P M P(5th Edition)

Chapter (7)
Project Cost Management
Introduction:-

Project cost management includes the processes involved in planning, estimating, budgeting, financing,
funding, managing, and controlling costs so that the project can be completed within budget.

Provides an overview of the project cost management processes, which include the following:
1- Plan cost management: the process of establishing the policies, procedures, and documentation for
planning, managing, expending, and controlling project costs.
2- Estimate costs: the process of developing an approximation of the monetary resources needed to
complete project activities.
3- Determine Budget: the process of aggregating the estimated costs of individual activities or work
packages to establish an authorized cost baseline.
4- Control costs: the process of monitoring the status of project to update the project costs and
managing changes to the cost baseline.
One some projects, especially those of smaller scope, cost estimating and cost budgeting are tightly
linked and can be viewed as a single process that can be performed by a single person over a relatively
short period of time.
Project cost management should consider the stakeholder requirements for managing costs; different
stakeholders will measure project costs in different ways at different times.
Project cost management is considered with:
1- The cost of resources needed to complete project activities.
2- The effect of project decisions on the recurring cost of using, maintaining, and supporting the
product, service, or result of the project.
In many organizations, predicting and analyzing the prospective financial performance of the projects
product is performed outside of the project, in others, such as a capital facilities project, project cost
management can include this work.
When such predictions and analyses are include, project cost management may address additional
processes and numerous general financial management techniques such as return on investment,
discounted cash flow, and investment payback analysis.
The cost management plan effort occurs early in project planning and sets the framework.

1 Planning the project Cost management:1-1- Plan Cost management:

-

Plan schedule management is the process that establishes the policies, procedures, and documentation
for planning, managing, expending, and controlling project costs.
The key benefit of this process that is provides guidance and direction on how the project costs will be
managed throughout the project.

Inputs

Tools & Techniques

1- Project management plan.

1- Expert judgment.

2- Project charter.

2- Analytical techniques.

3- Enterprise environmental
factors.
4- Organizational process
assets.

3- Meetings.

Outputs
1- Cost management plan.

1-1-1The Inputs of Plan Cost Management:

1- Project management plan:
-

The project management plan contains information used to develop the cost management plan
includes:
1- Scope baseline: project scope statement, the work breakdown structure detail for cost estimation
and management.
2- Schedule baseline: the schedule baseline defines when the project costs will be incurred.
3- Other cost- related scheduling, risk, and communications decisions from the project management
plan.

2- Project charter:
-

The project charter provides the summary budget from which the detailed project costs are developed.
The project charter also defines the project approval requirements that will influence the management
of the project costs.

3- Enterprise environmental factors:

-

The enterprise environmental factors that influence the plan schedule management process include:
1- Organizational culture and structure.
2- Market conditions describe what products, services, and results are available in the regional market.
3- Currency exchange rates for project costs sourced from more than one country.
4- Published commercial information such as resource cost rate information is often available from
commercial database that track skills and human resource costs, and provide standard costs for
materials and equipment, published seller price lists are another source of information.
5- Project management information system, which provides alternative possibilities for managing cost.

4- Organizational process assets:

-

The organizational process assets that influence the plan cost management process include:
1- Financial controls procedures (Time reporting, required expenditure and disbursement reviews,
accounting codes, and standard contract provisions).
2- Historical information and lesson learned knowledge bases.
3- Financial database.
4- Existing formal and informal cost estimating and budgeting-related policies, procedures, and
guidelines.

1-1-2The Tools and Techniques of Plan Cost Management:

1- Expert judgment:
-

Expert judgment, guided by historical information, provides valuable insight about the environment and
information from prior similar projects.
Expert judgment can also suggest whether to combine methods and how to reconcile between them.
Judgment based upon expertise in an application area, knowledge area, discipline, industry.

2- Analytical Techniques:
-

Developing the cost management plan may involve:

1- Strategic options to fund the project such as: self-funding, funding with equity, or funding with debt.
2- Detail ways to finance project resources such as making, purchasing, renting, or leasing.
(These decisions, like other financial decisions may affect project schedule and risk).
Organizational policies and procedures may influence with financial techniques are employed in these
decisions, techniques may include: payback period, return on investment, internal rate or return,
discounted cash flow, and net present value).

3- Meetings:
-

Project teams may hold planning meetings to develop the cost management plan.
Participants at these meetings include anyone responsibility for project costs.

