This document discusses various aspects of project cost management, including estimating costs, determining budgets, and controlling costs. It provides details on different types of cost estimating methods like analogous, parametric, and bottom-up estimating. It also covers determining the budget by establishing a cost performance baseline and performing reserves analysis using contingency and management reserves. Finally, it describes controlling costs using earned value management metrics like planned value, actual cost, earned value, cost and schedule variances, and performance indices.

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Project Management
Elodie Descharmes
Elodie.descharmes@gmail.com

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Cost management
(Plan Cost Management)
Estimate Costs
Determine Budget
Control Costs

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Don’t do it alone !!!
Quand j'apprends que le commercial a réduit son chiffrage en conservant
toutes les fonctionnalités
http://lesjoiesducode.fr/

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ESTIMATE COSTS

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Type of estimates

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Estimate Costs
• Analogous estimating (top-down estimating)
– Take similar project as a basis
– High-level estimate
– Less accurate, less costly
• Parametric estimating
– Variable relationship with historical data
– Only when the model is scalable
• Bottom-up estimating
– Good accuracy
– Time consuming

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Estimate Costs
Three-point estimates (triangular distribution)
0 : Optimist
ML : Most Likely
P : Pessimist
Estimate =
𝑂 + 𝑀𝐿 + 𝑃
3
Three-point estimates (beta distribution)
0 : Optimist
ML : Most Likely
P : Pessimist
Estimate =
𝑂 + 4 ∗ 𝑀𝐿 + 𝑃
6

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DETERMINE BUDGET

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Cost performance baseline
$
time
BAC = Budget At
Completion
Cost baseline
Expected cash flow

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Reserves analysis
• Contingency reserve
– For planned risks (knows-
unknowns)
– Specified and argued in the
contract
– To be paid to the project
– Decision : project manager
• Management reserve
– For issues/unplanned events
(unknows-unknowns)
– Specified in the contract
– Money stays by the client side
– Decision : project sponsor

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Reserves

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Contingency reserve estimating
example using Expected Monetary Value (EMV)
Risks Full impact cost Probability EMV
Risk 1 30 k€ 33% 10 k€
Risk 2 100 k€ 35 % 35 k€
Risk 3 75 k€ 60 % 45 k€
Contingency
reserve
EMV = Full impact
cost * probability

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Risks
• Preventive actions costs included in costs
• Curative action costs included in contingency
reserve
• Full impact costs in management reserve
Risk Reserve
Known unknown Contingency reserve
Unknown unknown Management reserve

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• Cost of performance < Cost of non-performance
• Cost of performance : included in BAC
Quality
Quand on déploie une fonctionnalité non
testée en production
http://lesjoiesducode.fr

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CONTROL COSTS

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Earned Value Management (EVM)
Planned Value
(PV)
Portion of the authorized budget assigned to the
work accomplished for an activity or a WBS
component during a given period.
As of today, how much work was
planned to be done ?
Actual Cost
(AC)
Total cost actually incurred and recorded in
accomplishing work performed for an activity or a
WBS component during a given period.
As of today, how much does the work
cost ?
Earned Value
(EV)
Value or work performed for an activity or a WBS
component during a given period.
As of today, what is the value of the
work performed ?
Budget at
completion
(BAC)
Sum of the total budget for an activity, a work
package, a project.
What was the total job supposed to
cost ?
Estimate at
completion
(EAC)
Expected total cost of the activity, the work
package, the project
What do we expect the total job to cost
?
Estimate to complete
(ETC)
Expected additional cost needed to complete the
activity, the work package, the project.
What additional cost is now expacted
to complete the work ?

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Earned Value Management (EVM)
Cost Variance
CV = EV – AC
Schedule Variance
SV = EV – PV
Cost Performance Index
CPI = EV / AC
Schedule Performance
Index
SPI = EV / PV

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Earned Value Management (EVM)
• Forecasting
– ETC : Estimate to
complete
• What still needs to
be done to
complete
– EAC : Estimate at
completion
• New BAC
estimation
EAC forecast for ETC work
performed at the budget rate
EAC = AC + (BAC – EV)
EAC forecast for ETC work
performed at the present CPI
EAC = BAC / CPI
EAC forecast for ETC work
performed considering both SPI and
CPI factors
EAC = AC + [( BAC – EV ) / CPI *
SPI)]

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Example
• WBS item : build a wall
– Planned scope : 25 bricks
– Planned time : 5 days
– Planned cost : 500 € (m*d = 100 €) (1 brick = 20 €)

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Example
• Today = end of day 3
– Actual scope : 13 bricks
– Spent time : 3 days
– Spent cost : 280 €

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FORMULA VALUE
Planned Value (PV)
Actual Cost (AC)
Earned Value (EV)
Budget at completion (BAC)
Cost Variance (CV) CV = EV – AC
Schedule Variance (SV) SV = EV – PV
Cost Performance Index (CPI) CPI = EV / AC
Schedule Performance Index (SPI) SPI = EV / PV
Estimate at completion (EAC) Basic : EAC = AC + (BAC – EV)
Considering CPI : EAC = BAC / CPI
Considering CPI & SPI (on time) :
EAC = AC + [( BAC – EV ) / (CPI *
SPI)]
Estimate to complete (ETC) Basic
Considering CPI
Considering CPI & SPI

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To-Complete Performance Index (TCPI)
• TCPI is the measure of cost performance that
must be achieved on the remaining work to
meet BAC or EAC
TCPI = Work remaining / Funds remaining
TCPI based on BAC
TCPI = (BAC – EV) / (BAC – AC)
TCPI based on EAC
TCPI = (BAC – EV) / (EAC – AC)

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Quiz

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Practice
• Estimate Costs
• Determine Budget