This document discusses project cost management according to the Project Management Institute (PMI) approach. It defines key cost management terms like cost estimating, cost budgeting, cost control, earned value, planned value, actual cost, cost performance index, and estimate at completion. The document provides information on how and when these cost management activities are performed over the project lifecycle to monitor project costs and control budgets.

1. PROJECT MANAGEMENT, PMI APPROACH (PMP)
PROJECT COST MANAGEMENT
Sayed Ahmed
BSc. Eng. in CSc. & Eng. (BUET, Bangladesh)
MSc. in CSc. (University of Manitoba, Canada)
http://sayed.JustEtc.net
http://www.JustETC.net
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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. WHAT DOES COST INVOLVE?
 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
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3. COST ESTIMATING
 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
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4. COST ESTIMATING
 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
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5. COST BUDGETING
 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
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6. COST BUDGETING
 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
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7. COST CONTROL
 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
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8. COST CONTROL
 Output
 Cost Estimate Update
 Cost Baseline Update
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9. COST MANAGEMENT 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
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10. COST MANAGEMENT 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
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11. COST MANAGEMENT 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
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12. PROJECT COST MANAGEMENT
 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
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