1-1-3The Outputs of Plan Cost Management:

1- Cost Management Plan:
-

It is a component of the project management plan and describes how the project costs will be planned,
structured, and controlled, the cost management plan can establish the following:
1- Units of measure: Each unit used in measurements (hours, days, weeks, meters, liters, tonsetc.).
2- Level of accuracy: The acceptable range (+ 10%) used in determining realistic activity cost estimates is
specified and may include an amount of contingencies.

3- Level of precision: The degree to which activity cost estimates will be rounded up or down (100.49
US$ TO 100 US$), based on the scope of the activities and magnitude of the project.
4- Organizational procedures links: The WBS provides the framework for the cost management plan,
allowing for consistency with the estimates, budgets, and control of costs.
The WBS used for the project cost accounting is called the control account, each control account is
assigned a unique code or account numbers that links directly to the performing organizations
accounting system.
5- Control thresholds: Variance thresholds for monitoring cost performance may be specified to indicate
and agreed-upon amount of variations to be allowed before some action needs to be taken, thresholds
are typically expressed as percentage deviations from the parameters established in the baseline plan.
6- Rules of performance measurements: Earned Value Management (EVM) rules of performance
measurements are set, for example, the cost management plan may:
A- Define the points in the WBS measurement of control accounts will be performed.
B- Establish the earned value measurements techniques (Weighted milestones, fixed-formula,
percent complete) to be employed.
C- Specify tracking methodologies and the earned value management computation equations for
calculating project estimate at completion (EAC) forecasts to provide a validity check on the
bottom up EAC.
7- Reporting formats: The formats and frequency for the various cost reports are defined.
8- Process descriptions: Descriptions of each of the cost management process are documented.
9-Additional details: Additional details about cost management activities include:
A- Description of strategic funding choices.
B- Procedure to account fluctuation in currency exchange rates.
C- Procedure for project cost recording.

1-2- Estimate Costs:

-

Estimate costs are the process of developing an approximation of the monetary resources needed to
complete project activities.
The key benefit of this process is that it determines the amount of cost required to complete project
work.

Inputs

Tools & Techniques

Outputs

1- Cost management plan.

1- Expert Judgment.

1- Activity cost estimates.

2- Human resource management

plan.

2- Analogous estimating.

2- Basis of estimates.

3- Scope baseline.

4- Bottom-up estimating.

4- Project schedule.

3- Parametric estimating.

5- Three point estimating.

6- Reserve analysis.

5- Risk register.
6- Enterprise environmental
factors.

7- Cost of quality.
8- Project management software.
9- Vendor bid analysis.

7- Organizational process assets.

10- Group decision making

techniques.

3- Project documents
updates.

Cost estimates are a prediction that is based on the information known at given point in time, cost
estimates include the identification and consideration of costing alternative to initiate and complete
the project.
Cost trade-offs and risks should be considered, such as make versus buy, buy versus lease, and the
sharing of resources in order to achieve optimal cost for the project.
Cost estimates are generally expressed in unites of some currency , although in some instances other
unites of measure, such as staff hours or staff days, are used to facilitate comparisons by eliminating
the effects of currency fluctuations.
Cost estimates should be reviewed and refined during the course of the project to reflect additional
detail as it becomes available and assumptions are tasted.
The accuracy of project cost estimate will increase as the project progress through the project life cycle.
Costs are estimated for all resources that will be charged to the project, this includes, but not limited to,
labor, materials, equipment, services, and facilities, as well as special categories such as an inflation
allowance, cost of financing, or contingency costs.
A cost estimate is quantitative assessment of the likely costs for resources required to complete the
activity, cost estimates may be presented at the activity level or in summary form.

1-2-1-The Inputs of Estimate Costs:

1- Cost Management Plan:
-

The cost management plan defines how project costs will be managed and controlled, it includes the
method used and the level of accuracy required to estimate activity cost.

2- Human Resource Management Plan:

-

The human resource management plan provides:

1- Project staffing attributes. 2- Personal rates. 3- Related rewards/recognition.

