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Value Analysis
This concept is sometimes referred to as value engineering in the real world.
It involves finding a less costly way to do the same work. Value analysis requires
the systematic use of techniques to identify the required project functions, assign
values to these functions, and provide functions at the lowest overall cost without
loss of performance.
Variable Fixed
Direct Indirect
Cost Price
“The process that establishes the policies, procedures, and documentation for
planning, managing, expending, and controlling project costs.
Tools and
Inputs Outputs
Techniques
1. Project management plan 1. Expert judgment 1. Cost management plan
2. Project charter 2. Analytical techniques
3. Enterprise environmental 3. Meetings
factors
4. Organizational process
assets
The key benefit of this process is that it provides guidance and direction on how the project costs will be
managed throughout the project.
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.
2. Analytical techniques
Developing the cost management plan may involve choosing strategic options to
fund the project such as: self-funding, funding with equity, or funding with debt.
The cost management plan may also detail ways to finance project resources such
as making, purchasing, renting, or leasing.
Techniques may include: payback period, return on investment, internal
rate of return, discounted cash flow, and net present value.
The key benefit of this process is that it determines the amount of cost required to complete project
work.
PROJECT COST MANAGEMENT September 2015
INPUTS
1. Cost management plan
It could be called “Budget Management Plan” or “Budget Plan”.
The method will be used, level of accuracy required for estimates,..etc.
How you will manage costs.
3. Scope baseline
All the components of the scope baseline, including the project scope statement,
WBS, and WBS dictionary.
4. Project schedule
It contains the activities, the type and quantity of resources needed to complete
the work, and when the work will occur.
A schedule is needed before a budget. May be changed due to price conditions.
PROJECT COST MANAGEMENT September 2015
INPUTS
5. Risk register
Like rewards systems, risk management will save time and money, but there are
costs associated with the efforts to control risks.
Risks are more properly thought of as both an input to the Estimate Costs process
and an output. Planning is iterative.
More accurate but takes time and expense to do this form of estimating.
Gains buy-in from the team because the team creates estimates they can live
with.
Requires that the project be defined and well understood before work begins.
Detailed estimating is done for each activity (if available) or work package (if
activities are not defined), and the estimates are then rolled up into control
accounts and finally into an overall project estimate.
EC= O + 4M + P S.D. = P – O
V = ((P – O)/6)2
6 6
EC = Estimated Cost
V = Variance.
In risk analysis, you identify which activities on your project have significant risks
and determine how much time and money to set aside to deal with the risks if
they happen.
Risk contingency reserves are used for the specifically identified risks (known
risks), and a lump sum management reserve is used to accommodate
unidentified risks (unknown risks). The work should include making sure individual
activity estimates are not padded.
7. Cost of quality
The cost of work added to the project to accommodate quality planning should be
added to the project estimate.
The software referred to here might be any software used for estimating.
If a project has hundreds or thousands of activities, each of which has similar cost
components added like overhead, software can speed up the calculations.
This work might also involve getting pricing from consultants, vendors, and
suppliers. Work provided by sellers may also require bid analysis.
Analysis of what the project should cost, based on the responsive bids from
qualified vendors.
Activity cost estimates are quantitative assessments of the probable costs required
to complete project work. Cost estimates can be presented in summary form or in
detail.
2. Basis of estimates
A typical range for ROM estimates is +/-50 percent or -25% to +75% from
actual.
Budget Estimate
This type of estimate is usually made during the planning phase and is in the
range of -10 to +25 percent from actual.
Definitive Estimate
Later during the project (may be during planning phase), the estimate will
become more refined.
Some project managers use the range of +/- 10 percent from actual, while
others use -5 to +10 percent from actual.
Determine Budget
“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.
2. Scope baseline
Scope statement.
Work breakdown structure.
WBs dictionary.
4. Basis of estimates
Supporting detail for cost estimates should be specified.
Any basic assumptions dealing with the inclusion or exclusion of indirect costs in
the project budget are specified in the basis of estimates.
