PMP Preparation - 07 Cost Management

PMP Lectures Prepared By: Eng. Mohamed
ElSaadany
0. Introduction
1. Plan Cost Management
2. Estimate Costs
3. Determine Budget
4. Control Costs
Lecture 07 : Project Cost Management (1/18)
Contents

ElSaadany
Introduction
Direct vs. Indirect Cost
1. Direct Cost: Directly attributable to project work. ‫المشروع‬ ‫بأعمال‬ ‫مباشرة‬ ‫تتأثر‬
2. Indirect cost: Such as overhead, benefits, and costs incurred for more than
project like equipments. ‫المشاريع‬ ‫بين‬ ‫المشتركة‬ ‫التكاليف‬ ‫و‬ ‫االرباح‬ ‫و‬ ‫العامة‬ ‫النفقات‬ ‫مثل‬
Fixed vs. Variable Cost
1. Fixed cost: Costs that are not changed with production such as setup cost
and rental cost ‫االنتاج‬ ‫مع‬ ‫تتغير‬ ‫ال‬ ‫تكاليف‬
2. Variable cost: Costs that are changed with production such as material and
labors. ‫الخام‬ ‫المواد‬ ‫و‬ ‫العمالة‬ ‫تكاليف‬ ‫مثل‬ ‫االنتاج‬ ‫مع‬ ‫تتغير‬ ‫التي‬ ‫التكاليف‬

ElSaadany
Introduction
Definitions :
 Life Cycle Cost : Looking at the whole life cost.
(Ex: Don’t pay less for lower quality then pay more for maintenance.
‫المنتج‬ ‫حياة‬ ‫دورة‬ ‫تكاليف‬:‫المنتج‬ ‫عمر‬ ‫مراحل‬ ‫جميع‬ ‫في‬ ‫التكاليف‬ ‫دراسة‬ ‫يتم‬
‫مثال‬:‫الصيانة‬ ‫و‬ ‫التشغيل‬ ‫مراحل‬ ‫في‬ ً‫ا‬‫كثير‬ ‫تدفع‬ ‫ثم‬ ‫ضعيفة‬ ‫جودة‬ ‫معايير‬ ‫باختيار‬ ‫بالتوفير‬ ‫تقوم‬ ‫ال‬
 Value Analysis (value engineering) : Finding a less costly way to perform
the same work. ‫القيمة‬ ‫تحليل‬:‫األعمال‬ ‫نفس‬ ‫النجاز‬ ‫تكلفة‬ ‫اقل‬ ‫طرق‬ ‫ايجاد‬ ‫عن‬ ‫عبارة‬

1.Plan Cost Management (Planning)
ElSaadany
C o s t M a n a g e m e n t
7.1 Plan Cost Management
Inputs :
 Project Management Plan
 Project Charter
 Enterprise Environmental Factors
 Organizational Process Assets
Tools and Techniques :
 Expert Judgment
 Analytical Techniques
 Meetings
Outputs :
 Cost Management Plan

ElSaadany
Analytical Techniques
• Strategic options to fund the project
o Self-funding,
o Funding with equity, (Ex: Stocks) ‫التمويل‬‫خالل‬ ‫من‬‫باألسهم‬ ‫كما‬ ‫المشاركة‬
o Funding with debt (Ex: Bonds) ‫بالسندات‬ ‫كما‬ ‫االقتراض‬ ‫خالل‬ ‫من‬ ‫التمويل‬
• Project resources Finance
o Making,
o Purchasing,
o Renting (Short Term),
o Leasing (Long Term).
• Financial analysis techniques:
o payback period,
o Return on investment (value),
o Internal rate of return,
o Net present value.
TT

ElSaadany
Cost Management Plan : ‫التكاليف‬ ‫إدارة‬ ‫خطة‬
• Establish the criteria for planning, structuring, estimating, budgeting, and
control project cost. ‫المشروع‬ ‫تكاليف‬ ‫مراقبة‬ ‫و‬ ‫موازنة‬ ‫و‬ ‫تقدير‬ ‫و‬ ‫هيكلة‬ ‫و‬ ‫تخطيط‬ ‫معايير‬ ‫تأسيس‬
• Cost management plan may includes: ‫على‬ ‫الخطة‬ ‫تحتوي‬ ‫ان‬ ‫يمكن‬
1. Units of measure ( ex: staff hours) ‫القياس‬ ‫وحدات‬
2. Level of Precision (rounding up or down, ex: $125.3  $125)
3. Level of Accuracy (ex: ± 5%)
4. Organizational Links (with accounting systems)
5. Control thresholds ( level at which an action needs to be taken)
6. Rules of performance measurement (Procedures)
7. Reporting formats
O

2.Estimate Costs (Planning)
ElSaadany
7 . 2 E s t i m a t e C o s t s
Inputs :
 Cost Management Plan ■ Scope Baseline
 Human Resource Management Plan ■ Project Schedule
 Risk Register ■ Enterprise Environmental Factors
 Expert Judgment ■ Analogous Estimating
 Parametric Estimating ■ Bottom-Up Estimating
 Three-Point Estimates ■ Reserve Analysis
 Cost of Quality ■ Project Management Software
 Group Decision-Making Techniques ■ Vendor Bid Analysis
Outputs :
 Activity Cost Estimates
 Basis of Estimates
 Project Document Updates

