1. MEC-3
Control Costs

2. Agenda Cost Baseline Project Funding Requirements
Inputs to Control Cost
Outputs from Control Cost
Tools & Techniques for Controlling Cost
Agile, Waterfall

3. Cost Baseline
Approved Version of the Time Phased Cost Budget for the Project (Spending Plan indicating how much money is approved for the Project and when the Funds are required – the Cash Flow Plan)
Excludes Management Reserves
Developed as a summation of the approved budgets for the different Schedule Activities
Agile, Waterfall

4. Project Funding Requirements
Forecast Project Costs to be paid that are derived from the Cost Baseline for Total or Periodic Requirements
Includes Projected Expenditures plus Anticipated Liabilities
Management Reserves are not part of the Cost Baselines but they are part of the Project Funding requirements. Therefore, the difference between the Cost Baseline and Funding requirement at Project completion is Management Contingency Reserve
Agile, Waterfall

5. Cost Baseline & Management ReservePV AC
Agile, Waterfall

6. Project Budget & Cost Baseline
Agile, Waterfall

7. Simple CBS & Project Budgeting
Management Reserve
Cost Baseline
Control Accounts
Agile, Waterfall
Work Packages
Activities

8. Simple CBS & Project Budgeting
3,050
Management Reserve
Figures at bottom are Contingency Reserve for that Activity or Work Package
500
Cost Baseline
2,550
650
Control Accounts
1,900
Agile, Waterfall
700
350 75
750
550
100
Work Packages
135 15
220 30
260 40
250 50
360 90
Activities

9. Control Costs Inputs & Outputs
PCMP (PMP)
Cost Baseline (Budget)
WPD (D&M PW)
OPA
WPI
Change Request
PMP Updates
PD Updates
OPA Updates
Control Costs
Proj Funding Requirements
6. Cost Forecasts
Agile, Waterfall

10. Control Costs Inputs Input Details Project Cost Management Plan
How the Project Costs will be Controlled
Project Budget
Cost Baseline
WPD
Activities that have Started
Activities’ Progress
Finished Deliverables
Costs Incurred
OPA
Cost Control-related Policies, Procedures & Guidelines
Control Cost Tools
Monitoring & Reporting Methods
Project Funding Requirements
Projected Expenditures
Anticipated Liabilities
Agile, Waterfall

11. Control Cost Outputs 1/2 Output Details WPI
CV & CPI values for WBS components, in particular the Work Packages and Control Accounts
Change Request
Based on Cost Variance Analysis, Recommendations for:
Changes to Baselines (Cost, Scope etc)
Corrective, Preventive Actions & Defect Repairs
PMP Updates
Based on Change Requests, projected Changes to:
Cost Baseline viz Activity Cost Estimates etc
PCMP, such as changes to Control Thresholds, or specified Levels of Accuracy reqd in managing the Project’s Cost, or Changes based on Stakeholders’ feedback
PD Updates
Cost estimates
Basis of estimates
Agile, Waterfall

12. Control Cost Outputs 1/2 Output Details OPA Updates
Causes of Variances
Corrective Action chosen and the Reasons
Financial Databases
Other types of lessons learned from Project Cost Control
Cost Forecast
EAC, ETC, VAC, TCPI for the Remaining Project
Agile, Waterfall

13. Control Costs Tools & Techniques
Tool Category
Tools
Performance Reviews
EVM
TCPI
Forecasting
Variance Analysis
Trend Analysis
Reserve Analysis
Project Management Software
e.g. MS Project
Agile, Waterfall

14. Earned Value Management (EVM)
Tool to determine both Cost & Schedule Variances
Key Terms (Some common with Schedule Variance, others specific to Schedule Variance:
Budget At Completion (BAC)
Planned Value (PV)
Earned Value (EV)
Actual Cost (AC)
Cost Variance (CV)
Cost Performance Index (CPI)
Current Cost Performance
Agile, Waterfall
Forecast Cost Performance
Estimate At Completion (EAC)
Estimate To Complete (ETC)
Variance At Completion (VAC)
To Complete Performance Index (TCPI)

15. EVM – Simplified Example
Procurement Project
200 heavy duty concrete security blocks. This is Project Scope
Total Cost: Rs 2,000K. This is BAC
Rs 10K per block; 200 blocks deliverable in blocks per day. This is Cost Baseline
Contract Type: Cost Reimbursable
Situation at the end of Day 10
80 blocks delivered; Contractor invoiced Rs 900K for these 80 blocks. This is WPD
Analysis (WPI)
80 blocks should have cost: 80 x Rs 10K = Rs 800K. This is EV
At the end of Day 10, 100 blocks should have been delivered, which would have cost: 100 x Rs 10K = Rs 1,000K. This is PV
These 80 blocks actually invoiced/cost Rs 900K. This is AC
Agile, Waterfall

