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What is cost management Overview of Cost Management processes Take a look at some sample questions
Agenda
7.1 Estimate Costs The process of developing an approximation of the monetary resources needed to complete project activities. 7.2 Determine Budget The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. 7.3 Control Costs The process of monitoring the status of the project to update the project budget and managing changes to the cost baseline.
Costs Process
A cost estimate is a quantitative assessment of the likely costs for resources required to complete the activity.
Risk Register (as input) should be reviewed for risk mitigation costs Analogous Estimating
Uses the values of parameters, such as scope, cost, budget, and duration or measures of scale such as size, weight, and complexity This technique relies on the actual cost of previous, similar projects as the basis It is a gross value estimating approach Generally less costly and less time consuming than other techniques, but it is also generally less accurate
Parametric Estimating Uses a statistical relationship between historical data and other variables (e.g., square footage in construction) to calculate an estimate for activity parameters, such as cost, budget, and duration. This technique can produce higher levels of accuracy Bottom-up Estimating is a method of estimating a component of work The detailed cost is then summarized or rolled up to higher levels
Three-Point Estimates The accuracy of single-point activity cost estimates can be improved by considering estimation uncertainty and risk This concept originated with the Program Evaluation and Review Technique (PERT) PERT analysis calculated an expected (CE) activity cost using a weighted average of three estimates, Most Likely, Optimistic, and Pessimistic
Reserve Analysis
Cost estimates may include contingency reserves (sometimes called contingency allowances) to account for cost uncertainty Cost estimating methods may include analysis of what the project should cost, based on the responsive bids from qualified vendors
Accuracy of Estimates
7. 1 Estimate Costs 7.2 Determine Budget 7.3 Control Costs
Rough Order of Magnitude (ROM) +/-50% from actual Budget Estimate -10 % to +25% Definitive Estimate +/- 10%
Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. This baseline includes all authorized budgets, but excludes management reserves. Project cost performance will be measured against the authorized budget
Earned Value Management (EVM) Note that EV comes first in all formulae Formulaeformula is EV minus some thing Variances If it is a variance, the
1. 2. SV = EV PV CV = EV AC
If it is an index, the formula is EV divided by some thing If the formula is related to cost use AC
Performance Index
3. 4. SPI = EV/PV CPI = EV/AC
Interpretations
Negative variances are bad
1.
2. EAC forecast for ETC work performed at the budgeted rate 3. If past is not reflection of future costs
EAC = AC + Bottom-up ETC
5. EAC forecast for ETC work considering both SPI and CPI factors
EAC = AC + [ (BAC EV) /(CPI * SPI) ]
1.
2. % Completed Actual
Activity A B C
Earned Value =90 (120*75 /100 ) =160 (200*80 /100 ) =50 (100*50 /100 )
D SUM
300 720
90
260
613
TCPI based on EAC = Work remaining (BAC-EV)/Funds remaining (EAC-AC) = (720-570)/(774.32-613) = 0.93
You have a project to build a new fence. The fence is four sided, 10 meter long each side. Each side to take 1 day, and budgeted for Rs 1000 per side. At the end of Day-3, 25 meters of fencing is done and spent Rs 2800. Calculate below EVM measures
EVM Exercise
PV EV AC BAC
CV
VAC
Lifecycle costing Looking at the cost of whole lifecycle of product, not jus the cost of the project Value analysis involves finding a less costly way to do the same work. Also known as value engineering. Types of costs i. Variable costs change with the amount of production ii. Fixed costs do not change as production changes iii. Direct costs these costs are directly attributable to the work on the project iv. Indirect costs costs incurred for the benefit of more than one project
Few definitions