PROJECT COST MANAGEMENT

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Presentation transcript:

PROJECT COST MANAGEMENT Ir. AGUNG NUGROHO, M.Kom Teknik Elektro FT UNDIP

OVERVIEW Project Management Knowledge Area Project Integration Management Project Scope Management Project Time Management Project Cost Management Project Quality Management Project Human Resources Management Project Communication Management Project Procurement Management Project Risk Management

OVERVIEW How to Achieve Project Success? By balancing stakeholders’ competing demands for : Cost Time Scope Quality

PROJECT COST MANAGEMENT Project Cost Management includes the processes involved in planning, estimating, budgeting, and controlling costs so that the project can be completed within the approved budget (PMBOK, Third Edition) Cost Estimating Cost Budgeting Cost Controlling

PROJECT COST MANAGEMENT 1. Cost Estimating Developing an approximation of the costs of the resources needed to complete project activities 2. Cost Budgeting Aggregating the estimated costs of individual activities or work packages to establish a cost baseline 3. Cost Controlling Influencing the factors that create cost variances and controlling changes to project budget

PROJECT COST MANAGEMENT Cost Estimating Cost Budgeting 3. Cost Controlling

PROCESS FLOW DIAGRAM

Project Cost Classification (1/3) Direct Cost Direct Materials Direct Labor Cost Indirect Cost Supervisory Cost Construction Equipment / Tools Overhead Cost Office and its facilities Benefits

Project Cost Classification (2/3) Other Classification (1) Expenses Office Facilities Transportation & Traveling Accommodation Personnel Labor Cost Supervisory Cost Material Cost Permanent Materials Subcontracting Cost Works

Project Cost Classification (3/3) Other Classification (2) Manpower (Direct & Indirect) Material (Direct & Indirect) Equipment Subcontracts

Factors Influencing Cost Type of Contract Unit Rate, Lump Sum, Cost Plus Fee Payment Terms Down Payment, Milestone, Periodic Scope of Responsibilities Construction, Design & Build (EPC), Turnkey, BOT Monetary Factors Interest Rate, Exchange Rate, Escalation Clause Degree of Uncertainty (Risk Factor) Project Implementation Period & Timing Accessibility / Location Constructability & Suitability of the Design

Cost Estimating

Cost Estimating A good estimate depends on: Project Complexity and Size Requirements Stability Past Experience The Moment When the Estimate is Done

Cost Estimating Methods Analogous / Top-Down Estimating Using actual cost from previous, similar project as the basis for estimating the current project (uses expert judgment) Bottom-Up Estimating Estimate cost per individual or work package (based on WBS) are rolled up to get a project total cost Parametric Estimating Use mathematical model to predict project cost (eq. cost per linear meter or cost per installation)

Cost Estimate Accuracy WBS Level Types of Estimates Estimating Methods Data Collection Contingency Accuracy (%) 1 Preliminary cost estimates Parametric Rough project scope 15 - 30 (-30 - +50) 2, 3 Budget Estimates Analogy Project scope & capacity General specification Rough Unit Price 10 – 15 (-15 - +30) 4, 5, 6 Definitive Cost Estimate Project Data Well-defined project plan Vendor quotes Specification Unit Price 5 – 10 (-5 - +15)

Estimation Accuracy vs. Time [Boehm et al., "Cost Models for Future Software Life Cycle Processes: COCOMO 2.0« , Annals of Software Engineering, 1995]

Cost Budgeting

Cost Budgeting Methods (1/2) Cost Aggregation Aggregated for the higher component level of the WBS, such as control accounts Reserve Analysis Budget reserved for unplanned, but potentially required, changes to project scope and cost. Project Manager must obtain approval before obligating or spending this reserve Parametric Estimating Use mathematical model to predict project cost (eq. cost per linear meter or cost per installation)

Cost Budgeting Methods (2/2) 8. Cost Budgeted $1,423 7. Management Reserve $68 6. Cost Baseline $1,355 5. Contingency Reserve $105 4. Project $1,250 3. Control Account $850 $400 2. Work Packages $250 $100 $500 1. Activities $25 $25 $25 $25

Cost Budgeting Outputs (1/3) Cost Baseline The cost baseline is a time-phased budget that is used as basis against which to measure, monitor, and control overall cost performance on the project Project End Award Preliminary Budget Project Budget Control Budget 2 – 3 months After Detailed Design