3- Scope baseline:
-

Project scope statement:

It provides the product description, acceptance criteria, key deliverables, project boundaries,
assumptions, and constraints about the project.
One basic assumption is whether the estimates will be limited to direct project cost only or whether
estimates will also include indirect costs ( Which costs that cannot be directly traced to a specific project
and therefore will be accumulated and allocated equitably over multiple project by some approved and
documented accounting procedure).
One of the most common constraints for many projects is limited project budget, and the other
constraints are (delivery dates, available skilled resources, and organizational policies).
Work breakdown structure:
It provides the relationships among all the components of the project and the project deliverables.
WBS dictionary:
It provides detailed information about the deliverables and the description of the work for each
component in the WBS required producing each deliverables.
Additional information: (Contractual and legal implications).
Such as health, safety, security, performance, environmental, insurance, intellectual property rights,
licenses, and permits.

4- Project Schedule:
-

The major factors in determining the project cost:

1- Estimate activity resources (Availability of staff, number of staff hours, quantities of materials and
equipment needed to perform schedule activities).
2- Estimate activity duration (Project budget includes an allowance for the cost of financing including
interest charges-, where resources are applied per unit of time, resources have time sensitive costs).

5- Risk Register:
-

The risk register should be reviewed to consider risk response costs; risks typically have an impact on
both project duration and project cost.
The project team should be sensitive to potential opportunities that can benefit the business either by
directly reducing activity costs or by accelerating the schedule.

6- Enterprise Environmental Factors:

-

The enterprise environmental factors that influence the estimate cost process include:
1- Market conditions: These conditions describe what products, services, and results are available in the
market, from whom, and under what terms and conditions, regional or global supply and demand
conditions greatly influence resource costs.
2- Published commercial information: resource cost rate information is often available from commercial
database that track skills and human resource costs, and provide standard costs for materials and
equipment, published seller price lists are another source of information.

7- Organizational Process Assets:

-

The organizational process assets that influence the estimate cost process include:
1- Cost estimating policies.
2- Cost estimating templates.
3- Historical information.
4- Lesson learned.

1-2-2-The Tools And Techniques of Estimate Costs:

1- Expert Judgment:
-

Expert judgment, guided by historical information, provides valuable insight about the environment and
information from prior similar projects.
Expert judgment can also suggest whether to combine methods and how to reconcile between them.

2- Analogous Estimating:
-

Analogous cost estimating uses the values such as scope, cost, budget, and duration or measure of
scale such as size, weight, and complexity form previous, similar project as the basis for estimating the
same parameter or measurement for a current project.
It is a gross value estimating approach, sometimes adjusted for known differences in project
complexity.
Analogous cost estimating is frequently used to estimate a value when there is a limited amount of
detailed information about the project.
Analogous cost estimating depends on historical information and expert judgment.
Analogous cost estimating less costly and less time consuming but it also less accurate, it can be applied
in total project or to segment of a project, it is most reliable when the previous projects are similar in
fact not just in appearance.

3- Parametric Estimating:
-

Parametric estimating uses a statistical relationship between relevant historical data and other
variables.
The techniques can produce higher levels of accuracy, and can be applied to the total or segment of the
project.

4- Bottom-Up Estimating:
-

Bottom-up estimating is a method of estimating a component of work, the cost of individual work
packages or activities is estimated to the greatest level of specified detail, the detailed cost then
summarized or rolled up to higher levels for subsequent reporting and tracking purposes.
It influences by the size and complexity of the individual activity or work package.

5- Three-Point Estimating:
-

The accuracy of single-point activity cost estimates may be improved by considering estimation
uncertainty and risk and using three estimates to define an approximate range for an activitys cost:
1- Most likely (cM): The cost of the activity, based on realistic effort assessment for the required work
and any predicted expenses.
2- Optimistic (Co): The activity cost based on analysis of the best-case scenario for the activity.
3- Pessimistic (Cp): The activity cost based on analysis of the worst-case scenario for the activity.
Triangle distribution: cE = (cO + cM + cP)/3

Beta distribution: cE = (cO +4 cM + cP)/6

6- Reserve Analysis:
-

Cost estimates may include contingency reserves (sometimes called contingency allowances) to account
for cost uncertainty, contingency reserves are the budget within the cost baseline that is allocated for
identified risks, which are accepted and for which contingent or mitigating responses are developed.
Contingency reserves can provide for a specific activity or for the whole project, it may be a percentage
of estimated cost, a fixed number, or may be developed by using quantitative analysis methods.

