Chapter 15 Cost Control. Do Project Managers Control Costs, Monitor Costs Or Both?. Cost Management. Cost estimating Cost accounting Project cash flow Company cash flow Direct labor costing Overhead rate costing Others, such as incentives, penalties, and profit-sharing.
WBS: 31.03.02 Work order no: D1385
Date of original release:03 Feb 01
Date of revision: 18 March 01
Revision number: C
Cost Work Work
Centers Hours Cost Starts Ends
- Test Material 2400 150 R4500 1 Aug 15 Sept
- Processing 2610 160 R7500
- Final inspection 2621 140 R3500
- Packaging 2623 46 R 750
- Delivery 2624 R 350
Project office authorization signature:________________
Description of task_____
CACN No. _____________ Revision to Cost Account No. ____________ Date ___________
DESCRIPTION OF CHANGE:
REASON FOR CHANGE:
Requested Budget Authorized Budget
Labor Hours _________________ _________________ Period of performance
Materials _________________ _________________ From _____________
ODCS _________________ _________________ To _____________
Funded Contract Change
INITIATED BY: ____________________________ APPROVALS: Program Mgr. ________
Prog. Control ________
reports To All Execs
A NEGATIVE VARIANCE INDICATES A COST OVERRUN
CV = BCWP - ACWP
SV = BCWP - BCWS
A NEGATIVE VARIANCE INDICATES
A BEHIND SCHEDULE CONDITION
SCHEDULE VARIANCE % =
COST VARIANCE % =
VARIANCE UPPER BOUNDARY
ACTUAL COST VARIANCE
VARIANCE LOWER BOUNDARY
Variance reporting is accomplished at each reporting interval. However, the variance threshold reports are exception reports and occur only when the variances exceed the upper and lower boundaries of the project variances envelope.
Cost account no/cam
Cost performance data
BCWS BCWP ACWP SCHED COST
Month to date ($)
Problem cause and impact
Corrective action (including expected recovery date)
Cost account Date Cost center Date WBS element Date Date
Mgr. Mgr. Mgr.
HALF OF THE BUDGET FOR EACH ELEMENT IS RECORDED AT THE TIME THAT THE WORK IS SCHEDULED TO BEGIN AND THE OTHER HALF AT THE TIME THE WORK IS SCHEDULED TO BE COMPLETED.
FOR A PROJECT WITH A LARGE NUMBER OF ELEMENTS THE AMOUNT OF DISTORTION FROM SUCH A PROCEDURE IS MINIMAL.
Budgeted cost for work
Budget - 6
Cost account budget = 100
BCWS = 38
BCWP = 49
SCHED. VARIANCE = +11
50-50 rule used for work in process
J F MA M J J AS O N D
BCWS = 34,000
BCWP = 33,000
BAC = 52,000
CUMMULATIVE COST, $
Budget at completion
The estimate at completion is the best estimateof the total cost at the completion of the project.
The EAC is a periodic evaluation of the status of the project - usually on a monthly basis or until a significant change has been identified.
Progress reporting needs to answer four fundamental questions:
1. Where are we today (time and cost)?
2. Where will we end up (time and cost)?
3. What are the present and future risks?
4. Are there any special problems that need to be
addressed and what can management do to help?
1. VARIANCE ANALYSIS (Cost in Thousands) 1 June 1997
Budgeted Budgeted Cost
Milestone Cost Work Work Actual Variance, %
Subtask Status Scheduled Performed Cost Schedule Cost
1Completed 100 100 100 0 0
2 Completed 50 50 55 0 -10
3Completed 50 50 40 0 20
4Not Started 70 0 0 -100 --
5 Completed 90 90 140 0 -55.5
6 Not started 40 0 0 -100 --
7 Started 50 50 25 0 50
8Not started 0 0 0 -- --
Total 450 340 360 -24.4 -5.9
EAC = (360/340) X 579,000 = $613,059
Overrun = 613,059 - 579,000 = $34,059
3. COST SUMMARY
Costs are running approximately 5.9% over budget due to higher salaried labor.
4. SCHEDULE SUMMARY
The 24.4% behind schedule condition is due to subtasks 4 and 6 which have not yet begun due to lack of raw materials and the 50/50 method for booking costs. Overtime will get us back on schedule but at an additional cost of 2.5% of direct labor costs.
Milestone/ Scheduled Projected Actual
Subtask Completion Completion Completion
1 4/1/97 4/1/97
2 5/1/97 5/1/97
3 5/1/97 4/23/97
4 7/1/97 7/1/97
5 6/1/97 6/1/97
6 8/1/97 8/1/97
7 9/1/97 9/1/97
8 10/1/97 10/1/97
(a) Lack of raw Cost overruns and Overtime is scheduled.
materials. behind schedule We will try to use lower
condition. salaried staff. Raw
materials are expected
to be on dock next week.
(b) Customer un- May need add- Customer will provide
happy with test itional planning. us with revised statement
results. of work on 6/15/97.
- Inadequate Work Breakdown Structure
- Poor work definition at working levels
- Lack of formal system procedures
- Inadequate forward planning
- Over-allocation of budget
- Poor integration of budget, schedule, work authorization
- Inability to account for cost of material on applied basis
- Determination of status not based on work package completion
- Comparison of actual vs. planned costs at improper level
- Failure to maintain valid measurement baseline