Cost Budgeting Outputs (2/3) Project Funding Requirement Total and Periodic Funding Requirement are derived from the cost baseline and can be established to exceed, usually by margin, to allow for either early progress or cost overruns. Usually Not-continuous, as step fuction

Cost Budgeting Outputs (3/3)

Cost Control

Cost Control Project Cost Control includes: Influencing the factors that create changes to the cost baseline Ensuring requested changes are agreed upon Managing the actual changes when and as they occur Assuring that potential cost overruns Monitoring cost performance Recording all appropriate changes Preventing incorrect changes Informing appropriate stakeholders of approved changes Acting to bring expected cost overruns within acceptable limits

Cost Control Input to Cost Control Performance reports Change requests Performance reports provide information on project scope and cost performance, such as which budgets have been met and which have not Performance reports may also alert the project team to issues that may cause problems in the future Change requests Change requests may occur in many forms—oral or written, direct or indirect, externally or internally initiated, and legally mandated or optional Changes may require increasing the budget or may allow decreasing it

Cost Control

Cost Reporting vs Cost Control Know what has to be done (control estimate) Know what has been done (commitment record) Know how much has been achieved (earned value) Know what remains to be done (forecast) Cost Control Know how performance compares to the budget Minimize cost overruns (corrective action) Check results of action taken (follow-up)

Performance Measurement Analysis and Forecasting by EARNED VALUE Integrates scope, cost, and schedule measures to help the project management team assess project performance Methods of measuring project performance, by comparing the amount of work planned with what was actually accomplished to determine if cost and schedule performance is as planned Enable the project manager to detect deviations from plan as soon as the occur and to take appropriate corrective action

EARNED VALUE ANALYSIS Calculating 3 (three) keys values for each activity: Planned Value (PV), also called the Budgeted Cost of Work Scheduled (BCWS) Portion of the approved cost estimate planned to be spent on the activity during a given period Actual cost (AC), also called the Actual Cost of Work Performed (ACWP) Total of direct and indirect costs incurred in accomplishing work on the activity during a given period Earned Value (EV), also called the Budgeted Cost of Work Performed (BCWP) A percentage of the total budget equal to the percentage of the work actually completed

EARNED VALUE – Terms to Know Acronym Term Interpretation PV Planned Value What is the estimated value of the work planned to be done? (BCWS = Budgeted Cost of Work Scheduled) EV Earned Value What is the estimated value of the work actually accomplished? (BCWP = Budgeted Cost of Work Performed) AC Actual Cost What is the actual cost incurred for the work accomplished? (ACWP = Actual Cost of Work Performed) BAC Budget at Completion How much did we BUDGET for the TOTAL project effort? EAC Estimate at Completion What do we currently expect to TOTAL project to cost? ETC Estimate to Completion From this point on, how much MORE do we expect it to cost to finish the project? VAC Variance at Completion How much over or under budget do we expect to be at the end of the project?

EARNED VALUE – Formula & Interpretation Name Formula Interpretation Cost Variance (CV) EV – AC NEGATIVE = over budget POSITIVE = under budget Schedule Variance (CV) EV – PV NEGATIVE = behind schedule POSITIVE = ahead of schedule Cost Performance Index (CPI) EV AC We are getting $____ worth of work out of every $ 1 spent. Funds are not being used efficiently Schedule Performance Index (SPI) PV We are progressing at ___ percent of the rate originally planned Estimate at Completion (EAC) There are many ways to Calculate EAC, depending on the assumptions made. As of now, how much do we expect the total project to cost? $____. See formulas at the left 1.) BAC CPI - Used if no variances from BAC have occurred or you will continue at the same rate of spending.

