Project Management Professional

Dr. Ahmed Hassan, PgMP, PMP, RMP,PBA

PMP
 Project Cost Management

Today Plan Cost Management

Outlines Estimate Costs

Determine Budget

Project budget

Control Costs

Earned Value Management

7. PROJECT
COST MANAGEMENT

Presented by:

Dr. Ahmed Hassan

PMO Director, MCIT
Certified Project Managers Trainer
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Project Cost Management

Project Cost Management includes the

processes involved in planning,
estimating, budgeting, financing, funding,
managing, and controlling costs so that
the project can be completed within the
approved budget
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Project Management Process Groups
Knowledge Areas
Initiating Planning Executing Monitoring and Controlling Closing
4. Project Integration 4.1 Develop 3. Direct and Manage Project Work 5. Monitor and Control Project Work 4.7 Close
4.2 Develop Project Management Plan
Management Project Charter 4. Manage Project Knowledge 6. Perform Integrated Change Control Project
5.1 Plan Scope Management
5. Project Scope 5.2 Collect Requirements 5.5 Validate Scope
Management 5.3 Define Scope 5.6 Control Scope
5.4 Create WBS
6.1 Plan Schedule
6.2 Define Activities
6. Project Schedule
6.3 Sequence Activities 6.6 Control Schedule
Management
6.4 Estimate Activity Durations
6.5 Develop Schedule Management
7.1 Plan Cost Management
7. Project Cost
7.2 Estimate Costs 7.4 Control Costs
Management
7.3 Determine Budget
8. Project Quality
8.1 Plan Quality Management 8.2 Manage Quality 8.3 Control Quality
Management
9.3 Acquire Resources
9. Project Resource 9.1 Plan Resource Management
9.4 Develop Team 9.6 Control Resources
Management 9.2 Estimate Activity Resources
9.5 Manage Team
10. Project
Communications 10.1 Plan Communications Management 10.2 Manage Communications 10.3 Monitor Communications
Management
11.1 Plan Risk Management
11.2 Identify Risks
11. Project Risk
11.3 Perform Qualitative Risk Analysis 11.6 Implement Risk Responses 11.7 Monitor Risks
Management
11.4 Perform Quantitative Risk Analysis
11.5 Plan Risk Responses
12. Project Procurement
12.1 Plan Procurement Management 12.2 Conduct Procurements 12.3 Control Procurements
Management
13. Project Stakeholder 13.1 Identify
13.2 Plan Stakeholder Engagement 13.3 Manage Stakeholder Engagement 13.4 Monitor Stakeholder Engagement
Management Stakeholders

2 24 10 12 1
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Key concepts for Project Cost Management

TAILORING CONSIDERATIONS
Project Cost Management processes are applied. Considerations for
tailoring include :
• Knowledge management.
• Estimating and budgeting.
• Earned value management.
• Use of agile approach.
• Governance.
 MONITORING
& CONTROLLING

PLANNING

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7.1 Plan Cost Management

7.1 Plan Cost Management

Inputs Tools & Techniques Outputs

1. Project charter 1. Expert judgment .1 Cost management plan

2. Project management plan 2. Data analysis
• Schedule management plan 3. Meetings
• Risk management plan
3. EEF
4. OPA
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7.1 Plan Cost Management Input

01 PROJECT CHARTER

02
PROJECT MANAGEMENT PLAN

03 ENTERPRISE ENVIRONMENTAL FACTORS

04 ORGANIZATIONAL PROCESS ASSETS

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7.1 Plan Cost Management Tools & Techniques

01 Expert judgment

02
Data Analysis

03 Meetings
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7.1 Plan Cost Management Output

01
Cost management plan
Describes how the project costs will be planned, structured, and
controlled.
• Units of measure.
• Level of precision. rounded up or down.
• Level of accuracy. The acceptable range (e.g., ±10%).
• Organizational procedures links. Each control account is
assigned a unique code or account number(s) that links
directly to the performing organization’s accounting system.
• Control thresholds. the percentage deviations from the
baseline plan.
• Rules of performance measurement. EVM rules
• Reporting formats. The formats and frequency for cost
reports.
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7.2 Estimate Costs

7.2 Estimate Costs

Inputs Tools & Techniques Outputs

. 1 Project management plan 1. Expert judgment 1. Cost estimates

• Cost management plan 2. Analogous estimating 2. Basis of estimates

• Quality management plan 3. Parametric estimating 3. Project documents updates

• Scope baseline 4. Bottom-up estimating • Assumption log

2. Project documents 5. Three-point estimating • Lessons learned register

• Lessons learned register 6. Data analysis • Risk register

• Alternatives analysis
• Project schedule
• Reserve analysis
• Resources requirements
• Cost of quality
• Risk register
7. PMIS
3. EEF
8. Decision making
4. OPA
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7.2 Estimate Costs Input

01 PROJECT MANAGEMENT PLAN

02
PROJECT DOCUMENTS

03
ENTERPRISE ENVIRONMENTAL FACTORS
04
ORGANIZATIONAL PROCESS ASSETS
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7.2 Estimate Costs Tools & Techniques

01 Expert Judgment

02 Analogous Estimating

03 Parametric Estimating
04
Bottom-up Estimating
05
Three-point Estimating
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06 PMIS

07 Decision Making
08 Data Analysis
Alternatives Analysis - Reserve Analysis - Cost Of Quality.
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7.2 Estimate Costs Output

01
COST ESTIMATES
Include quantitative assessments of the costs required to complete project
work, as well as contingency amounts to account for identified risks, and
management reserve to cover unplanned work.
• Direct cost : labor, materials, equipment, information technology,Etc
• Indirect costs: can be included at the activity level or at higher levels.

