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| Project Cost Management Processes: |
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Definition
Plan Cost
Estimate Costs
Determine Budgets
Control Costs |
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| are revenues minus expenditures |
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| is the ratio of revenues to profits |
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| considers the total cost of ownership, or development plus support costs, for a project |
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| determines the estimated annual costs and benefits for a project and the resulting annual cash flow |
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| benefits are those costs or benefits that an organization can easily measure in dollars |
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| Intangible costs or benefits |
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| costs or benefits that are difficult to measure in monetary terms |
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| costs that can be directly related to producing the products and services of the project |
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| costs that are not directly related to the products or services of the project, but are indirectly related to performing the project |
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| is money that has been spent in the past; when deciding what projects to invest in or continue, you should not include sunk costs in a budget |
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| Cost estimates are influenced by many factors including labor rates, materials cost, economic factors, risk factors, etc. Expert judgment provides insights into evaluation of these factors into cost estimation. |
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| Using values such as scope, cost estimates, time estimates, complexity from similar projects. Use actual costs from prior project and adjust for known differences. This is a part of cost estimation. |
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| Uses statistical techniques to predict from historical data. Can produce higher levels of estimates depending on the sophistication of the statistical techniques. |
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| Uses WBS to estimate each component of work. The costs of each work package is the rolled up into subtotals for tasks. |
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| Contingency reserves (contingency allowances). Can be percentage of estimated cost, an actual $ figure or determined through parametric analysis |
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| Rough order of magnitude (ROM) |
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| Accuracy ranges from -25% to +75% (just know large range). Usually used in initiation process to establish high-level budget. |
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| Accuracy ranges from -10% to +25% (just know medium range). Usually used in planning process to establish early budget estimates. Also used in top-down estimating (Using prior project to estimate project costs) |
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| Accuracy ranges from -5% to + 10% (just know small range). Usually used late in planning phase and in bottom-up estimating (use of WBS) |
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| Earned Value Management (EVM) |
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Definition
- Method of performance measurement. It integrates project scope, costs and schedule to help project team assess status, performance and progress. EVM monitors 3 key dimensions:
-Planned Value
-Earned Value
- Actual Cost
This is a part of "Control Costs" |
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| formerly called the budgeted cost of work scheduled (BCWS), also called the budget, is that portion of the approved total cost estimate planned to be spent on an activity during a given period |
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| formerly called actual cost of work performed (ACWP), is the total of direct and indirect costs incurred in accomplishing work on an activity during a given period |
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| formerly called the budgeted cost of work performed (BCWP), is an estimate of the value of the physical work actually completed |
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All start wit hEV
-V =EV-AC
- SV=EV -PV
- CPI=EV / AC
- SPI=EV/PV
Variance means subtract
Index means divide
Less than 1 is bad in an index
Negative is bad in a variance |
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Cost variance is the difference between the earned value and the actual cost.
CV = EV -AC |
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Schedule variance is the difference between the earned value and the planned value.
SV = EV -PV |
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| Cost Performance Index (CPI) |
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Cost performance index is the amount of work the project is completing per dollar spent on the project.
CPI= EV /AC |
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| Schedule Performance Index (SPI) |
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Cost performance index reveals how close the project is to being on schedule.
SPI= EV /PV |
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| Estimate to Complete(ETC) |
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| Estimate to completion is a “best guess” as to how much money it will take to complete the project. |
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| Estimate at Completion(EAC) |
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| Estimate at completion is a “best guess” as to what the total cost of the project will be based on the experiences with the project so far. |
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| Control Cost Cause of Variation |
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Definition
- Things beyond our control (force majeure)
- Bad planning
- Poorly designed contracts
- Unrealistic cost estimates
- Unrealistic time estimates
- Changes in technology
- Changes in regulations
- Laissez-faire project management
- Poor risk management |
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| To Complete Performance Index |
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| is a forecast of cost performance that must be attained on remaining work in order to meet a specified management goal or goals. This is a part of cost control |
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