ElSaadany
Cost of Quality:
• All costs incurred in preventing nonconformance, apprising, or rework. This
will be illustrated later in Quality Management.
Vendor Bid Analysis:
• Analysis of cost estimate based on responsive bids from qualified vendors.
Cost Estimates:
Costs are estimated for all resources such as:
• Direct Cost (Labor, materials, equipment, services, facilities, IT)
• Cost of financing (interest), inflation allowance, exchange rates.
• Contingency reserve.
• Insurance fees.
• Taxes
• Overhead (Site overhead and main office)
TT
O
TT

ElSaadany
Basis of Estimates :
• Supporting documentation which provides understanding of how the cost
estimate was derived.
• This may includes:
• Assumptions.
• Constraints.
• Ranges of accuracy (ex:± 5%).
• Confidence level of the final cost estimate.
O

3.Determine Budget (Planning)
ElSaadany
7 . 3 D e t e r m i n e B u d g e t
Inputs :
 Cost Management Plan ■ Scope Baseline
 Activity Cost Estimates ■ Basis of Estimates
 Project Schedule ■ Resource Calendars
 Risk Register ■ Agreements
 Cost Aggregation
 Reserve Analysis
 Expert Judgment
 Historical Relationships
 Funding Limit Reconciliation ‫توفيق‬
Outputs :
 Cost Baseline
 Project Funding Requirements
 Project Document Updates

ElSaadany
Cost Aggregation :
• Cost Estimates are aggregated within activities and rolled up to work
package then rolled up to control accounts then rolled up to entire project.
‫بالكامل‬ ‫المشروع‬ ‫الى‬ ‫ثم‬ ‫التحكم‬ ‫حسابات‬ ‫الى‬ ‫ثم‬ ‫العمل‬ ‫حزم‬ ‫الى‬ ‫األنشطة‬ ‫مستوى‬ ‫من‬ ‫التكاليف‬ ‫تجميع‬
Reserve Analysis :
1. Contingency Reserve : Allowances for
unplanned changes result from identified risks.
2. Management Reserve : Budgets reserved for
unplanned changes to scope and cost.
Cost estimates
Contingency Reserve
Management Reserve
CostBudget
CostBaseline
TT
TT
Historical Relationships:
• Historical Relationships involve the use of project characteristics
(parameters) to develop mathematical models to predict total project costs.
• This results in parametric estimates or analogous estimates.
TT

ElSaadany
Funding Limit Reconciliation : ‫التمويل‬ ‫لقيود‬ ‫طبقا‬ ‫المعالجة‬
• Sometimes funds are not available when needed and you have to
reschedule the activities. ‫االنشطة‬ ‫جدولة‬ ‫اعادة‬ ‫الي‬ ‫يضطرك‬ ‫مما‬ ‫تمويل‬ ‫يوجد‬ ‫ال‬ ‫احيانا‬
• Expenditures should be reconciled with any funding limits
‫التمويل‬ ‫على‬ ‫موجودة‬ ‫قيود‬ ‫ألي‬ ‫طبقا‬ ‫االنفاق‬ ‫خطة‬ ‫توفيق‬ ‫و‬ ‫معالجة‬ ‫من‬ ‫بد‬ ‫ال‬
• Example : Funds for the project will be available on two batches :
$50 millions today and $40 millions in the beginning of the next year.
Cost Baseline : ‫التكلفة‬ ‫أساس‬ ‫خط‬
• The planned costs over project time. It’s used to
control cost performance in the project. ‫التكاليف‬
‫المخطط‬‫انفاقها‬‫عبر‬‫زمن‬‫المشروع‬
Project Funding Requirements : ‫المشروع‬ ‫تمويل‬ ‫متطلبات‬
• It can be derived from cost baseline. Funding
often occurs in incremental amounts.
‫دفعات‬ ‫على‬ ‫تكون‬ ‫ما‬ ‫غالبا‬ ‫و‬ ‫التكلفة‬ ‫أساس‬ ‫خط‬ ‫من‬ ‫استنتاجها‬ ‫يمكن‬
TT
O
O

4.Control Costs (M/C)
ElSaadany
7 . 4 C o n t r o l C o s t s
Inputs :
 Project Management Plan
 Project Funding Requirements
 Work Performance Information Data
 Earned Value Management
 Forecasting
 To Complete Performance Index (TCPI)
 Performance Reviews
 Project Management Software
 Reserve Analysis
Outputs :
 Work Performance Information ■ Cost Forecasts
 Project Management Plan Updates ■ Change Requests
 Organizational Process Assets Updates ■ Project Document Updates

