAC = BAC - EAC

0
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 +Day 10
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Forecasting
3rd Scenario: Consider Prev. CPI and SPI
2000 Budget of Remaining Works = BAC -
EAC
1800
EV

1600
ETC = (BAC – EV) / CPI x SPI
0.8
1400
SPI= BAC
,
1200
EAC = ETC + AC = 0.67
1000 CPI AC
EV AC
EV
AC
EV
800 AC
EV
AC
EV
600
= 0. 67 AC AC
EV
CP I PV
400 EV
VAC = BAC - EAC
200

0
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 + Day 10
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Forecasting

CPI and SPI =

CPI = 1 CPI = Current
Current

)
𝐸𝐴𝐶=𝐵𝐴𝐶/𝐶𝑃𝐼 𝐸𝐴𝐶= 𝐴𝐶+
(𝐵𝐴𝐶− 𝐸 V )
𝐶𝑃𝐼𝑥𝑆𝑃𝐼
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Forecasting

ETC = BAC – EV = 600

EAC = ETC + AC = 1200
VAC = BAC – EAC = -200
1 AC = 600

ETC = (BAC – EV) / 0.67 = 900 EV = 400

EAC = ETC + AC = 1500
VAC = BAC – EAC = -500
2 40 BAC = 1000

ETC = (BAC – EV) / 0.67*0.8 = 1125 % SPI = 0.8

EAC = ETC + AC = 1725
VAC = BAC – EAC = -725
3 CPI = 0.67
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
To-Complete Performance Index (TCPI)

EAC = BAC
EAC
ETC = EAC – AC BAC

T CPI
=
CPI

0 . 67
CPI =

VAC = 0
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
To-Complete Performance Index (TCPI)

TCPI: The required CPI to finish the project on the original budget
It is the most index to tell us what is the performance of the project
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
To-Complete Performance Index (TCPI)

EAC = BAC = 1000

ETC = EAC - AC = 400
VAC = BAC – EAC = 0
TCPI AC = 600
EV = 400

40 BAC = 1000

% SPI = 0.8
CPI = 0.67
Cost Management Course – Saad Almeri

Project Cost Management

3. Control Costs
Control Costs: Tools and Techniques
Performance Reviews

• Variance Analysis
• SV
• CV
• VAC
• The Accepted Variance get decrease with project progress
• Trend Analysis