02 BASIS OF ESTIMATES
should provide a clear and complete understanding of how the cost estimate
was derived.

03 PROJECT DOCUMENTS UPDATES

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Assumption log - Lessons learned register - Risk register
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7.3 Determine Budget

7.3 Determine Budget

Inputs Inputs Tools & Techniques Outputs

Outputs
1. Project management plan 1. Expert judgment 1. Cost baseline
• Cost management plan 2. Cost aggregation 2. Project funding requirements
• Resource management plan
3. Data analysis 3. Project documents updates
• Scope baseline
• Reserve analysis • Cost estimates
2. Project documents
• Basis of estimates
4. Historical information review • Project schedule

• Cost estimates 5. Funding limit reconciliation • Risk register

• Project schedule 6. Financing
• Risk register
3. Business documents
• Business case
• Benefits management plan
4. Agreements
5. EEF
6. OPA
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7.3 Determine Budget

A project budget includes all the funds authorized to

execute the project.

The cost baseline is the approved version of the

time-phased project budget that includes
contingency reserves, but excludes management
reserves.
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7.3 Determine Budget Input

01 Project management plan

Cost management plan - Resource management plan - Scopebaseline
02 Project documents
Basis of estimates - Cost estimates - Project schedule - Risk register
03 Business documents
Business case - Benefits management plan
04
Agreements
05
Enterprise environmental factors
06
Organizational process assets
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7.3 Determine Budget Tools & Techniques

01 EXPERT JUDGMENT

02 COST AGGREGATION
The work package cost estimates are then aggregated for the
higher component levels of the WBS (such as control accounts)
and, ultimately, for the entire project.
03

04
DATA ANALYSIS

HISTORICAL INFORMATION REVIEW

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Assist in developing parametric estimates or analogous estimates.

05 FUNDING LIMIT RECONCILIATION

The expenditure of funds should be reconciled with any funding limits on
the commitment of funds for the project.

06 FINANCING: Financing entails acquiring funding for projects.

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PROJECT BUDGET.

6. Management Reserves
Project Budget.
5. Control Accounts

4. Contingency Reserve

3. Work Package Cost Estimates

2. Activity Contingency Reserve Cost Baseline

1. Activity Cost Estimates

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7.3 Determine Budget Output

01
COST BASELINE
It is the approved version of the project budget, excluding any
management reserves, Can only be changed through formal change
control procedures.
02 PROJECT FUNDING REQUIREMENTS
 Total funding requirements and periodic funding requirements (e.g.,
quarterly, annually) are derived from the cost baseline.
 Total funds required are those included in the cost baseline plus
management reserves
03 PROJECT DOCUMENTS UPDATES
Cost estimates - Project schedule - Risk register
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Project budget.
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Project budget.

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7.4 Control Costs

7.4 Control Costs

Inputs Tools & Techniques Outputs

1. Project management plan 1. Expert judgment 1. Work performance information

•Cost management plan 2. Data analysis 2. Cost forecasts
•Cost baseline
• Earned value analysis 3. Change requests
•Performance measurement
• Variance analysis 4. Project management plan updates
baseline
2. Project documents • Trend analysis •Cost managementplan

• Lessons learned register • Reserve analysis •Cost baseline

3. Project funding requirements 3. To-complete performance index •Performance measurement
4. Work performance data 4. PMIS baseline
5. EEF
5. Project documents updates
6. OPA
• Assumption log
• Basis of estimates
• Cost estimates
• Lessons learned register
• Risk register
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7.4 Control Costs Input

01
Project management plan
• Cost management plan
• Cost baseline
• Performance measurement baseline

02 Project documents
• Lessons learned register

03 Project funding requirements

04 Enterprise environmental factors

05
Organizational process assets
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7.4 Control Costs Tools & Techniques

01 EXPERT JUDGMENT
02
DATA ANALYSIS
 Earned value analysis (EVA). compares the performance measurement baseline to
the actual schedule and cost performance.
 Planned value (PV) :The Budgeted Cost of Work Scheduled so far at a specific
date.
 Earned value (EV) :Budgeted Cost of Work Performed.
 Actual cost (AC) :The total expenditure for the work so far at a specific date.
 Schedule variance (SV) : SV = EV – PV
Positive = Ahead of Schedule / 0 = On schedule / Negative = Behind Schedule
 Cost variance (CV) : CV = EV – AC
Positive = Under Budget / 0 = On Budget / Negative = Over Budget
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7.4 Control Costs Tools & Techniques