16. EVM Cost Performance - Simplified Example
PROJ BUDGET = 2, = 2,150
MGT 7.5% = 150
BAC = 2,000 PV AC CV EV
Cost Baseline
CV = 800K-900 = -100
CPI = 800/900 = 0.89

17. EVM Cost Performance - Simplified Example
PROJ BUDGET = 2, = 2,150
MGT 7.5% = 150
BAC = 2,000 PV AC CV EV
Cost Baseline
CV = 800K-900 = -100
CPI = 800/900 = 0.89

18. EVM Cost Performance - Simplified Example
EAC
PROJ BUDGET = 2, = 2,150
VAC
MGT 7.5% = 150
BAC = 2,000
Funds Remaining
Work Remaining
ETC PV AC CV EV
Cost Baseline
TCPIBAC = (2, )/(2, ) = 1.09
TCPIEAC = (2, )/(2, ) = 0.89
CV = 800K-900 = -100
CPI = 800/900 = 0.89
EAC = 2,000/.89 = 2,250
ETC = 2, = 1,350
VAC = 2,000-2,250 = -250

19. Finding EV Portioning BAC on the basis of Fraction of Work Completed
Evaluating Work Completed on the basis of Baselined Cost per Unit
Example:
On a certain project, 220 km of oil pipeline was to be laid, in 50 weeks, at a Cost of 2,000 monetary units (mu). Today, at the end of Week-20, 88 km has been laid. What is the EV?
EV = Fraction of Work Completed x BAC
= 88 km/220 km x 2,000 mu = 800 mu
2. EV = Work Completed x Cost per Km
= 88 km x 2,000 mu/220 km = 800 mu
Agile, Waterfall

20. Further Look at the EAC 1. Performance Based EAC = 2,000/0.89 = 2,250
BAC
CPI
EAC =
2. What has been Spent + What more to be Spent on Remaining Work
EAC = AC + ETC
= ,350 = 2,250
3. What has been Spent + Budget for Remaining Work
= (2,000 – 800) = 2,100
EAC = AC + (BAC – EV )
4. What has been Spent + Budget for Remaining Work modified by Cost & Schedule Performance
Agile, Waterfall
(BAC – EV)
CPI x SPI
EAC = AC +
= ,200/(0.89 x 0.80) = 2,588

21. At Completion Schedule Variance
EVM - General Template for Schedule & Cost Monitoring, Evaluation & Forecast PV AC SV EV CV
At Completion Schedule Variance
ETC
Work Remaining
Funds Remaining
VAC
BAC
EAC
Baseline Proj Duration
Estimated Proj Duration
Agile, Waterfall

22. EVM for Cost Performance – Present Status
Term
Formula
What it means
Planned Value (PV)
As of today, the estimated value of the WORK PLANNED to be done
Earned Value (EV)
As of today, the estimated value of the WORK ACTUALLY ACCOMPLISHED?
Budget at Completion (BAC)
BUDGET for the TOTAL PROJECT
Cost Variance (CV)
= EV-AC
Difference between ACCOMPLISHED WORK & PLANNED WORK (+ under, - over budget)
Cost Performance Index (CPI)
= EV/AC
Comparison of ACCOMPLISHED WORK with PLANNED WORK (ACCOMPLISHED WORK as fraction or % of PLANNED WORK)
(>1 under, <1 over budget)
Agile, Waterfall

23. EVM for Cost Performance – Forecast
Term
Formula
What it means
Estimate At Completion (EAC)
BAC/CPI
AC + ETC
AC + (BAC-EV)
CPI x SPI
As of today, how much is the TOTAL PROJECT COST Expected to be?
Estimate To Complete (ETC)
EAC-AC
As of today, how much MORE the Project will Cost?
Variation At Completion (VAC)
BAC-EAC
How much OVER or UNDER BUDGET the Project will be at Completion
To-Complete Performance Index (TCPI)
(BAC-EV)
(BAC-AC)*
CPI of the Remaining Work
Ratio of WORK REMAING to MONEY REMAINING
* Denominator based on BAC or EAC
Agile, Waterfall

24. Variance Analysis – Another Dimension
While Budgeting, Materials & Human Resources are Costed using Standard Rates & Quantities
Should these Rates or Quantities change during the Project Life Cycle, Cost Performance would be affected favourably or unfavourably
Variance Analysis quantifies the effect of Variance between the Standard & Actual Rates & Quantities for Materials used and Labour employed on a Project
Variance is expressed as a Monetary Quantity and suffixed FAVOURABLE or UNFAVOURABLE/ADVERSE depending on its effect on Cost Performance
Agile, Waterfall