As more precise information about the project becomes available, the contingency reserve may be
used, reduces, or eliminated, it should be defined in cost documentations, and it is a part of the cost
baseline and the overall funding requirements for the project.
Management reserve are the amount of the project budget withheld for management control process
and are reserved for unforeseen work that is within scope of the project, management reserves are
intended to address the unknown unknowns that can affect the project.
The management reserve is not include in the cost baseline but is a part of the overall project budget
and funding requirements, when an amount of management reserves is used to fund unforeseen work,
the amount of management reserve used is added to the cost baseline, thus requiring an approved
change to the cost baseline.

7- Cost Of Quality (COQ):

-

Assumptions about costs of quality may be used to prepare the activity cost estimate.

8- Project Management Software:

-

Project management software applications, computerized spreadsheets, simulation, and statistical tools
are used to assist with cost estimating.

9- Vendor Bid Analysis:

-

Cost estimating methods may include analysis of what the project should cost, based on the responsive
bid from qualified vendors, when projects are awarded to a vendor under competitive processes,
additional cost estimating work may be required of the project team to examine the price of individual
deliverables and to derive a cost that supports the final total cost.

10- Group Decision-Making Techniques:

-

Team-based approaches, such as brainstorming, the Delphi or nominal group techniques, are useful for
engaging team members to improve estimate accuracy and commitment to the emerging estimates.

1-2-3-The Outputs of Estimate Costs:

1- Activity Cost Estimating:

Activity cost estimates are quantitative assessments of the probable costs required to complete project
work, it can be presented in summary form or in detail.
Costs are estimated for all resources that are applied to the activity cost estimate, such as direct labor,
materials, equipment, services, facilities, information technology, cost of financing, an inflation
allowance, exchange rates, a cost of contingency, and indirect costs if they are included in the project
estimate can be included at the activity level or higher level.

2- Basis Of Estimates:
-

Supporting detail for activity cost estimates may include:

1- Documentation of the basis of the estimate (how it was developed?).
2- Documentation of all assumptions made.
3- Documentation of any known constraints.
4- Indication of the range of possible estimates to indicate that the item is expected to cost between a
ranges of values.
5- Indication of the confidence level of the final estimate.

3- Project Documents Updates:

-

Project documents that may be updated include, but are not limited to:
1- The risk registers.

1-3- Determine Budget:

-

Determine budget is the process of aggregating the estimated costs of individual activities or work
packages to establish an authorized cost baseline.
The key benefit of this process is that it determines the cost baseline against which project performance
can be monitored and controlled.

Inputs

Tools & Techniques

Outputs

1- Cost management plan.

1- Cost aggregation.

1- Cost baseline.

2- Scope baseline.

2- Reserve analysis.

3- Activity cost estimates.

3- Expert judgment.

2- Project funding
requirements.

4- Basis of estimates.

4- Historical relationships.

5- Project schedule.

5- Funding limit
reconciliation.

6- Resource calendars.

3- Project documents
updates.

7- Risk register.
8- Agreements.
9- Organizational process assets.

A project budget includes all the funds authorized to execute the project, the cost baseline is the
approved version of the time-phased project budget, but excludes management reserves.

1-3-1-The Inputs of Determine Budget:

1- Cost Management Plan:
-

The cost management plan describes how the project costs will be managed and controlled.

2- Scope baseline:
-

Project scope statement:

Formal limitations by period for the expenditure of project funds can be mandated by the organization,
by agreement, or by other entities such as government agencies, these funding constraints are reflected
in the project scope statement.
Work breakdown structure:
It provides the relationships among all the components of the project and the project deliverables.
WBS dictionary:
It provides detailed information about the deliverables and the description of the work for each
component in the WBS required producing each deliverables.

3- Activity Cost Estimates:

-

Cost estimates for each activity within a work package are aggregated to obtain a cost estimate for each
work package.

4- Basis of Estimates:
-

Supporting detail for cost estimates contained in the basis of estimates should specify any basic
assumptions dealing with the inclusion or exclusion of indirect or other costs in the project budget.

5- Project schedule:
-

It includes planned start and finish dates for the projects activities, milestones, work packages, and
control accounts, this information can be used to aggregate costs to calendar periods.

6- Resource Calendars:
-

It provides information on which resources are assigned to the project and when they are assigned, this
information can be used to indicate resource costs over the duration of the project.

7- Risk Register:
-

The risk register should be reviewed to consider how to aggregate the risk response costs, updates to
the risk register are included with project document updates.

8- Agreements:
-

Applicable agreement information and costs relating to products, services, or results that have been or
will be purchased are included when determining the budget.