ElSaadany
Earned Value Management : ‫المكتسبة‬ ‫القيمة‬ ‫ادارة‬
• Planned Value (PV) = Budgeted cost for work scheduled (BCWS)
‫محددة‬ ‫زمنية‬ ‫نقطة‬ ‫عند‬ ‫تنفيذها‬ ‫المخطط‬ ‫األعمال‬ ‫قيمة‬
• Earned value (EV) = Budgeted cost for work performed (BCWP)
‫محددة‬ ‫زمنية‬ ‫نقطة‬ ‫عند‬ ‫فعلية‬ ‫اعمال‬ ‫تنفيذ‬ ‫من‬ ‫المكتسبة‬ ‫القيمة‬
• Actual Cost (AC) = Actual cost for work performed (ACWP)
‫تنفيذها‬ ‫تم‬ ‫التي‬ ‫لالعمال‬ ‫الفعلية‬ ‫التكاليف‬
• Schedule Variance (SV) = EV – PV ‫انحراف‬(‫تباين‬)‫الزمني‬ ‫الجدول‬
• Cost Variance (CV) = EV – AC ‫التكلفة‬ ‫انحراف‬
• Schedule Performance Index (SPI) = EV / PV ‫الزمني‬ ‫الجدول‬ ‫أداء‬ ‫مؤشر‬
• Cost Performance Index (CPI) = EV / AC ‫التكلفة‬ ‫أداء‬ ‫مؤشر‬
Behind Schedule ‫متأخر‬‫الجدول‬ ‫عن‬SV < 0
On Schedule ‫الجدول‬ ‫مع‬SV = 0
Ahead of Schedule ‫الجدول‬ ‫سابق‬SV > 0
Over Budget ‫الميزانية‬ ‫تعدى‬CV < 0
On Budget ‫الميزانية‬ ‫مع‬CV = 0
Under Budget ‫الميزانية‬ ‫نطاق‬ ‫داخل‬CV > 0
Behind ScheduleSPI < 1
On ScheduleSPI = 1
Ahead of ScheduleSPI > 1
Over Budget ‫الميزانية‬ ‫تعدى‬CPI < 1
On Budget ‫الميزانية‬ ‫مع‬CPI = 1
Under Budget ‫الميزانية‬ ‫نطاق‬ ‫داخل‬CPI > 1
TT

ElSaadany
Example :
PV (BCWS) =1000x120 = 120,000.00
EV (BCWP) =1000x130 = 130,000.00
AC (ACWP) =1200*130 = 156,000.00
Variance :
SV = EV - PV = 130'000 - 120'000 = 10'000 (Ahead of Schedule)
CV = EV - AC = 130'000 - 156'000 = -26'000 (Over Budget)
Performance Index
SPI = EV / PV = 130'000 / 120'000 = 1.083 (Ahead of Schedule)
CVI = EV / AC = 130'000 / 156'000 = 0.833 (Over Budget)
Cost/Unit Quantity
Budget 1000 120
Actual 1200 130

ElSaadany
Time
Cost

ElSaadany
Forecasting : ‫معايير‬ ‫خالل‬ ‫من‬ ‫التوقع‬
• Estimate at Completion (EAC) = Actual Cost+ Estimate to Complete (ETC).
‫المشروع‬ ‫نهاية‬ ‫في‬ ‫المتوقعة‬ ‫القيمة‬=‫اآلن‬ ‫حتى‬ ‫الفعلية‬ ‫القيمة‬+‫المشروع‬ ‫النهاء‬ ‫المتوقع‬
• There are various methods to calculate the Estimate to Complete (ETC)
‫المشروع‬ ‫النهاء‬ ‫المتوقعة‬ ‫القيمة‬ ‫لحساب‬ ‫طرق‬ ‫عدة‬ ‫يوجد‬
1- At the budgeted rate :
EAC = AC + (BAC – EV)
2- Considering CPI :
EAC = AC + [ (BAC – EV) / CPI ] = AC + BAC/CPI – EV/CPI
= AC + BAC/CPI – AC = BAC / CPI
3- Considering CPI and SPI :
EAC = AC + [ (BAC – EV) / (CPI x SPI) ]
TT

ElSaadany
To Complete Performance Index (TCPI) : ‫المشروع‬ ‫إلكمال‬ ‫المطلوبة‬ ‫للقيمة‬ ‫اآلداء‬ ‫مؤشر‬
• It’s the cost performance that must be achieved on the remaining work to
meet a specified goal like BAC or EAC ‫القادمة‬ ‫الفترة‬ ‫في‬ ‫تحقيقه‬ ‫المطلوب‬ ‫المالي‬ ‫االداء‬
• It represents the ratio between remaining works and remaining funds.
‫المتبقي‬ ‫التمويل‬ ‫قيمة‬ ‫و‬ ‫المتبقية‬ ‫االعمال‬ ‫قيمة‬ ‫بين‬ ‫النسبة‬ ‫تمثل‬
• TCPI = (BAC-EV) / (BAC – AC)
Or TCPI = (BAC-EV) / (EAC – AC) “If the BAC is no longer valid”
• Ex :
BAC = 500’000.00 , EV = 200’000.00, AC= 250’000.00
TCPI = (300’000.00 ) / (250’000.00) = 1.2
TT
Performance Reviews :
• Variance at completion (VAC) = BAC – EAC
• Trend Analysis: Graphical analysis examines project performance over time.
• EVM
TT

PMP Preparation - 07 Cost Management

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PMP Preparation - 07 Cost Management