EARNED VALUE – Formula & Interpretation Name Formula Interpretation 2.) AC + ETC - Actual plus new estimate for remaining work. Used when original estimate was fundamentally flawed 3.) AC + (BAC – EV) - Actual to date plus remaining budget. Used when current variances are thought to be a typical of the future. AC plus the remaining value of work to perform 4.) AC + (BAC – EV) CPI - Actual to date plus remaining budget modified by performance. Used when current variances are thought to be typical of the future Estimate to Completion (ETC) EAC – AC How much more will the project cost? Variance at Completion (VAC) BAC – EAC How much over or under budget will we be at the end of the project

EARNED VALUE – EAC vs ETC Original Plan Today BAC PV Current ETC EAC AC

EARNED VALUE – Graphics Cost / Value Budget At Completion Planned Value Schedule Variance Cost Variance Cumulative Value Earned Value Actual Cost Time Data Date

EARNED VALUE – Graphics PV EV AC $ 4 BAC EAC ETC3 cv3 sv3 $ 3 $ 2 $ 1 Period-1 Period-2 Period-3 Period-4

EARNED VALUE – CPI vs SPI Over Budget CPI = 1 On Budget CPI > 1 Under Budget SPI < 1 Behind Schedule SPI = 1 On Schedule SPI > 1 Ahead Schedule

EARNED VALUE – example (1) CPI<1, SPI<1 Activity Month-1 Month-2 Month-3 Month-4 Status End of Month-3 House-1 Complete, Spent $1,000 House-2 Spent $1,100 House-3 50% done, Spent $600 House-4 Not yet started 4,000 ??? 2,700 1,000 3,000 600 2,100 1,000 1,000 2,000 1,100 1,100 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Month-1 Month-2 Month-3 Month-4

EARNED VALUE – example (1) CPI<1, SPI<1 What Is : Calculation Answer Interpretation of the answer PV 1,000+1,000+1,000 3,000 We should have done $3,000 worth of works EV Complete + Complete + 50% Done 1,000+1,000+500 2,500 We have actually completed $2,500 worth of work AC 1,000+1,100+600 2,700 We have actually spent $2,700 BAC 1,000+1,000+1,000+1,000 4,000 Our Project Budget is $4,000 CV 2,500 – 2,700 – 200 We are over budget by $200 CPI 2,500 / 2,700 0.926 We are only getting $0.926 out of every dollar we put into the project

EARNED VALUE – example (1) CPI<1, SPI<1 What Is : Calculation Answer Interpretation of the answer SV 2,500 – 3,000 – 500 We are behind schedule SPI 2,500 / 3,000 0.833 We are only progressing at 83.3% of the rate planned EAC 4,000 / 0.926 4,319 We currently estimate that the total project will cost $4,319 ETC 4,319 – 2,700 1,619 We need to spent $1,619 to finish the project VAC 4,000 – 4,319 – 319 We currently expect to be $319 over budget when the project is completed

EARNED VALUE – example (1) CPI<1, SPI<1 PV EV AC $4,319 $4,000 $3,000 $2,000 $1,000 Month-1 Month-2 Month-3 Month-4

EARNED VALUE – example (2) CPI>1, SPI>1 Activity Month-1 Month-2 Month-3 Month-4 Status End of Month-3 House-1 Complete, Spent $1,000 House-2 Spent $900 House-3 Complete, Spent $900 House-4 50% done, Spent $400 3,200 4,000 ??? 400 1,000 3,000 1,000 900 1,000 2,000 1,900 1,000 900 1,000 900 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Month-1 Month-2 Month-3 Month-4

EARNED VALUE – example (2) CPI>1, SPI>1 What Is : Calculation Answer Interpretation of the answer PV 1,000+1,000+1,000 3,000 We should have done $3,000 worth of works EV Complete + Complete + Complete + 50% Done 1,000+1,000+1,000+500 3,500 We have actually completed $3,500 worth of work AC 1,000+900+900+400 3,200 We have actually spent $3,200 BAC 1,000+1,000+1,000+1,000 4,000 Our Project Budget is $4,000 CV 3,500 – 3,200 300 We are under budget by $300 CPI 3,500 / 3,200 1.094 We are getting $1.094 out of every dollar we put into the project

EARNED VALUE – example (2) CPI>1, SPI>1 What Is : Calculation Answer Interpretation of the answer SV 3,500 – 3,000 500 We are ahead of schedule SPI 3,500 / 3,000 1.167 We are progressing at 116.7% of the rate planned EAC 4,000 / 1.094 3,656 We currently estimate that the total project will cost $3,656 ETC 3,656 – 3,200 456 We need to spent $456 to finish the project VAC 4,000 – 3,656 344 We currently expect to be $344 under budget when the project is completed

