ادارة تكلفة المشروع

Project
Cost
Management

Prepared by: Mohamed Dahi 2013

Project Cost Management

Process
Knowledge
Area Monitoring
Initiating Planning Executing Closing
& Control

Cost Estimating Cost
Cost
Cost Budgeting Control

Financial Statement
Income statement P/L 
Balance Sheet 

Economic Analysis

 Benefit-cost ratio- Higher BCR, more preferable
 Payback Period-Shorter period more preferred project
 Break Event Point
 ROI (Return on investment)
 IRR (internal rate of return Higher IRR, more preferable
project
 NPV- Higher PV, more preferable project value is>=0

The project cost management process include

Cost estimating
Cost budgeting
Cost controlling

Project Cost Management
• T process involved in estimating, budgeting, and controlling cost so
he
that the project can be completed within approved budget

• L cycle costing
ife
Looking at the cost of whole life of the product (include maintenance)
• Value analysis (value engineering)
Looking at less costly way to do the same work within the same scope
• L of Diminishing Returns
aw
E adding twice resource to task may not get the task done in half
.g.
cost/ time

Resource Determining what resources and
planning quantities of them should be used.

Cost Developing an estimate of the costs and
estimating resources needed to complete a project.

Cost Allocating the overall cost estimate to
budgeting individual work items to establish a
baseline for measuring performance.

Cost Controlling changes to the project
controlling budget.

The main outputs of the cost estimating process are:
 Cost estimates
 Supporting detail
 Cost management plan

Cost Management Plan

 Describes how cost variances will be managed on the
project.

Content:
 Level of accuracy
 Reporting format
 Rules for measuring cost performance
 Cost baseline
 Control thresholds
 Cost change control procedures

Cost Estimating 7.1
 The process of developing approximation of the monetary
resources needed to complete project activities
 Points for estimating (WBS-person doing work -historical
information- No Padding –Realistic)
What do you need before estimating costs
o Cost trade-offs ‫ ))المقايضة‬risk must be considered
 How is estimating done?

.Feedback to tender depart

1.The proposal estimate is prepared before proposal and
initiation to commit resources to the first stage of the
project.‫(-تقدير مرافق لدراسة الجدوى‬order of magnitude –made
without any detailed eng-data).‫()مقترح‬ROM)

2. The budget estimate is prepared during proposal and
early planning , and commit resources to design and
appraisal.‫-تقدير من اجل تقييم البدائل التصميمية‬

3. The sanction estimate is prepared during design and
appraisal to gain funding for the project, or approval from
the project sponsor.‫تقديرات اولية- الجازة‬

4. The control estimate is prepared during implementation
planning.‫تقديرات تفصيلية‬

5. A tender estimate is prepared as part of the process of
bidding for a contract.‫سعر العطاء‬

:Estimating methods used to prepare types of estimate

Type of Estimate (%)Accuracy

Proposal estimate + - 50

Budget estimate 20 - +

Sanction estimate + - 10

Control estimate +-5

Tender estimate +-2

Definitive approximate
Estimate

Types of Cost
 Variable Costs
 Change with the amount of production/ work
 e.g. material, supplies, wages
 Fixed Costs
 Do not change as production change
 e.g. set-up, rental
 Direct Costs
 Directly attributable to the work of project
 e.g. team travel, recognition, team wages
 Indirect Costs
 overhead or cost incurred for benefit of more than one project
 e.g. taxes, fringe benefit, janitorial services
 Cost reserves: amount of money needed above the estimate to
reduce risk of overruns of project objectives to a level acceptable to
the organization

Tools &
Inputs Techniques Outputs

1. Scope baseline 1. Expert judgment 1. Activity cost
2. Project 2. Analogous estimates
schedule estimating 2. Basis of
3. Human resource 3. Parametric estimates
plan estimating 3. Project
4. Risk register 4. Bottom-up document
5. Enterprise estimating updates
environmental 5. Three-point
factors estimates
6. Organizational 6. Reserve
process assets analysis
7. Cost of quality
8. Project
management
estimating
software
9. Vendor bid
analysis

Cost Estimating Tools
• Analogous estimates -unit method
Using the actual cost of a previous, similar project
Used when there is limited information
Form of expert judgment- used in the early project stages
• B ottom up estimating
Estimating the cost of individual work items ,then rolling up
to get total project cost
• P arametric modeling-(statistical )
Using project characteristics in a mathematical model-may
be simple with very few parameters e.g. (construction per
squire foot calculation) -
• T hree P oint Estimating

One point estimating
Approximation of a single quantity or a single numerical value, instead of
that of a whole range of quantities or values.

