Project Cost Management

Primarily concerned with the cost of the resources needed to complete project activities.

Plan Cost Management

The process that establishes the policies, procedures and documentation for planning, managing, expending and controlling project costs.  It provides guidance and direction on how the project costs will be managed throughout the project.

Plan Cost Management - Inputs

• Project Management Plan -
• Scope Baseline - Project scope statement and WBS detail for cost estimation and management 
• Scheduled Baseline - Defines when the project costs will be incurred
• Other Information - cost-related scheduling, risk and communications decisions from the project management plan
• Project Charter
• Enterprise Environmenal Factors
• Organizational Process Assets

Plan Cost Management - Tools and Techniques

• Expert Judgment -
• Guided by historical information, provides valuable insight about the environment and information from prior similar projects
• Based upon expertise in an application area, knowledge area, discipline, industry, etc as appropriate for the activity being performed
• Analytical Techniques -
• May involve choosing strategic options to fund the project
• May detail ways to finance project resources
• Organizational policies and procedures may influence which financial techniques are empliyed in these decisions
• Meetings - Project team develop the cost management plan

Plan Cost Management - Outputs

Cost Management Plan - Describes how the project costs will be planned, structured and controlled. Can establish the following:

• Units of Measure
• Level of Precision
• Level of Accuracy
• Organizational Procedures Links 
• control Thresholds
• Rules of Performance Measurements
• Reporting Formats
• Process Descriptions
• Additonal Details

Estimate Costs

The process of developing an approximation of the monetary resources needed to complete project activities.  It determines the amount of cost required to complete project work.

ROM

Rough Order of Magnitude - Estimate of the range of costs

Estimate Costs - Inputs

• Cost Management Plan
• Human Resource Management Plan
• Scope Baseline
• Project Scope Statement
• Work Breakdown Structure (WBS)
• WBS Dictionary
• Project Schedule
• Risk Register
• Enterprise Environmental Factors
• Market conditions
• Published Commercial Information
• Organizational Process Assets
• Cost estimating policies
• Cost estimating templates
• Historical information
• Lessons learned 

Estimate Costs -

Tools and Techniques

• Expert Judgment 
• Analogous Estimating
• Parametric Estimating
• Bottom-Up Estimating
• Three-Point Estimating
• Reserve Analysis
• Cost of Quality (COQ)
• Project Management Software
• Vendor Bid Analysis
• Group Decision-Making Techniques

Analogous Estimating

• Uses the values such as scope, cost, budget and duration or measures of scale such as size, weight and complexity from a previous, similar project as the basis for estimating the same parameter or measurement for a current project.
• Is frequently used to estimate a value when there is a limited amount of detailed information about the project.
• Generally less costly and less time consuming than other techniques, but is also generally less accurate.  Most reliable when the previous projects are similar in fact and not just in appearance.

Parametric Estimating

Uses a statistical relationship between relevant historical data and other variables to calculate a cost estimate for project work.

Bottom-Up Estimating

Method of estimating a component of work.  The cost of individual work packages or activities is estimated to the greatest level of specific detail.  The detailed cost is then summarized or "rolled up" to higher levels for subsequent reporting and tracking purposes.

Three-Point Estimating

•  Most Likely (cM) - The cost of the activity, based on realistic effort assessment for the required work and any predicted expenses.
• Optimistic (cO) = The activity cost based on analysis of the best-case scenario for the activity
• Pessimistic (cP) - The activity cost based on analysis of the worst-case scenario for the activity 
• Triangular Distribution - cE=(cO+cM+cP)/3
• Beta Distribution - cE=(cO+4cM+cP)/6

Triangular Distribution

cE = (cO + cM + cP)

       3

Cost Estimate = Optimistic cost + Most likely cost +

                        Pessimistic cost divided by 3

Beta Distribution

cE = (cO + 4cM + cP)

   6

Cost Estimate = Optimal cost + 4*Most likely cost +    

                        Pessimistic cost divided by 6

Reserve Analysis

(Contingency Allowances)

May include contingency reserves to account for cost uncertainty.  The budget within the cost baseline that is allocated for identified risks, which are accepted and for which contingent or mitigating responses are developed.

Management reserves are an amount of the project budget withheld for management control purposes and are reserved for unforeseen work that is within scope of the project.  When this is used, the amount is added to the cost baseline, thus requiring an approved change to the cost baseline.

Cost of Quality (COQ)

Assumptions may be used to prepare the activity cost estimate

Project Management Software

Applications, computerized spreadsheets, stimulation and statistical tools used to assist with cost estimating

Vendor Bid Analysis

Analysis of what the project should cost based on the responsive bids from qualified vendors.