EARNED VALUE – example (2) CPI>1, SPI>1 PV EV AC $4,000 $3,656 $3,000 $2,000 $1,000 Month-1 Month-2 Month-3 Month-4

EARNED VALUE – example (3) CPI>1, SPI<1 Activity Month-1 Month-2 Month-3 Month-4 Status End of Month-3 House-1 Complete, Spent $1,000 House-2 Spent $900 House-3 50% done, Spent $400 House-4 Not yet started 4,000 ??? 1,000 3,000 2,300 1,000 400 1,000 2,000 1,900 1,000 900 1,000 900 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Month-1 Month-2 Month-3 Month-4

EARNED VALUE – example (3) CPI>1, SPI<1 What Is : Calculation Answer Interpretation of the answer PV 1,000+1,000+1,000 3,000 We should have done $3,000 worth of works EV Complete + Complete + 50% Done 1,000+1000+500 2,500 We have actually completed $2,500 worth of work AC 1,000+900+400 2,300 We have actually spent $2,300 BAC 1,000+1,000+1,000+1,000 4,000 Our Project Budget is $4,000 CV 2,500 – 2,300 200 We are under budget by $200 CPI 2,500 / 2,300 1.087 We are getting $1.087 out of every dollar we put into the project

EARNED VALUE – example (3) CPI>1, SPI<1 What Is : Calculation Answer Interpretation of the answer SV 2,500 – 3,000 – 500 We are behind schedule SPI 2,500 / 3,000 0.833 We are only progressing at 83.3% of the rate planned EAC 4,000 / 1.087 3,680 We currently estimate that the total project will cost $3,680 ETC 3,680 – 2,300 1,380 We need to spent $1,380 to finish the project VAC 4,000 – 3,680 320 We currently expect to be $320 under budget when the project is completed

EARNED VALUE – example (3) CPI>1, SPI<1 PV EV AC $4,000 $3,680 $3,000 $2,000 $1,000 Month-1 Month-2 Month-3 Month-4

EARNED VALUE – example (4) CP<1, SPI>1 Activity Month-1 Month-2 Month-3 Month-4 Status End of Month-3 House-1 Complete, Spent $1,000 House-2 Spent $1,100 House-3 House-4 50% done, Spent $500 3,700 4,000 ??? 500 1,000 3,000 1,100 2,100 1,000 1,000 2,000 1,100 1,100 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Month-1 Month-2 Month-3 Month-4

EARNED VALUE – example (4) CP<1, SPI>1 What Is : Calculation Answer Interpretation of the answer PV 1,000+1,000+1,000 3,000 We should have done $3,000 worth of works EV Complete + Complete + Complete + 50% Done 1,000+1,000+1,000+500 3,500 We have actually completed $3,500 worth of work AC 1,000+1,100+1,100+500 3,700 We have actually spent $3,700 BAC 1,000+1,000+1,000+1,000 4,000 Our Project Budget is $4,000 CV 3,500 – 3,700 – 200 We are over budget by $200 CPI 3,500 / 3,700 0.946 We are only getting $0.946 out of every dollar we put into the project

EARNED VALUE – example (4) CP<1, SPI>1 What Is : Calculation Answer Interpretation of the answer SV 3,500 – 3,000 500 We are ahead of schedule SPI 3,500 / 3,000 1.167 We are progressing at 116.7% of the rate planned EAC 4,000 / 0.946 4,228 We currently estimate that the total project will cost $4,228 ETC 4,228 – 3,700 528 We need to spent $528 to finish the project VAC 4,000 – 4,228 – 228 We currently expect to be $228 over budget when the project is completed

EARNED VALUE – example (4) CP<1, SPI>1 PV EV AC $4,228 $4,000 $3,000 $2,000 $1,000 Month-1 Month-2 Month-3 Month-4

ECONOMIC ANALYSIS STANDARDS Present Value : (PV) = FV/(1+r)n Net Present Value (NPV) : The present value of the total benefits (income or revenue) less the cost. Higher NPV is better Internal Rate of Return (IRR) : Refer to the interest rate in financial market. Higher IRR is better Payback Period : The number of periods it takes to recover your investment. Benefit Cost Ratio (BCR) : Benefit to cost comparison. BCR>1 = benefits are greater then the cost. BCR<1 = the cost are greater then the benefits Opportunity Cost : Cost opportunity given up by selecting one project over another

Thank You