Analog costing
Computing cost of an item on the basis of the cost of a similar (analogous)
item and using adjustment factors to account for differences between
the two items.

Parametric cost estimating
Methodology that employs one or more cost estimating relationships for
quantifying research and development (R& costs.
D)

Ranges Of Estimates
Rough Order of Magnitude.
An approximation, made with a degree of knowledge and confidence
that the estimated figure falls within a reasonable range of values-

Budget Estimate
Approximation of the cost of an activity, job, program or project, prepared
for budgeting and planning purposes only. Not accurate enough to provide
a basis for a firm commitment, it represents only the budget maker's
understanding of the scope and expense of what needs to be done.
Definitive Estimate

Quality/Accuracy of Cost Estimation

Estimate Accuracy WBS level 1
Ball Park
Rough • M difficult to estimate as very little project
ost
Order of info is available, made during initiating

Magnitude 50% -/+ process- parametric method

(ROM) WBS level 2,3

• Used to finalize the Request for
Budget 10%- Authorization (RF A), and establish
commitment, made during early planning
Estimate 25%+ phase- analogy method

Definitive 5%- • During the project and refined
• late planning & execution-
Estimate 10%+ • grassroots method
WBS level 4,5,6

Cost Budgeting 7.2
Process of aggregating the estimated cost of
individual activities or work packages to establish
an authorized cost baseline.

Allocating the overall cost estimate to individual
activates or work packages, in order to establish a
cost baseline for measuring project performance.

Inputs
Tools & Outputs
1.Activity cost Techniques
estimates 1.Cost
2.Basis of 1.Cost aggregation performance
estimates 2.Reserve analysis baseline
3.Scope 3.Expert judgment 2.Project
baselines funding
4.Historical
requirements
4.Project relationship
schedule 3.Project
5.Funding limit
document
5.Resource reconciliation
updates
calendars
6.Contracts
7.Organizational
process assets

Cost Aggregation
 Reserves & risk management Cost Budget

are important while estimating! Management reserves

 Contingency reserves:  Cost Cost baseline

Baseline Contingency reserves

the cost impacts of the remaining risk Project estimates

Control account estimates

 Management reserves:  Cost Work package estimates

Budget Activity estimates
extra fund to cover unforeseen risk or
changes to the project

$1.423 Cost Budget
Example
$68 Management reserves

$1.355 Cost baseline

$105 Contingency reserves

$1.250 Project estimates

CA1$850 CA2$480 Control account estimates

WP 1$100 WP2$250 WP3$500 WP4$175
Work package estimates

A 1$25 A2$25 A 3$25 A 4$25 A 5$45
Activity estimates

Funding Requirements
Cumulative values

Is the time
phased budget
that is used as
the basis
Cost Baseline against whish
the progress is
measured

Expenditures

Time

Control Cost 7.3
The process of monitoring the status of the project to
update the project budget and managing changes to
the cost baseline

‫الدهداف من مراقبة التكاليف بالنسبة للمالك والمقاول‬
‫بالنسبة للمالك‬
‫استل م المشروع فى الميعاد المحدد له حتى تتحقق له اعادة دورة راس المال‬
‫فى حالة عقود تعويض التكاليف ‪ cost reimbursement‬تكون مسئولية‬
‫المالك هى مراقبة التكالف لهنه سيكون مسئوال عن شراء جميع المواد‬

‫بالنسبة للمقاول‬
‫التأكد من تنفيذ وتسليم المشروع فى الميعاد المحدد‬
‫التاكد من التكاليف الفعلية تسير كما هو مخطط‬
‫فى حالة العقود محددة السعار مقدما ‪ price given in advance‬يقو م المقاول‬
‫بأخذ المشروع بسعر معين لذلك فهو المسئول عن شراء جميع المواد وبذلك تكون مسئوليته‬
‫الساسية حتى ل يقل هامش الربح المخطط‬

‫العاومل التى تؤثر على اختيار فترات المتابعة‬

‫تعقد وتكثف اهنشطة المشروع يؤدى الى تكثيف وتقليل فترات المتابعة وخاصة اثناء التشطيبات‬
‫تعتمد فترات المتابعة اساسا على مدة المشروع فكلما زاد زمن المشروع زادت فترات المتابعة‬
‫درجة الدقة فى التنفيذ تزداد كلما زادت المتابعة على المشروع‬

