This document discusses project cost management and its key processes: plan cost management, estimate costs, determine budget, and control costs. It defines important cost management terms like variable/fixed costs, direct/indirect costs, management reserve, contingency reserve, and cost baseline. The document also explains earned value management techniques used to measure and control project costs, including formulas for calculating cost variance, schedule variance, CPI, SPI, EAC, ETC, VAC, and TCPI.

1. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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
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2. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
7.1 PLAN COST MANAGEMENT
is the process that establishes the policies, procedures,
and documentation for planning, managing, expending,
and controlling project costs.
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Inputs Tool&Techniques Outputs
.Project management plan
.Project charter
.EEF
.OPA
.Expert Judment
.Analytical techniques
.Meetings
.Cost management plan

3. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
7.2 ESTIMATE COST
Is the process of developing approximation of the
monetary resources needed to complete project
activities
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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

4. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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.
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5. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
QUALITY/ACCURACY OF COST ESTIMATION
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• 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

6. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
7.3 DETERMINE BUDGET
is the process of aggregating the estimated costs of
individual activities or work packages to establish an
authorized cost baseline
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Inputs 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

7. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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
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8. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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.
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9. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
7.4 CONTROL COST
is the process of monitoring the status of the project to
update the project costs and managing changes to the
cost baseline.
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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

10. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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)
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11. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
EARNED VALUE TECHNIQUE
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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 budget
Positive is under budget
Schedule Variance (SV)
= EV - PV
Negative is behind schedule
Positive 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: $400K
Project Schedule: 4
months
At the 3 month
checkpoint:
Spent: $200K
Work completed: $100K
Revised Total Duration Baseline Duration/Schedule Performance Index
4/0.33
= 12 months

12. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
EARNED VALUE TECHNIQUE (CON’T)
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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?

13. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
EXAMPLE OF EVM
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TIME
COST
Schedule
Variance
(SV)
Cost
Variance
(CV)
ACTUAL
PLAN
EARN
VALUE
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

14. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
EXAMPLE OF EVM
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15. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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
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AC)-(EACor– AC)(BACRemainingFunds
EV)–(BACRemainingWork

16. SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013
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?
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