COST
MANAGEMENT
MPA 209
PROJECT PLANNING AND DEVELOPMENT

- is the process of estimating,
budgeting and controlling costs
throughout the project life cycle,
with the objective of keeping
expenditures within the approved
budget.
WHAT IS COST
MANAGEMENT?

it is VITAL to an organization’s
project planning process
because without a detailed
budget, you cannot effectively
map out the resources needed
for your project.
Why COST MANAGEMENT
important?

Prevents overruns
Avoids risk
Aids future planning
Benefits of Cost Management

Direct Costs
Indirect Costs
- fixed labor
- materials
- equipment
- utilities expenses
- travel expenses
Types of expenses

Project Resource Planning
Cost Estimation
Cost Budgeting
Cost Control
Steps in Project Cost Management

Project Resource Planning
- is the process of identifying
the resources required to execute a
project and take it to completion
Steps in Project Cost Management

Cost Estimation
- is the process of
quantifying the costs associated
with all the resources required to
execute the project
Steps in Project Cost Management

Labor
Materials and Equipment
Actual Cost
The Cost Variance
Return on Investment (ROI)
Cost estimation factors

Cost Budgeting
- it creates a cost baseline
against which we can continue to
measure and evaluate the project
cost performance
Steps in Project Cost Management

Cost Control
- is the process of measuring
cost variances from the baseline,
such as increasing the budget
allocated or reducing the scope of
work, to correct that gap
Steps in Project Cost Management

Earned value management (EVM)
- is one of the most popular
approaches to measuring project
performance and progress in an
objective manner

Key Concepts
Actual Cost (AC)
Cost of the work
performed
Planned Value (PV)
Budgeted Cost of the
Work Scheduled
Earned Value (EV)
Budgeted Cost of the
Work Performed
Formulas
Cost Variance (CV): EV - AC = over/under budget
Cost Performance Index: CPI = EV/AC = Project Performance
Scheduled Performance Index: SPI = EV/PV = Project Performance

budgeted cost of a project at P100,000.00
10 months
after a month, you have completed 5% at a total
expenses of P20,000.00
Example:
(today the total project completed should be at 10%)

Given:
Budgeted Cost: P100,000.00
Actual Cost: P20,000.00
Compute for Planned Value (PV)
PV = Planned completion % x BC
= 10% x P100,000.00
= P10,000.00

Compute for Earned Value (EV)
EV = Actual completion (%) x BC
= 5% x P100,000.00
= P5,000.00
Given:
Budgeted Cost: P100,000.00
Actual Cost: P20,000.00

Cost Performance Index: CPI = EV/AC
CPI = P5,000.00 / P20,000
= 0.25
...that means that for every peso that is being
spent the project is producing only 25 cents of
work.

Schedule Performance Index: SPI = EV/PV
SPI = P5,000.00 / P10,000
= 0.50 (30minutes)
...that means that for every estimated hour of work,
only half an hour is being spent in doing a job/work

Thank you!