6. Resource calendars
Resource calendars provide 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.
To create a budget, activity costs, including costs for risk contingencies, are rolled
up to work package costs.
are to address the cost impacts of the risks are any extra funds to be set aside to
remaining during risk response planning. cover unforeseen risks or changes to the
project.
(1) Represents the funds authorized for the (2) How much money the company should
project manager to manage and control. have available for the project.
3. Expert judgment
Consultants
Stakeholders
Industry groups.
4. Historical relationships
After the cost baseline and cost budget are completed, many estimators will
compare these numbers to parametric estimates, expert judgment, or historical
relationships in order to do a sanity check.
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 expenditures will
sometimes necessitate the rescheduling of work to level out the rate of
expenditures.
This can be accomplished by placing imposed date constraints for work into the
project schedule.
PROJECT COST MANAGEMENT September 2015
OUTPUTS
1. Cost baseline
It can only be changed through formal change control procedures and is used as a
basis for comparison to actual results.
The cost baseline will include projected expenditures plus anticipated liabilities.
Project documents that may be updated include but are not limited to: Risk
register, Cost estimates, and Project schedule.
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.
The organizational process assets that can influence the Control Costs process
include, but are not limited to:
Existing formal and informal cost control-related policies, procedures, and
guidelines;
Cost control tools; and
Monitoring and reporting methods to be used.
progress.
Project
Cost
CV slippage
AC
SV
PV
Data Date
Schedule
EV
slippage
Time
New
Old Acronym Old Term New Term
Acronym
BCWS Budgeted Cost of Work Scheduled PV Planned value
BCWP Budgeted Cost of Work Performed EV Earned value
ACWP Actual Cost of Work Performed AC Actual value
AC Actual Cost The actual cost incurred for the work accomplished.
BAC Budget at Completion The BUDGET for the TOTAL project effort.
ETC Estimate to Completion Currently, the expected cost to finish the project (forecast)
VAC Variance at Completion Currently, the expected variance to be at the end of the
project.
SV Best
+ Case
CV
- +
Over budget Under budget
Behind schedule Behind schedule
Worst
-
Case
ii. Assumed that the rate of progress to date will continue to prevail.
BAC
EAC =
CPI
iii. Uses current project status and tender for forecasting (SPI and CPI)
(BAC – EV)
CPI X SPI
PROJECT COST MANAGEMENT September 2015
TOOLS AND TECHNIQUES
ETC = EAC - AC
In order to stay within budget, what rate must we meet for the
remaining work?
Variance analysis.
Trend analysis.
Project management software is often 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
Budget
Activities 1 2 3 4 5 6 7
Cost
A 2,000 2,000 4,000
D 1,500 1,500 0
E 500 500 0
PV EV AC
6,500
CBI = = 0.93 Over budget
7,000
SV
+
Under budget
A head of schedule
Over budget
A head of schedule CV
- +
Over budget Under budget
Behind schedule Behind schedule
20,000
EAC = = 21,505
0.93
+
TCPI
Status
Date (BAC)
1.00
Baseline plan
- TCPI
(EAC)
PROJECT COST MANAGEMENT September 2015
OUTPUTS
1. Work performance information
The calculated CV, SV, CPI, and SPI values for WBS components, in particular the
work packages and control accounts, are documented and communicated to
stakeholders.
2. Cost forecasts
3. Change requests
Cost baseline.
A. Divide by SPI.
B. Multiply by SPI.
C. Multiply by CPI.
D. Divide by CPI.
Q2: If earned value (EV) = 350, actual cost (AC) = 400, planned value (PV) = 325, what is
cost variance (CV)?
A. 350
B. -75
C. 400
D. -50
PROJECT COST MANAGEMENT September 2015
Refreshments
Q3: A project manager needs to analyze the project costs to find ways to decrease
costs. It would be BEST if the project manager looks at:
B. Tell all the team members to cut 15 percent from their estimates.