 The cost variance at the end of the project will be the difference between the budget
at completion (BAC) and the actual amount spent.
VAC = BAC – EAC

 Schedule performance index (SPI) is a measure of schedule efficiency expressed as

the ratio of earned value to planned value. It measures how efficiently the project
team is accomplishing the work.
SPI = EV/PV.
SPI < 1.0 indicates less work was completed than was planned.
SPI > 1.0 indicates that more work was completed than was planned.
SPI = Neutral indicates On schedule

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7.4 Control Costs Tools & Techniques

 Cost performance index (CPI) is a measure of the cost efficiency of budgeted

resources,
CPI = EV/AC
CPI < 1.0 indicates a cost overrun
CPI > 1.0 indicates a cost underrun of performance to date.
CPI= Neutral indicates a cost On planned cost

 Trend analysis examines project performance over time to determine if

performance is improving or deteriorating.
 Reserve analysis

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Example : Required: PV, EV, AC, SV, CV, SPI, CVI

Cost/Unit Quantity
Budget 1,000 120
Actual 1,200 130

PV (BCWS) =1,000 x 120 = 120,000

EV (BCWP) =1,000 x 130 = 130,000
AC (ACWP) =1,200 x 130 = 156,000
Variance :
SV = EV - PV = 130,000 - 120,000 = 10,000 (Ahead of Schedule)
CV = EV - AC = 130,000 - 156,000 = -26,000 (Over Budget)
Performance Index
SPI = EV / PV = 130,000 / 120,000 = 1.083 (Ahead of Schedule)
CPI = EV / AC = 130,000 / 156,000 = 0.833 (Over Budget)
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7.4 Control Costs Tools & Techniques

 Forecasting. the project team may develop a forecast (EAC) that may differ from
the budget at completion (BAC) based on the project performance

1. If the CPI is expected to be the same for the remainder of the project,
EAC = BAC/CPI

2. If future work will be accomplished at the planned rate,

EAC = AC + BAC – EV

3. If the initial plan is no longer valid,

EAC = AC + Bottom-up ETC

4.If both the CPI and SPI influence the remaining work,
EAC = AC + [(BAC – EV)/(CPI x SPI)]
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7.4Control Costs Tools & Techniques

03
TO-COMPLETE PERFORMANCE INDEX
A measure of the cost performance that must be achieved with the remaining resources
in order to meet a specified management goal,
• The efficiency that must be maintained in order to complete on plan.
TCPI = (BAC – EV)/(BAC – AC)

• The efficiency that must be maintained in order to complete the current EAC.
TCPI = (BAC – EV)/(EAC – AC)
TCPI > 1.0 Harder to complete
TCPI = 1.0 Same to complete
TCPI <1 .0 Easier to complete
04 PROJECT MANAGEMENT INFORMATION SYSTEM (PMIS)
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 Exercise
Earned Value Management

Assume 4 equal sides, budget 200$ per side, schedule 1 side per day. Finish
4 days & cost 800$.
• Day1: side 1 complete, budget of 200$ spent.
• Day2: side 2 started but not complete, Incurred cost will be 220$
• Day3: side 2 completed, and half of side 3 completed but team left
early and only spent 140$
Where we are now? Ahead or Behind
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EVM Example:
 Exercise
Earned Value Management
• Project of Highway Paving 100 Km; for each 10 Km we need a month with cost
100 k$, total project budget is 1 million and duration 10 Month.
• MONTH1: 10 km complete, budget of 90k spent.
• MONTH2: 15 km complete, budget of 150k spent.
• MONTH3: 15 km complete, budget of 110k spent.
• MONTH4: 10 km complete, budget of 100k spent.

Where we are now? Ahead or Behind $

 Answer
• PV ; EV ; AC ;
• CV= EV-AC
• SV=EV-PV
• CPI = EV/AC
• SPI = EV/PV

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 Answer

• PV = 100 + 100 + 100 + 100 = 400 k

• EV = (10+15+15+10)=50 km * 100k = 500k
• AC = 90 + 150 + 110 + 100 = 450 k
• CV= EV-AC = 500 – 450 = 50
• SV=EV-PV = 500 – 400 = 100
• CPI = EV/AC = 500 /450 = 1.1
• SPI = EV/PV = 500 / 400 = 1.25
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7.4 Control Costs Output

01 Work performance information

02 Cost forecasts

03 Change requests

04
Project management plan updates
• Cost management plan
• Cost baseline
• Performance measurement baseline
05
Project documents updates
• Assumption log
• Basis of estimates
• Cost estimates
• Lessons learned register
• Risk register
Project Management Professional
(Thanks)

Presented by:

Dr. Ahmed Hassan

PMO Director, MCIT
Certified Project Managers Trainer