1. P ROJECT M ANAGEMENT, PMI A PPROACH (PMP) P ROJECT C OST M ANAGEMENT Sayed Ahmed BSc. Eng. in CSc. & Eng. (BUET, Bangladesh) MSc. in CSc. (University of Manitoba, Canada) http://sayed.JustEtc.net http://www.JustETC.net sayed@justEtc.net, www.justEtc.net 1 Just E.T.C for Business, Education, Technology, and Entertainment Solutions Resources: Book: PMP in Depth by Dr. Paul Sanghera Book: The PMP Exam, How to Pass on Your First Try By Andy Crowe Project Management Lessons in Undergraduate Study Work Experience

2. W HAT DOES C OST I NVOLVE ? Costing Involves Cost to purchase, develop i.e. to have the system Operation cost Cost to disposal Value Engineering Get the most from a project Decrease cost Increase value Increase quality Shorten schedule Keep project scope not reduced 2 sayed@justEtc.net, www.justEtc.net

3. C OST E STIMATING When cost estimation is done? After project scope is defined and work breakdown structure is created But may be performed again and again over the total life cycle 3 sayed@justEtc.net, www.justEtc.net

4. C OST E STIMATING Tools Analogous Estimating Based on the similar actual projects Bottom up estimating Estimate cost for each activity and sum them - time consuming Parametric Estimating 1 mile road construction needs $400,000. So 10 miles will require $10*400,000 Reserve Analysis A buffer cost against slippage on the project Cost of Quality Costs required in order to get quality Output Activity Cost Estimates 4 sayed@justEtc.net, www.justEtc.net

5. C OST B UDGETING Cost Budgeting Maps costs and dates How much will be spent on what and when Also, termed Cost Baseline When is cost budgeting done? After activities are defined and scheduled Activity durations and resource requirements are also estimated 5 sayed@justEtc.net, www.justEtc.net

6. C OST B UDGETING Tools Cost Aggregation Activity level costs should be aggregated to the work level where they will be measured, managed, and controlled Reserve Analysis Financial reserve to protect projects against cost overrun Parametric Estimating Use simple straight forward formulas Funding Limit Reconciliation Comply with the project funding Many times funds are allocated even before the scope is defined Output Cost Baseline Project Funding requirements 6 sayed@justEtc.net, www.justEtc.net

7. C OST C ONTROL Cost Control Monitoring, controlling, adjusting costs When is it performed? Over the whole life cycle Bi-weekly or monthly analysis may be done Tools Cost Change Control System How the cost baseline may be changed Performance Measurement Analysis Calculate Earned Value, Planned Value, Actual Cost, Estimate to complete, Estimate at Completion, Cost Performance Index and similar to measure performance and control costs based on these Forecasting Use current and previous cost values to estimate future costs Variance Management 7 sayed@justEtc.net, www.justEtc.net

8. C OST C ONTROL Output Cost Estimate Update Cost Baseline Update 8 sayed@justEtc.net, www.justEtc.net

9. C OST M ANAGEMENT TERMS Earned Value The value the spent money brought to the project Just like double entry accounting system for every debit to an account there is a corresponding credit Budgeted at Completion (BAC) How much was originally planned for this project Planned Value (PV) Calculates how much of the project should be complete at a certain date according to the plan Planned Value = Planned%complete*BAC Earned Value (EV) How much is actually done during a period EV=Actual%Complete*BAC Actual Cost Money spent over the period 9 sayed@justEtc.net, www.justEtc.net

10. C OST M ANAGEMENT TERMS Cost Variance (CV) Difference between planned cost and actual cost. CV = EV – AC Schedule Variance (SV) Difference between the planned schedule and actual schedule (as:Where the project is in the schedule). SV=EV-PV Cost Performance Index (CPI) The rate at which the project cost is performing regarding cost expectations CPI is done for a given period of time. CPI = EV/AC Cumulative CPI It's the CPI from the project start time to a particular point in time. CCPI = CEV/CAC 10 sayed@justEtc.net, www.justEtc.net

11. C OST M ANAGEMENT TERMS Schedule Performance Index (SPI) The rate at which the project is performing in respect of schedule expectations up to a point in time SPI=EV/PV Estimate at Completion (EAC) Forecast the total cost at project completion based on the project performance up to a point in time. EAC = BAC/CCPI Estimate to Completion (ETC) How much more will be spent to complete the project based on past performance. Variance at Completion (VAC) Difference between what was budgeted and what will actually be spent. VAC = BAC - EAC 11 sayed@justEtc.net, www.justEtc.net

12. P ROJECT C OST M ANAGEMENT Project managers need to calculate these values to get a good understanding of the project cost He can get answers to questions like How much is spent? How much more are required? Is the project progress satisfactory in terms of cost? These will ultimately help in project cost control 12 sayed@justEtc.net, www.justEtc.net