Inputs Tools & Outputs
Techniques
1.Work
1.Project 1.Earned value performance
management management measurement
plan
2.Forecasting 2.Budget forecast
2.Project
funding
3.To-complete 3.Organizational
performance process
requirement
index updates
3.Work
performance
4.Performance 4.Change
reviews requests
information
4.Organizational 5.Variance 5.Project
analysis management
process assets
6.Project plan updates
management 6.Project
software document
updates

?How to control cost
 Follow the cost management plan

 Look at any organizational process asset that are
available
Manage change
 Recording all appropriate change
 Preventing incorrect change
 Ensuring requested changes are agreed upon
 Managing the actual changes when and as they
occur

 Measure and measure and measure (monitoring)

Progress Report:
A method to control schedule and cost

 Progress/performance report (output from communication area)
 Where work cannot be measured, estimate could be done by a guess-
rules
 50/50 Rule
 20/80 Rule
 0/100 Rule
 PCT: the amount of units completed copmared to the total amount
planned
 Activity is considered X percent complete when it begins and get
credit for the last Y percent only when it is complete

Earned Value Technique

Method to measure project

performance against scope,

schedule and cost baseline

(performance measurement

baseline

BCWP
BCWS ACWP
PV AC
EV

It builds on the concept of comparing banana with banana
not banana with watermelon.
Its enables P.M through a simple and effective analysis
,to get timely updates and forecasts on project’ s time and
cost performance.

How EV Works?

 The value the contractor is entitled to receive from
the owner based on estimated prices and actual
amount of work performed.
 This is way called earned value

E =P * B
V CT AC

 Planned value (PV)
 Is the cost of work that's been budgeted for
a schedule activity or W S component to be completed
B
during a given time period .
 P is also called (B S)
V CW
 Actual Cost (AC)
 Is the cost of completing the work ( a schedule activity
or W S component ) in a given time period. AC is also
B
called (ACW P)
 Earned Value (EV)
 Is the value of the work ( a schedule activity or W S
B
component ) completed to date as it is compares to the
budget amount assigned to the work component. E isV
also called (B P)
CW

Earned Value Management
 Interpretation of basic EVM performance measures

CV = EV - AC SV = EV - PV

The Big Picture
Cost Performance Index (CPI)
CP = E /AC
I V
 Schedule Performance Index (SP I)
SP = E /P
I V V

Image captured from Practice Standard for Earned Value Management, PMI © 2005

Exercise
You have a project to build a box. The box is six sided. Each side is to take one day to
build and is budgeted for $1000 per side. The sides are planned to be completed one after
the other. Today is the end of day three.

Using the following project status chart, calculate PV, EV, AC, BAC, CV, CPI, SV, SPI,
EAC, ETC, VAC.
Describe your interpretation based on the calculation!

Project is below/
over budget?
Project is late/
ahead schedule?
H much more money we need?
ow

Task Progress Cost spent

Side 1 100% $1,200

Side 2 100% $1,000

Side 3 75% $750

Side 4 50% $500

Side 5 0% $0

Side 6 0% $0

Exercise Solution
Parameter Calculation Result
PV
EV
AC
BAC
CV
CPI
SV
SPI
EAC
ETC
VAC

Exercise Solution
Param
Calculation Result
eter
PV 1000 + 1000 + 1000 3000

x 1000) + (100% x 1000) + 100%(
EV 3025
) (75% x 1000) + (50% x 1000
AC 500 + 750 + 1000 + 1200 3450

