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SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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PROJECT COST MANAGEMENT Make sure the project can be completed within the
approved budget. There are 4 processes
Plan Cost Management Estimate Cost Determine Budget Control Cost
Notes: Different stakeholders -> different ways to manage cost primarily concerned with the cost of the resources
needed to complete project activities
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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7.1 PLAN COST MANAGEMENTis the process that establishes the policies, procedures,
and documentation for planning, managing, expending, and controlling project costs.
Inputs Tool&Techniques Outputs
.Project management plan
.Project charter
.EEF
.OPA
.Expert Judment
.Analytical techniques
.Meetings
.Cost management plan
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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7.2 ESTIMATE COSTIs the process of developing approximation of the
monetary resources needed to complete project activities
Inputs Tool&Techniques Outputs
.Cost management plan
.Human resource management plan.Scope baseline.Project schedule.Risk register.Enterprise environmental factors.Organizational process assets
.Expert judgment .Analogous estimating .Parametric estimating .Bottom-up estimating .Three-point estimating .Reserve analysis .Cost of quality .Project management software .Vendor bid analysis.Group decision-making techniques
.Activity cost estimates
.Basis of estimates
.Project documents updates
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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TYPE OF COSTS Variable Costs
Change with the amount of production/work e.g. material, supplies, wages
Fixed Costs Do not change as production change e.g. set-up, rental
Direct Costs Directly attributable to the work of project e.g. team travel, recognition, team wages
Indirect Costs Not directly indentifiable, related to project product e.g. taxes, fringe benefit
Sunk Costs: is the cost that has already been incurred, and there is no way to recover
this cost.
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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QUALITY/ACCURACY OF COST ESTIMATION
• Most difficult to estimate as very little project info is available, made during initiating process
Estimate Accuracy
Rough Order of Magnitude(ROM)
+/- 50%
Budget Estimate
-10%+25%
Definitive Estimate
-5%10%
• Used to finalize the Request for Authorization (RFA), and establish commitment, made during planning phase
• During the project and refined
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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7.3 DETERMINE BUDGETis the process of aggregating the estimated costs of
individual activities or work packages to establish an authorized cost baselineInputs Tool&Techniques Outputs
.Cost management plan
.Scope baseline
.Activity cost estimates
.Basis of estimates
.Project schedule
.Resource calendars
.Risk register
.Aggreements
.EEF
.OPA
.Cost aggregation
.Reserse Analysis
.Expert Judment
.Historical relationships
.Funding limit reconciliation
.Cost baseline
.Project funding requirements.Project documents updates
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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MANAGEMENT RESERVE, CONTIGENCY RESERVE Contingency reserves: the cost impacts of the remaining risk Management reserves: extra fund to cover unforeseen risk or
changes to the project
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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COST BASELINE is the approved version of the time-phased project budget,
excluding any management reserves, only be changed through formal change control procedures and is used as a basis for comparison to actual results.
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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7.4 CONTROL COSTis the process of monitoring the status of the project to
update the project costs and managing changes to the cost baseline.Inputs Tool&Techniques Outputs
.Project management plan
. Project funding requirements.Work performance data.OPA
.Earned value management
.Forcasting
.To-complete performance index (TCPI).Performance reviews.Project management software.Reserse Analysis
.Work performance information.Cost forecast.Change requests.Project management plan updates.Project documents updates.OPA updates
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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EARNED VALUE MANAGEMENT Method to measure project performance against scope, schedule
and cost baseline (performance measurement baseline) Importance measurement informations:
Cost Variance (CV) Schedule Variance (SV) Cost Performance Index (CPI) Schedule Performance Index (SPI)
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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EARNED VALUE TECHNIQUE
Terms and Formulas Definition
Earned Value (EV) As of today, what is the estimated value of the work actually accomplished?
Actual Cost (AC) As of today, what is the actual cost incurred for the work accomplished?
Planned Value (PV) As of today, what is the estimated value of work planned to be done?
Cost Variance (CV)= EV - AC
Negative is over budgetPositive is under budget
Schedule Variance (SV)= EV - PV
Negative is behind schedulePositive is ahead schedule
Cost Performance Index (CPI) = EV/AC
We are getting $__ worth of work out of every $1 spent. Are funds being used efficiently?
Schedule Performance Index (SPI) = EV/PV
We are (only) progressing at __ percent of the rate originally planed
Example
$100K
$200K
$300K
$100K – $200K = ($100K)
$100K - $300K= ($200K)
$100K/$200K= 0.5 i.e. 50%
$100K/$300K= 0.33 i.e 33%
Example:Project Budget: $400KProject Schedule: 4 months
At the 3 month
checkpoint:Spent: $200KWork completed: $100K
Revised Total Duration Baseline Duration/Schedule Performance Index4/0.33
= 12 months
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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EARNED VALUE TECHNIQUE (CON’T)
Terms and Formulas Definition
Budget at completion (BAC) How much did we BUDGET for the TOTAL project effort?
Estimate at Completion (EAC)= BAC / CPI
What do we currently expect the TOTAL project cost (a forecast)?
Estimate to Complete (ETC)= EAC - AC
From this point on, how much MORE do we expect it to cost to finish the project (a forecast)?
Variance at Completion (VAC)= BAC – EAC
As of today, how much over or under budget do we expect to be at the end of the project?
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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EXAMPLE OF EVM
TIME
COST
ScheduleVariance (SV)
CostVariance(CV)
ACTUAL
PLAN
EARNVALUE
Estimate at Completion
(EAC)
Budget at Completion
(BAC)
Projection of schedule
delay at completion
Projection of cost
variance at
completion(VAC)
TODAY(Reporting
day)
BAC
EAC
AC
EV
PV
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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EXAMPLE OF EVM
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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TO-COMPLETE PERFORMANCE INDEX (TCPI) Helps the team determine the efficiency that
must be achieved on the remaining work for a project to meet a specified endpoint, such as BAC or the team’s revised EAC
TCPI AC)- (EAC or – AC)(BAC Remaining Funds
EV) – (BAC Remaining Work
SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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REVIEW Project cost management? 4 processes of time management?
Plan Cost Management Estimate Cost Determine Budget Control Cost
Type of costs? Quality/Accuracy of Cost Estimation? Management reserve? Contigency reserve? Cost baseline? CV? SV? CPI? SPI? BAC? EAC? ETC? VAC? TCPI?