9- Organizational Process Assets:

-

The organizational process assets that influence the determine budget process include:
1- Existing formal or informal cost budgeting-related policies, procedures, and guidelines.
2- Cost budgeting tools.
3- Reporting methods.

1-3-2-The Tools and Techniques of Determine Budget:

1- Cost Aggregation:
-

Cost estimates are aggregated by work packages in accordance with the WBS, the work package cost
estimates are then aggregate for the higher component levels of the WBS (such as control accounts),
and ultimately for the entire project.

2- Reserve Analysis:
-

Reserve analysis can establish both the contingency reserves and the management reserves.

3- Expert Judgment:
-

Expert judgment guided by experience in an application area, knowledge area, discipline, industry, or
similar project, aids in determining the budget, such expertise may be any group or person with
specialized education, knowledge, skill, experience, or training.

4- Historical Relationships:
-

Any historical relationships that result in parametric estimates or analogous estimates involve the use
of project characteristics to develop mathematical models to predict total project costs, it can be simple
or complex, but the cost and accuracy of analogous and parametric models can vary widely, they are
most likely to be reliable when:
1- Historical information used to develop the model is accurate.
2- Parameters used in the model are readily quantifiable.
3- Models are scalable.

5- Funding Limit Reconciliation:

-

The expenditure of funds should be reconciled with any funding limits on the commitment of funds for
the project, a variance between the funding limits and the planned expenditure will sometimes that
rescheduling of work to level out the rate of expenditure, this accomplished by placing imposed date
constraints for work into the project schedule.

1-3-3-The Outputs of Determine Budget:

1- Cost Baseline:
-

The cost baseline is the approved version of the time-phased project budget, excluding any
management reserves, which can only be changed through formal change control procedures and is
used as a basis for comparison to actual results; it is developed as a summation of the approved
budgets for the different schedule activities.

1- Work package cost estimates = (Activity cost estimates + Activity contingency reserve).
2- Control account = (Work package cost estimates + work package contingency reserve).
3- Cost baseline = Control accounts
4- Project Budget = (Cost baseline + Management Reserve).

2- Project Funding Requirements:

-

Total funding requirements and periodic funding requirements are derived from the cost baseline.
The cost baseline will include project expenditures plus anticipated liabilities, funding often occurs in
incremental amounts that are not continuous, and may not be evenly distributed.

3- Project Documents Updates:

-

The project documents that may be updated include:

1- Risk register. 2- Activity cost estimates. 3- Project schedule.

1-4- Control Costs:

-

Control costs is the process of monitoring the status of the project to update the project costs and
managing changes to the cost baseline.
The key benefit of this process is that it provides the means to recognize variance from the plan in order
to take corrective action and minimize risk

Inputs

Tools & Techniques

Outputs

1- Project Management plan.

1- Earned value management.

1- Work performance information.

2- Project funding
requirements.

2- Forecasting.

2- Cost forecasts.

3- Work performance data.

4- Performance reviews.

4- Organizational process
assets.

3- To-complete performance index.

5- Project management software.

6- Reserve analysis.

3- Change requests.
4- Project management plan updates.
5- Project documents updates.
6- Organizational process assets update.

Updating the budget requires knowledge of the actual costs spent to date. Any increase to the
authorized budget can only be approved through the Perform Integrated Change Control process.
Much of the effort of cost control involves analyzing the relationship between the consumption of
project funds to the physical work being accomplished for such expenditures.
The key to effective cost control is the management of the approved cost baseline and the changes to
that baseline.
Cost control includes:
1- Influencing the factors that create changes to the authorized cost baseline.
2- Ensuring that all change requests are acted on in a timely manner.
3- Managing the actual changes when and as they occur.
4- Ensuring the actual expenditures does not exceed the authorized funding by period, by WBS
components, by activity, and in total for the project.
5- Monitoring cost performance to isolate and understand variances from the approved cost baseline.
6- Monitoring work performance against funds expended.
7- Preventing unapproved changes from being included in the reported cost or resource usage.
8- Informing appropriate stakeholders of all approved changes and associated cost.
9- Bringing expected cost overruns within acceptable limits.

1-4-1-The Inputs of Control Costs:

1- Project Management Plan:
-

The project management plan includes:

1- Cost baseline: it is compared with actual results to determine if a change, corrective, preventive
actions is necessary.
2- Cost management plan: it describes how the project costs will be managed and controlled.

