2. PROJECT COST MANAGEMENT
Project cost management includes the processes required to ensure
that the project is completed within an approved budget.
Project cost management may be defined as management of the
processes involved in planning, estimating, and controlling costs so
that the project can be completed within the approved budget.
4. Cost Estimating
Developing an approximation or estimate of the costs of the resources
needed to complete a project.
Includes identifying and considering various costing alternatives.
5. Cost Budgeting
Allocation of overall cost estimates to individual work items in order to
establish a cost baseline for measuring project performances.
6. Cost Control
Controlling changes to the project budget.
Influencing the factors which create changes to the cost baseline to ensure
that changes are beneficial.
Determining that the cost baseline has changed with in acceptable units
Managing the actual changes when and as they occur.
7. Objectives of cost control
To have a knowledge of the profit and loss of the project throughout
the duration of the project.
To have a comparison between the actual project performance and
that conceived in the original project plan.
Provides feedback data on actual project performance to future
9. Tools and techniques of cost control
Earned value management
Estimate to complete
Cost performance index
10. Earned value management
The earned value technique uses the cost control contained in the
project management plan to assess project progress and the
magnitude of any variations that occur. The earned value technique
involves developing these key values for each schedule activity,
work package, or control account.
It compares the amount of work that was planned with what was
actually earned with what was actually spent to determine if cost and
schedule performance are as planned.
11. Planned value (PV)-PV is the budgeted cost for the work scheduled to be
completed on an activity or WBS component up to a given point in time.
Earned value (EV)-EV is the budgeted amount for the work actually
completed on the schedule activity or WBS component during a given
Actual cost (AC)-AC is the actual cost incurred in accomplishing work on
the schedule activity or WBS component during a given time period. This
AC must correspond in definition and coverage to whatever was budgeted
for the PV and the EV (e.g. direct hours only, direct cost only, or all costs
including indirect costs).
12. Estimate to complete
The PV, EV, and AC values are used in combination to provide
performance measures of whether or not work is being accomplished
as planned at any given point in time. The most commonly used
measures are cost variance (CV) and schedule variance (SV). The
amount of variance of the CV and SV values tend to decrease as the
project reaches completion due to compensating effect of more work
being accomplished. Predetermined acceptable completion can be
established in the cost management plan.
Forecasting includes making estimates or predictions of conditions
in the project’s future based on the information and knowledgeable
available at the time of the forecast. As the project progresses, the
forecasts are adjusted.
Formula: BAC=total cumulative PV t the completion
Forecasting technique parameters to assess the cost or the amount of
work to complete schedule activities is called the EAC.
14. Cost variance
CV equals earned value (EV) minus actual cost (AC). The cost
variance at the end of the project will be the difference between the
budget at the completion (BAC) and the actual amount spent.
these two values, the CV and SV, can be converted to efficiency
indicators to reflect the cost and schedule performance of any
15. Cost performance index
A CPI value less than 1.0 indicate accost overrun of the estimates. A
CPI value greater than 1 indicates a cost under-run of the estimates.
CPI equals the ratio of the EV to the AC. The CPI is the most
commonly used cost-efficiency indicator.
CPI is widely used to forecast project costs at completion.