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Chapter 6 Cost Management. Ending the reliance on the budget variance. Chapter overview. Planning for cost management Estimating project costs Pulling the budget together Controlling project costs Crashing the schedule. Planning for cost management.

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Presentation Transcript
chapter 6 cost management

Chapter 6Cost Management

Ending the reliance on the budget variance

chapter overview
Chapter overview

Planning for cost management

Estimating project costs

Pulling the budget together

Controlling project costs

Crashing the schedule

planning for cost management
Planning for cost management

It is the planning process that establishes the policies, procedures and documentation for planning, managing, expending and controlling project costs, given different stakeholders -

contribute different amounts of funding

measure costs differently

report costs in different ways

control costs at different times

estimating project costs
Estimating project costs

Pre-determined

Expert judgement

Analogous

Group decision making

Unit rates

Published commercial data

Parametric

Vendor bid

Reserve

3 point

pulling the budget together
Pulling the budget together

Traditional

Zero based

Program

Top down

Bottom up

controlling project costs
Controlling project costs

Option 1

  • Traditional Budget
    • Budget – Actual = Variance
    • Reports a positive or negative value

Option 2

  • Earned value analysis
    • Planned value, Earned value, Actual cost
    • Historical and predictive performance analysis
crashing the schedule
Crashing the schedule

Cost Slope = Crash Cost – Normal Cost Normal Duration – Crash Duration

review questions
Review questions

How would a cost management plan address the challenges of managing project costs within the internal financial procedures and accounting codes of the organisation?

What are some of the challenges estimating project (resource) costs, and how can these be overcome?

What benefits do budgeting processes bring to projects, and what weaknesses to they possess?

What does traditional budgeting fail to report and control in project management?

How does earned value management provide for both schedule and cost performance reporting, analysis and forecasting?

group learning activities
Group learning activities

Discuss why a cost management plan is needed in addition to existing organisational financial systems, processes and controls

Review the estimating techniques and identify learner preference and rationale

Flowchart the budget preparation and management activities

Critique a budget report looking for how it addresses historical and forecast project performance

Discuss where earned value management may not be applicable (and why) in some projects

assessment options
Assessment options

Create a cost management plan that will be effective in guiding and directing how project costs are dealt with throughout the project

Develop a template for a non-traditional budget that captures more meaningful and relevant data

Generate an earned value report (Excel or MS Project) on a current report and assess both past and future performance

Short answer questions

Multiple choice questions