2- Project Funding Requirements:

-

It includes projected expenditures plus anticipated liabilities.

3- Work performance data:

-

It includes which activities have started, their progress, and which deliverables have finished.

4- Organizational process assets:

-

The organizational process assets that influence the determine budget process include:
1- Existing formal or informal cost budgeting-related policies, procedures, and guidelines.
2- Cost control tools.
3- Monitoring and Reporting methods.

1-4-2-The Tools and Techniques of Control Costs:

1- Earned Value Management:
-

Earned value management (EVM) is a methodology that integrates the scope baseline, with the cost
baseline, with the schedule baseline to form the performance baseline, which helps the project
management team to assess and measure project performance and progress.
Earned value management (EVM) develops and monitors three key dimensions for each work package
and control account:-

Planned Value (PV):

-

It is the authorized budget planned for the work to be accomplished for an activity or work breakdown
structures component, not including management reserve.
Planned value defines the physical work that should have been accomplished.
The total of the PV is sometimes referred to as the performance measurement baseline (PMB), or
budget at completion (BAC).

Earned Value (EV):

-

It is a measure of work performed expressed in terms of the budget authorized for that work, it is the
budget associated with the authorized work that has been completed.
The earned value being measured needs to be related to the PMB, and the EV measured cannot be
greater than the authorized PV budget for a component, and it is used to calculate the prevent
complete of a project.
Project managers monitor EV, both incrementally to determine current status and cumulatively to
determine the long-term performance trends.

Actual Cost (AC):

-

It is the realized cost incurred for the work performed on an activity during a specific time period, it is
the total cost incurred in accomplishing the work that the EV measured.
The AC will have no upper limit; whatever is spent to achieve the EV will be measured.

Schedule variance:
-

It is a measure of schedule performance expressed as the difference between the earned value and the
planned value.
The EVM schedule variance will ultimately equal zero when the project is completed because all of the
planned values will have been earned. SV = EV - PV

Cost variance:
-

It is the amount of budget deficit or surplus at a given point in time, expressed as the difference
between earned value and the actual cost.
The cost variance at the end of the project will be the difference between the budget at completion
(BAC) and the actual amount spent.
Negative CV is critical and is often difficult for the project to recover. CV = EV - AC
The SV and CV are useful for determining project status.

Schedule Performance Index:

-

The (SPI) is a measure of schedule efficiency expressed as the ratio of earned value to planned value.
It measures how efficiently the project team is using its time, it sometimes used in conjunction with the
cost performance index (CPI) to forecast the final project completion estimates.
An (SPI) greater than 1.0 indicates that more work was completed than was planned; An (SPI) less than
1.0 indicates less work was completed than was planned. SPI = EV /PV

Cost Performance Index:

-

The (CPI) is a measure of the cost efficiency of budget, resources, expressed as a ratio of earned value to
actual cost.
An (CPI) greater than 1.0 indicates a cost under run of performance to date; An (CPI) less than 1.0
indicates a cost overrun for work completed. CPI = EV /AC

The three parameters of planned value, earned value, and actual cost can be monitored and reported
on both a period-by-period basis (typically weekly or monthly) and on a cumulative basis.
Uses S-curve to display EV data for a project that is performing over budget and behind the schedule.

2- Forecasting:
-

If the (BAC) is no longer viable, the project manager should consider the forecasted (EAC).
Forecasting the EAC involves making projections of conditions and events in the projects future based
on current performance information and other knowledge available at the time of the forecast.
Forecasts are generated, updated, and reissued based on work performance data.
The project managers bottom-up EAC method builds upon the actual costs and experience incurred for
the work completed, and requires a new estimate to complete the remaining project work.
EAC = AC + Bottom-Up ETC

Only three of the more common methods are described as follows:

1- EAC forecast for ETC work performed at the budget rate:

This method accepts the actual project performance to date (Whether favorable or unfavorable) as
represented by the actual costs, and predicts that all future ETC work will be accomplished at the
budget rate.
When actual performance is unfavorable, the assumption that future performance will improve should
be accepted only when supported by project risk analysis.
EAC = AC + (BAC EV)

2- EAC forecast for ETC work performed at the budget rate:

This method assumes what the project has experienced to date can be expected to continue in the
future, the ETC work is assumed to be performed at the same cumulative cost performance index (CPI)
as that incurred by the project to date.
EAC = BAC / CPI

