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PMBOK Chapter 7 Project Cost Management

PMBOK Chapter 7 Project Cost Management. Cost management is:. The process involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. It includes the following. Cost Management processes. 7.1 Estimate cost

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PMBOK Chapter 7 Project Cost Management

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  1. PMBOK Chapter 7 Project Cost Management

  2. Cost management is: • The process involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. • It includes the following

  3. Cost Management processes • 7.1 Estimate cost • 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

  4. Cost Management Plan Definitions • Level of accuracy • Unit of Measure • Organizational procedures links • Control Thresholds • Rules of performance measurement

  5. Estimate Costs • Inputs, Tools, Techniques and Outputs

  6. Estimate Cost Flow Diagram

  7. Estimate cost inputs • Scope baseline • Scope statement • Work breakdown structure • WBS dictionary • Project Schedule • Human Resources Plan • Risk Register

  8. Estimate cost inputs • Enterprise Environmental Factors • Market conditions • Published commercial information • Organizational Process Assets • Cost estimating policies • Cost estimating templates • Historical information • Lessons learned

  9. Estimate Costs tools and techniques • Expert Judgment • Analogous Estimating • Parametric Estimating • Bottom-Up Estimating • Three-Point Estimates (PERT) • Most likely • Optimistic • Pessimistic • Expected = Optimistic + 4 * Most likely + Pessimistic 6

  10. Estimate Costs tools and techniques • Reserve Analysis • Cost of Quality (COQ) • Project management Estimating Software • Vendor Bid Analysis

  11. Estimate Costs Outputs • Activity costs estimates • Basis of Estimates • Documentation of the basis of the estimate (i.e., how it was developed), • Documentation of all assumptions made, • Documentation of any known constraints, • Indication of the range of possible estimates (e.g., $10,000 (+/- 10%) to indicate that the item is expected to cost between a range of values) • Indication of the confidence level of the final estimate • Project Document Updates

  12. Q: Analogous estimating: • a. Uses bottom-up estimation techniques • b. Is used most frequently in the executing phase of the project • c. Uses top-down estimation techniques • d. Uses actual detailed Historical costs • Answer C

  13. Determine Budget ProcessInputs, Tools, Techniques and Outputs

  14. Determine Budget ProcessFlow Diagram

  15. Determine Budget Inputs • Activity Cost Estimates • Basis of Estimates • Scope Baseline • Scope Statement • Work breakdown structure • WBS dictionary

  16. Determine Budget Inputs • Project Schedule • Resource Calendars • Contracts • Organizational process Assets • Existing policies • Cost budgeting tools • Reporting methods

  17. Determine Budget Tools and Techniques • Cost Aggregation • Work packages within WBS are aggregated • Reserve Analysis • Contingency reserves • Management reserves • Expert Judgment • Other units within Organization • Consultants • Stakeholders, including customer • Professional and technical associations • Industry groups • Historical Relation • Funding limit Reconciliation

  18. Determine Budget outputs • Cost Performance Baseline • S-Curve

  19. Determine Budget outputs • Project funding requirements • Project document updates • Risk register • Cost estimates • Project schedule

  20. Control Costs process • The process of monitoring the status of the project to update the project budget and managing changes to the cost baseline • Any changes to the budget should be approved only through the perform integrated change control process.

  21. Control Costs process • Project cost control includes: • Influencing the factors that create changes • All change requests are acted on in a timely manner • Managing the actual changes when they occur • Isolate an d Understand variance from approved cost baseline • Inform stakeholders of all approved changes and associate cost • Acting to bring cost overruns within acceptable limits

  22. Control Costs processInputs, Tools, Techniques and Outputs

  23. Control Costs process Flow Diagram

  24. Control Costs: Inputs • Project Management Plan • Cost Performance baseline • Cost management plan • Project Funding Requirements • Work Performance Information • Organizational Process Assets • Existing policies • Cost control tools • Monitoring and reporting methods to be used.

  25. Control Costs Tools and Techniques • Earned Value Measurement (EVM) To measure • The Planned Value =PV = BCWS, what is the estimated value of the work to be done? • The Earned Value = EV = BCWP, What is the estimated value of the work actually accomplished? • Actual Costs = AC = Actual Cost of Work Performed.

  26. Control Costs Tools and Techniques

  27. EVM Formulas

  28. Control Costs Tools and Techniques • Forecasting • EAC forecast for ETC work performed at the budgeted rate • EAC= AC+BAC- EV • EAC forecast for ETC work performed at the present CPI • EAC = BAC / Cumulative CPI to date • EAC forecast for ETC work considering both SPI and CPI factors • EAC = AC+[(BAC-EV) / (Cumulative CPI * Cumulative SPI)].

  29. Control Costs Tools and Techniques • To-Complete Performance Index (TCPI)

  30. Control Costs Tools and Techniques • Performance Reviews • Variance analysis • Trend Analysis • Earned Value Performance • Variance Analysis • Project Management Software

  31. Control Costs Outputs • Work Performance measurements • Budget Forecasts • Organizational Process Assets Updates • Causes of variances • Corrective actions chosen and the reasons • Lessons learned • Change Requests • Project management Plan Updates • Cost Performance baseline • Cost management plan • Project Document Updates • Cost estimates • Basis of estimate

  32. Q: If Earned Value (EV) = 350, Actual Cost (AC) = 400, Planned Value (PV) = 325, what is the Cost Variance (CV) ? • a. 350 • b. -75 • c. 400 • d. -50 • Answer D

  33. Q: The Schedule performance index (SPI) of 0.76 means: • a. We are over budget • b. We are ahead of schedule • c. We are only progressing at 76% of the rate originally planned • d. We are progressing at 24% of the rate originally • Answer C

  34. Play Time

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