BAC x 1000 6 6000

CV 3450 - 3025 425 -

CPI 3450 / 3025 0.88

SV 3000 - 3025 25

SPI 3000 / 3025 1.01

EAC 0.88 / 6000 6818.18

ETC 3450 - 6818.18 3368.18
818.18-
VAC 6818.18 - 6000

ON SCH DUL
E E
ON BUDGET

3450 PV EV AC

CPI= 1.0

SPI= 1.0

CV =EV - AC 0 SV =EV - PV 0

3450 PV

AC
3025
CPI= 0.99
3000 EV SPI= 0.88

CV =EV - AC 25 - SV =EV - PV 425 -

3450 EV

PV
3025

CPI= 1.15
3000 AC
SPI= 1.14

CV =EV - AC 425 SV =EV - PV 400

CPI= 0.88 SPI= 1.01

3450 AC
BAC
6000

3025 EV

3000 PV

CV =EV - AC 425 - SV =EV - PV 25+

EAC = 6000/ 0.88 = 6818.18
Estimate at completion

ETC = 6818.18 – 3425(AC) = 3368.18
Estimate to complete

VAC = 6000 – 6818.18 = - 818.18
Variance at completion

3450 PV

3025 EV
CPI=1.01

3000 AC SPI= .88

CV =EV - AC 25+ SV =EV - PV 400 -

Late PV
Early EV
Over AC Under PV

EV AC

AC PV
Early Late
EV EV
Over Under
PV AC

EVM – Hints to remember
 EV comes first in every formula
 If it’s variance, the formula is EV – something
 If it’s index, EV / something
 If it relates to cost, use Actual Cost
 If it relates to schedule, use PV
 Negative numbers are bad, positive is good

Copied from Rita’s book

‫مخطط كفاءة الجدولة والتكلفة‬

‫‪ ‬التنتاجية أفضل من المقدرة‬
‫‪ ‬التنتاجية أسوأ من المقدرة‬
‫‪ ‬تأخير بدء بعض المعمال‬
‫‪ ‬ظروف معمل غير ملمئمة‬
‫‪CPI‬‬ ‫‪ ‬اختصار بعض سامعات العمل‬
‫‪ ‬ظروف معمل ملمئمة‬

‫حالة توفير التكلفة وتأخير في العمل‬ ‫2.1‬ ‫حالة توفير التكلفة والتنفيذ المتقدم في العمل‬

‫1.1‬

‫1‬
‫‪SPI‬‬
‫8.0‬ ‫9.0‬ ‫1.1‬ ‫2.1‬
‫9.0‬

‫8.0‬ ‫‪ ‬وجود أعمال إضافية‬
‫زيادة بعض السعار‬ ‫‪‬‬
‫انتاجية أسوأ من المقدرة‬ ‫‪‬‬ ‫‪ ‬بدء بعض المعمال قبل وقتها‬
‫‪‬‬ ‫ً‬
‫‪ ‬مهارات العمال أفضل من المتوقع و كلفتهم ايضا‬
‫أمعمال أصعب من المتوقع‬
‫خطة غير جيدة‬ ‫‪‬‬

‫حالة زيادة التكلفة والتنفيذ المتقدم في العمل‬
‫حالة زيادة التكلفة وتأخير في العمل‬

Earned Value Technique

4/0.33
Revised Total Duration Baseline Duration/Schedule Performance Index
= 12 months

.EAC is an important forecasting value

Earned Value: Graphical Representation
TODAY
(Reporting
day) Projection of
schedule delay
at completion
Estimate at
Completion
EAC (EAC)
Projection of
cost variance
at completion
BAC
(VAC)

AC Budget at
Completion
(BAC)
COST

Cost
Variance
(CV)
PV

Schedul
e
ACTUAL Varianc
EV e (SV)
PLAN

EARN
VALUE

TIME

Project is over budget behind schedule

EV can be calculated by
(%progress) x (planned man-days)

Image captured from Practice Standard for Earned Value Management, PMI © 2005

over budget, getting 0.88 dollar for every dollar we spent,
ahead schedule, progressing 101% of the rate planned,
probably will spend $6818 at the end (estimation),
need $3368 to complete,
over budget at the end for about $818 (estimation)

Forecasting EAC

There are many ways to calculate EAC, depending on the assumption made.
Simple EAC calculation (EAC = BAC/CPI) assume that the cumulative CPI
adequately reflects past performance that will continue to the end of the project.
(‫)يستمر‬

AC+(BAC-EV)
Used when current variances are thought to be atypical of the future ( ‫)لن يستمر‬

(To-Complete Performance Index (TCPI

Helps the team determine the efficiency that
must be achieved on the remaining work for a
project to meet a specified endpoint, such as
BAC or the team’s revised EAC

TCPI
Work Remaining (BAC – EV)
=
Funds Remaining (BAC – AC)

Forecasting EAC
Common alternative way to calculate EAC

Table captured from Practice Standard for Earned Value Management, PMI © 2005

Next topic
Project H M
.R anagement

Thank You

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