25. Variance Analysis – Another Dimension
Variance Analysis is an interplay of 4 Attributes:
Standard Rate
Standard Quantity
Actual Rate
Actual Quantity
This course will only introduce the subject through the following types of Variances:
Material Cost/Rate Variance (MCV/MRV)
Material Usage Variance (MUV)
Labour Wage Rate Variance (LRV)
Labour Efficiency Variance (LEV)
Agile, Waterfall

26. Basic Definitions Material Rate Variance (MRV)
Variance due to difference in Actual & Standard Costs on Actual Quantity
Material Usage Variance (MUV)
Variance due to difference in Actual & Standard Quantities at Standard Cost/Rate
Labour Wage Rate Variance (LRV)
Variance due to difference in Actual & Standard Labour Rates on Actual Man Hours
Labour Efficiency Variance (LEV)
Variance due to difference in Actual & Standard Quantities Man Hours at Standard Labour Rate
Agile, Waterfall
Variance FAVOURABLE if respective
ACTUAL RATE or QTY < STD RATE or QTY, & vice versa

27. Basic Definitions Fixed Attribute Differing Attributes Variance
Actual Quantity of Material
Actual & Standard Purchase Costs
MRV
Standard Cost of Material
Actual & Standard Quantities of Material
MUV
Actual Number of Man Hours Labour Employed
Actual & Standard Labour Rates
LRV
Standard Labour Rate
Actual & Standard Number of Man Hours Labour Employed
LEV
Agile, Waterfall

28. Variance Analysis – General Template
Actual Qty X
Actual Rate
Actual Qty X
Standard Rate
Standard Qty X
Standard Rate
AQ x (SR-AR) =
MPV or
LRV
MUV or
LEV
= SR x (SQ-AQ)
Net Effect
Agile, Waterfall
MRV/LRV FAVOURABLE (+) if: Actual Rate < Std Rate
MUV/LEV FAVOURABLE (+) if: Actual Qty < Std Qty

29. Variance Analysis – Example 1
On a certain construction project, first slab has been poured. For this activity, 1,000 bags of cement had been planned, at the standard rate of Rs 400 per bag. The cement was Rs 500 per bag and 900 bags were consumed in the pouring. Carry out Variance Analysis and its Overall Effect on Project Cost Performance.
Actual Qty x
Actual Cost
Std Cost
Std Qty
900 bags x
Rs 500 per bag
= Rs 450,000
900 bags x
Rs 400 per bag
=Rs 360,000
1,000 bags x
Rs 400 per bag
=Rs 400,000
Agile, Waterfall
MRV
MUV
Rs 90,000 (U)
Rs 40,000 (F)
Net Effect
Rs 50,000 (U)

30. Variance Analysis – Example 2
On a certain construction project, HR Assignment Plan assigned 200 unskilled workers, on a particular activity, for 100 days, on a daily wage of Rs Due to countrywide escalating inflation no worker was available for less than Rs 600 per day. The activity actually took 80 days to complete. Carry out Variance Analysis and its Overall Effect on Project Cost Performance.
Actual Qty x
Actual Cost
Std Cost
Std Qty
Act Effort x
Act Lab Rate
Std Lab Rate
Std Effort
200x80 man-days x
Rs 600 per man-day
= Rs 9,600,000
200x80 man-days x
Rs 500 per man-day
= Rs 8,000,000
200x100 man-days x
Rs 500 per man-day
= Rs 10,000,000
Agile, Waterfall
LRV
LEV
Rs 1,600,000 (U)
Rs 2,000,000 (F)
Net Effect
Rs 400,000 (F)

31. Reserve Analysis
Reserve Analysis is used to monitor and control the status of Contingency and Management reserves for the Project to determine if these Reserves are still needed or if Additional Reserves need to be requested
Reserve Analysis is all about Using, Reducing or Eliminating Contingency Reserves, as more precise information about the Project becomes available
As work on the project progresses, these Reserves may be used as planned to cover the cost of Risk Mitigation events or other Contingencies. For example on Rework for some Project Deliverables which fail Quality
Or, if the probable Risk Events do not occur, the unused Contingency Reserves may be Reduced or Removed from the project budget to free up resources for other projects or operations
Agile, Waterfall

32. Reserve Analysis
When an amount of Management Reserve is used to fund unforeseen work, the amount of Management Reserve used is added to the Cost Baseline, thus requiring an approved change to the Cost Baseline
Agile, Waterfall

33. Trend Analysis Performance improving or deteriorating? Forecast
Regression Analysis
Performance improving or deteriorating?
Forecast
Variance Trend
Performance Index Trend
Agile, Waterfall

34. Software Tools
MS Project 2010 (Exercise Files)
Agile, Waterfall