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

2. 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

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

4. 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

5. 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

6. PROJECT COST MANAGEMENT
Cost Estimating
Cost Budgeting
3. Cost Controlling

7. PROCESS FLOW DIAGRAM

8. 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

9. 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

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

11. 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

12. Cost Estimating

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

14. 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)

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

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

17. Cost Budgeting

18. 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)

19. 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

20. 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

21. 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

22. Cost Budgeting Outputs (3/3)

23. Cost Control

24. 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

25. 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

26. Cost Control

27. 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)

28. 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

29. 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

30. 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?

31. 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.

32. 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

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

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

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

36. 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

37. 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

38. 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,
2,500
We have actually completed $2,500 worth of work AC
1,000+1,
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

39. 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

40. 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

41. 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

42. 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,
3,500
We have actually completed $3,500 worth of work AC 1,
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

43. 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

44. 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

45. 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

46. 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,
2,500
We have actually completed $2,500 worth of work AC 1,
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

47. 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

48. 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

49. 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

50. 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,
3,500
We have actually completed $3,500 worth of work AC
1,000+1,100+1,
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

51. 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

52. 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

53. 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

54. Thank You