3- EAC forecast for ETC work considering both SPI and CPI factors:
The ETC work will be performed at an efficiency rate that considers both the cost and schedule
performance indices, This method is most useful when the project schedule is a factor impacting the
ETC effort, variations of this method weight the CPI and SPI at different values according to the project
managers judgment.
EAC = AC + [(BAC - EV) / (CPI * SPI)]

3- To Complete Performance Index (TCPI):

-

The To Complete performance index (TCPI) is a measure of the cost performance that is required to be
achieved with the remaining resources in order to meet specified management goal, expressed as the
ratio of the cost to finish the outstanding work to the remaining budget.
If it becomes obvious that the BAC is no longer viable, the project manager should consider the
forecasted EAC, once approved, the EAC may replace the BAC in the TCPI calculation.
The equation for the TCPI based on BAC
TCPI = (BAC EV) / (BAC AC)

If the cumulative CPI falls below the baseline, all future work of the project will need to be performed
immediately in the range of TCPI (BAC) to stay within the authorized BAC , whether this level of
performance is achievable is a judgment call based on a number of consideration, including risk,
schedule, and technical performance, this level of performance is displayed as the TCP (EAC).
The equation for the TCPI based on EAC
TCPI = (BAC EV) / (EAC AC)

FORMULA

TCPI =

Work remaining (BAC EV)

Funds remaining (BAC AC) or (EAC AC)

4- Performance Reviews:
-

Performance review compare cost performance over time, schedule activities or work packages
overrunning and under running the budget, and estimated funds needed to complete work in progress,
if EVM is being used, the following information is determined:
1- Variance analysis:
Variance analysis are used in EVM, is explanation (cause, impact, and corrective actions) for cost (CV=
EV AC), schedule (SV=EV-PV), and variance at completion (VAC= BAC EAC) variances.
For projects not using earned value management, similar variance analyses can be performed by
comparing planned activity cost against actual activity cost to identify variances between the cost
baseline and actual project performance.
2- Trend analysis:
It examines project performance over time to determine if performance is improving or deteriorating,
graphical analysis techniques are valuable for understanding performance to date and for comparison
to future performance goals in the form of BAC versus EAC completion dates.
3- Earned Value Performance:
It compares the performance measurements baseline to actual schedule and cost performance.

5- Project Management Software:

-

Project management software is used to monitor the three EVM dimensions (PV, EV and AC), to display
graphical trends, and to forecast a range of possible final project results.

6- Reserve Analysis:
-

During cost control reserve analysis is used to monitor the status of contingency and management
reserves for the project to determine if these reserves are still needed or additional reserves need to be
requested.
As work on the project progresses, these reserves may be used as planned to cover the cost of risk
mitigation events, if the probable risk do not occur, the unused contingency reserves may be removed
from the project budget to free up resources for other projects or operations.

1-4-3-The Outputs of Control Costs:

1- Work Performance Information:

The calculated CV, SV, CPI, SPI, TCPI, and VAC values for WBS components, in particular the work
packages and control accounts, are documented and communicated to stakeholders.

2- Cost Forecasts:
-

Either a calculated EAC value or bottom-up EAC is documented and communicated in stakeholders.

3- Change Requests:
-

Analysis of project performance may result in a change request to the cost baseline or other
components of the project management plan, change requests may include preventive or corrective
actions, and are processed for review and disposition through the perform integrated change control
process.

4- Project Management Plan Updates:

-

Elements of the project management plan that may be updated include:

1- Cost baseline: changes to the cost baseline are incorporate in response to approved changes in scope,
activity resources, or cost estimates, in some cases, cost variances can be so severe that a revised cost
baseline in needed to provide a realistic basis for performance measurements.
2- Cost management plan: such as changes to control thresholds or specific levels of accuracy required
in managing the projects cost, are incorporated in response to feedback from relevant stakeholders.

5- Project Documents Updates:

-

The project documents that may be updated include:

1- Cost estimates.
2- Basis of estimates.

6- Organizational Process Assets Updates:

-

The organizational process assets that may be updated include:

1- Causes of variances.
2- Corrective action chosen and the reasons.
3- Financial database.
4- Other types of lesson learned from project cost control.

IF YOU HAVE ANY INQUIRY PLEASE E-MAIL US ON

Questions.pmp@gmail.com