Project Cost Management

LECTURE WEEK 6
DR. S AIF ULL AH
 Introduction
To ensure that the project is completed within the approved budget
It includes
Resource planning
It involves determining what physical resources and what quantities of each
should be used and when they would be needed to perform project
activities.
Cost estimation
The process of developing an approximation of the monetary resources
needed to complete project activities.
Cost budgeting
The process of aggregating the estimated costs of individual activities or work
packages to establish an authorized cost baseline.
Cost control
The process of monitoring the status of the project to update the project costs
and managing changes to the cost baseline.
Resource planning
A construction project team will need to be familiar with local building codes
such as knowledge is often readily available from local sellers. If the local labor
pool lacks experience with unusual or specialized construction techniques, the
additional cost for a consultant might be the most effective way to secure
knowledge of the local building cost.
Input to resource planning
1. WBS
it identifies the project deliberated and processes that will need resources and
thus is the primary input to resource planning.

2. Historical information
Type of resources were required for similar work in previous projects…
Input to resource planning
3. Resource Rates
The individual or group preparing the estimates must know the unit rates for
each resources to calculate the project cost.

4. Activity duration estimation

6. Historical Information
Project files
Commercial cost
Project team knowledge
Input to resource planning
7. Chart of Accounts
It describes the coding structure used by the performing organization to report
financial information in its general ledger.

8. Risks
Tools and Techniques Resource
Planning
1. Expert Judgment
2. Alternatives identification
3. Project Management Software
Output of Resource Planning
1. Resource Requirements
The output of the resource planning process is a description of what type of
resources are required and in what quantities for each element at the lowest
cost of the WBS.
Cost Estimation
 It involves developing an approximation of the costs of the resources needed
to complete the project activities.
It involves developing an assessment of the likely quantitative results, how
much will it cost the performing organization to provide the product or service
involved?
Tools and Techniques Cost
Estimation
1. Analogous estimating
Also called top down estimation. It includes using the actual cost of previous,
similar project as the basis for estimating the cost of the current project. It is
used when there is limited information.
It is less costly than other techniques.
2. Parametric Molding
It uses the project characteristics in a mathematical model to predict project
cost. They are reliable when the historical information is used to develop the
models, the parameters used are quantifiable and model is scalable.
Tools and Techniques Cost
Estimation
3. Bottom up Estimation
It involves the estimating the cost of individual activity or work packages, then
summarizing or rolling if the individual estimates to get the project.
4. Computerized tools
Project management software, spreadsheets and simulation/ statistical tools are
used to assist the cost .
5. Other methods
Vender bids analysis etc
Output of Cost Estimation
1. Cost Estimates
Quantitative assessments of the likely costs of the resources required to
complete the project.
2. Supporting Details
Description of the scope of work estimated.
Documentation of the assumptions made
 documentation of the basis of estimates
Output of Cost Estimation
3. Cost Management Plan
It describes how cost variances will be managed. It may be formal or informal,
highly detailed or broadly framed, based on the needs of the project
stakeholders.
Cost Budgeting
It involves allocating the overall cost estimates to individual activities or work
packages to establish a cost baseline for measuring project performance.
Inputs to Cost Budgeting
1. Cost Estimates
2. Work Breakdown structure
It can give the information of project elements to which costs will be allocated.
3. Project Schedule
It includes planned start and expected finished dates for the project components
to which costs will be allocated. This information is needed to assign costs to the
time period when the cost will be incurred.
Inputs to Cost Budgeting
1. Risk Management Plan
The risk management plan often includes cost contingency, which can be
determine on the basis of the expected accuracy o f the estimates.
Tools and Techniques Cost
Budgeting
1. Analogous estimating
Also called top down estimation. It includes using the actual cost of previous,
similar project as the basis for estimating the cost of the current project. It is
used when there is limited information.
It is less costly than other techniques.
2. Parametric Molding
It uses the project characteristics in a mathematical model to predict project
cost. They are reliable when the historical information is used to develop the
models, the parameters used are quantifiable and model is scalable.
Tools and Techniques Cost
Budgeting
3. Bottom up Estimation
It involves the estimating the cost of individual activity or work packages, then
summarizing or rolling if the individual estimates to get the project.
4. Computerized tools
Project management software, spreadsheets and simulation/ statistical tools are
used to assist the cost .
5. Other methods
Vender bids analysis etc
Output of Cost Budgeting
1. Cost Baseline
The cost baseline is a time phased budget that will be used to measure and
monitor cost performance on the project. It is developed by summing estimated
costs by period and is usually displayed in the form of an S-curve.
Cost Control
It is concerned with,
Influencing the factors that create changes to the cost baseline to ensure that
changes are agreed upon,
Determining that the cost baseline has changed
Managing the actual changes when and as they occur
Inputs for Cost Control
1. Cost Baseline
2. Performance Reports
They can provide the information on project scope and cost performance, such
as which budgets have bee met and which have not.
It can also alert the project team to issue that may cause problems in the future.
3. Change Requests
It can occur in many forms, oral or written, direct or indirect. They can increase
the budget.
Inputs for Cost Control
3. Cost management Plan
Tools and Techniques for Cost
Control
1. Cost change control System
It can define the procedures by which the cost baseline may be changed.
It includes the paper work, tracking systems and approval levels necessary for
authorizing changes.
The cost change control system should be integrated with the integrated
change control system.
Tools and Techniques for Cost
Control
2. Performance Measurement
Performance measurement techniques, helps to assess the magnitude of any
variation that do occur.
Earned value management is especially used for cost estimation.
Determine what is causing the variation and decide if the variance require
corrective action?
Tools and Techniques for Cost
Control
3. Earned Value Measurement
All EVM control account plans must continuously measure project performance
by relating three independent variables, i.e.,
i) the planed value, the physical work scheduled to be performed for work
schedule.
Ii) the earned value, physical work actually accomplished, including the
estimated value of this work
Iii) actual cost incurred to accomplish the schedule variance
Tools and Techniques for Cost
Control
4. Additional Planning
Prospective changes may require new ir revised cost estimates or analysis of
alternative approaches.
5. Computerized Tools
PM software or spreadsheets
outputs of Cost Control
1. Revised Cost Estimates
2. Budget Updates
3. Corrective Actions
4. Estimate at Completion
An estimate of most likely total project costs based on project performance and
risk quantification.
outputs of Cost Control
5. Project Closeout
Processes and procedures should be developed for the closing or cancelling of
projects.

6. Lessons Learned