6th LectureProject Cost Management

1. Control Cost Process (Inputs, Tools, Outputs)

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What Literature Says about Control CostWhat Literature Says about Control Cost

The key to effective cost control isThe key to effective cost control isthe the management ofmanagement of approvedapproved

cost cost performance baselineperformance baselinecost cost performance baselineperformance baselineand changes and changes to it.to it.gg

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11 InfluencingInfluencing thethe factorsfactors thatthat createcreate changeschanges toto authorizedauthorizedHow to Control Project CostHow to Control Project Cost

1.1. InfluencingInfluencing thethe factorsfactors thatthat createcreate changeschanges toto authorizedauthorizedcostcost baselinebaseline..

2.2. PreventPrevent unapprovedunapproved changeschanges.. InformingInforming thethe stakeholdersstakeholderspppp gg ggaboutabout approvedapproved changeschanges andand associatedassociated costscosts..

3.3. EnsuringEnsuring thatthat allall changechange requestsrequests areare actedacted inin timelytimelymannermanner..

4.4. EnsuringEnsuring expendituresexpenditures don’tdon’t exceedexceed authorizedauthorized fundingfunding bybyperiodperiod andand inin totaltotalperiodperiod andand inin totaltotal..

5.5. MonitoringMonitoring costcost performanceperformance toto understandunderstand variancesvariances fromfromcostcost baselinebaselinecostcost baselinebaseline..

6.6. MonitoringMonitoring workwork performanceperformance againstagainst fundsfunds expensedexpensed..7.7. ActingActing toto bringbring expectedexpected costcost overrunsoverruns withinwithin limitslimits..7.7. ActingActing toto bringbring expectedexpected costcost overrunsoverruns withinwithin limitslimits..

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Inputs Control Cost ProcessInputs Control Cost Process

1 Project Management Plan1. Project Management Plan.Cost Management Plan. (How the project cost will be managed)Cost Performance Baseline. (Output of Estimate Budget Process)

2 P j t F di R i t T t l f di i t d i di f di2. Project Funding Requirement. Total funding requirements and periodic fundingrequirements are derived from cost baseline. Funding often occur in incrementalamounts.

3 Work Performance Information3. Work Performance Information.Information project progress( Which deliverables have started, Progress, and finished).C h h b h i d d i dCosts that have been authorized and incurred.

4. Organizational Process Asset.Existing Formal and informal cost control policies, procedures andid liguidelines.

Cost control tools and Monitoring and reporting methods.Not for Sale , Print or Copy . Only for education inside the classroom. M.Shoaib Naqshbandi MPM-SZABIST Islamabad. 2014.

1 Work Performance MeasurementOutputs Outputs ­­­­­­Control Cost ProcessControl Cost Process

1. Work Performance Measurement.

2 Cost Forecasts2. Cost Forecasts.

3 Ch R t3. Change Requests.

4 P j M Pl U d4. Project Management Plan Updates.

5. Project Document updates.

6. Organizational Process Assets updates.Not for Sale , Print or Copy . Only for education inside the classroom. M.Shoaib Naqshbandi MPM-SZABIST Islamabad. 2014.

Earned Value Management (EVM)Earned Value Management (EVM)

Elements of EVMElements of EVM­­­­­­PVPV

Schedule VarianceSchedule Variance

• SV is the monetary difference between the earned value (BCWP) and the schedule

PVEVSV −=y ( )

baseline (BCWS).

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CostCost variancevariance

• CV it is the difference between the estimated cost to reach the present level of conclusion (BCWP)and the actual incurred cost (ACWP) up to the status date or present date

ACEVCV −=and the actual incurred cost (ACWP), up to the status date or present date.

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SPI and CPISPI and CPI

SPISPI isis thethe ratioratio betweenbetween thethe earnedearned valuevalue (BCWP)(BCWP) andand thethe plannedplanned valuevalueasas inin thethe baselinebaseline (BCWS)(BCWS)..IfIf SPISPI << 11 ItIt IndicatesIndicates LessLess workwork waswas completedcompleted thanthan planedplaned.. EVIfIf SPISPI 11 ItIt IndicatesIndicates LessLess workwork waswas completedcompleted thanthan planedplaned..

PVEVSPI =

CostCost PerformancePerformance indexindex isis aa measuremeasure ofof workwork completedcompleted comparedcompared totoactualactual costcost oror progressprogress mademade onon thethe projectproject.. ItIt measuresmeasures thethe costcost efficiencyefficiencyff hh kk l dl dforfor thethe workwork completedcompleted..IfIf CPICPI << 11 ItIt IndicatesIndicates costcost overover runrun forfor workwork completedcompleted..IfIf CPICPI >> 11 ItIt IndicatesIndicates costcost underunder runrun ofof performanceperformance.. EVCIfIf CPICPI 11 ItIt IndicatesIndicates costcost underunder runrun ofof performanceperformance..

ACEVCPI =

Not for Sale , Print or Copy . Only for education inside the classroom. M.Shoaib Naqshbandi MPM-SZABIST Islamabad. 2014.