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You have to
remember the
definition
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Learning Objectives
By the end of this chapter you will be able to:
Understand the main activities that take place during Estimate Costs
and Determine Budget Planning and Control Costs
The topics that will be covered are:
Estimate Costs
Estimates of the approximate costs of the resources (human, materials,
etc.) needed to complete the activities identified on the project schedule
Determine Budget
The process of aggregating the estimated costs of individual activities or
work packages to establish an authorized cost baseline
Control Costs
The process of monitoring the status of the project to update the project
budget and managing changes to the cost baseline.
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Reading Materials
Text:
Chapter 7
References:
PMBOK: Section 7
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Planning
4.2 Develop Project
Management Plan
5.1 Collect
Requirements
Executing
Monitoring &
Controlling
4.5 Perform
Integrated Change
Control
6.2 Sequence
Activities
6.3 Estimate Activity
Resources
Closing
4.6 Close Project
or Phase
6.6 Control
Schedule
7.3 Control Costs
2009
Bob
Xourafas,
Bob Xourafas,
P.Eng, PMP
P.Eng, PMP, Proprietary
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Inputs
Outputs
1.
Scope baseline
1.
Expert judgment
2.
Project schedule
2.
3.
Analogous
estimating
1.
4.
Risk register
Parametric
estimating
Activity Cost
estimates
2.
Basis of Estimates
5.
Enterprise
environmental
factors
3.
Project document
updates
6.
Organizational
process assets
3.
4.
Bottom-up
estimating
5.
Three point
estimates
6.
Reserve analysis
7.
Cost of quality
8.
Project
management
estimating
software
9.
Vendor bid
analysis
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Depreciation
Large assets (e.g. equipment) purchased by a company lose value
over time. Accounting standards call this depreciation.
There are two forms of depreciation:
Straight line depreciation: The same amount of depreciation is taken
each year.
A $1,000 item with a ten year useful life and no salvage value
(worth at the end of its life) would be depreciated at $100 per
year
Accelerated depreciation: depreciates faster than Straight Line.
Depreciates more in first few years and less in later years
A $1,000 item with a ten year useful life and no salvage value
(worth at the end of its life) would be depreciated at $180 the first
year, $150 the second year, $130 the next, etc.
PMGT- 401: Project Management Fundamentals
07 Project Cost Management
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4. Risk register
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100
80
60
40
20
0
0
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Accuracy Ranges
Q: Why do ranges tighten up? A: progressive elaboration
Level
Estimating
Phase
Range
Time to
Prepare
Rough order of
magnitude (ROM)
Top Down
Initiation
50%.
Days
Budget
Top Down
Planning
10%
Weeks
Definitive
Bottom Up
Planning
5%
Months
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Cost of Quality
The cost of quality should also be included in activity cost
estimating
We will discuss the cost of quality in Chapter 08 Project Quality
Management
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Costs are estimated for all resources that are applied to the activity cost estimate. This
includes direct labor, materials, equipment, services, facilities, information technology,
and special categories such as an inflation allowance or a cost contingency reserve.
Indirect costs, if they are included in the project estimate, can be included at the
activity level or at higher levels.
Basis of Estimates
A description of how the estimate was developed or the basis for the estimate.
A description of the assumptions made about the estimates or the method used to
determine them.
A range of possible results. Like the time estimates, you should state the cost
estimates within ranges such as $500 $75.
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Cost aggregation
Reserve analysis
Expert judgment
Historical
relationships
5. Funding limit
reconciliation
Outputs
1. Cost
performance
baseline
2. Project funding
requirements
3. Project
document
updates
6. Contracts
7. Organizational
process assets
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6. Contracts
7. Organizational process assets
Ive covered all these inputs before except Contract
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Reserve analysis
Ive covered reserve analysis already.
Note that reserve analysis in this process also takes into
consideration management AND contingency reserves for
unplanned changes to project scope and project costs.
Management AND contingency reserves will be covered in detail in
Chapter 11, Project Risk Management
Historical relations
Historical relations of project parameters that are used in
analogous of parametric estimation should be closely examined
in determining the project budget
PMGT- 401: Project Management Fundamentals
07 Project Cost Management
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$1423
7 MANAGEMENT
RESERVE
$68
6 COST
BASELINE
$1355
5 CONTINGENCY
RESERVE
$105
4 PROJECT
$1250
3 CONTROL
ACCOUNTS
$850
2 WORK
PACKAGES
$100
1 ACTIVITIES
PMGT- 401: Project Management Fundamentals
07 Project Cost Management
$25
$25
Cost
Aggregation
$400
$250
$25
$500
$25
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$1423
7 MANAGEMENT
RESERVE
$68
6 COST
BASELINE
$1355
5 CONTINGENCY
RESERVE
$105
4 PROJECT
$1250
3 CONTROL
ACCOUNTS
$850
2 WORK
PACKAGES
$100
1 ACTIVITIES
PMGT- 401: Project Management Fundamentals
07 Project Cost Management
$25
$25
$400
$250
$25
$500
$25
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Integration
4.6 Integrated
Change Control
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4.
Project funding
requirements
Work
performance
information
Organizational
process assets
Tools &
Techniques
Outputs
1. Earned Value
Management
1.
Work performance
measurements
2. Forecasting
2.
Budget forecasts
3. To-complete
performance
index
3.
Organizational process
assets updates
(lessons learned)
4.
Change requests
5.
Project management
plan updates
6.
Project document
updates
4. Performance
reviews
5. Variance
analysis
6. Project
management
software
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0/100 RULE - A task does not get credit for partial completion, it get
100% credit only full completion
PMGT- 401: Project Management Fundamentals
07 Project Cost Management
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EV = PV * percent complete
Example:
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Start
Date
Baseline Plan
Today
BAC
PV
EAC
Current Plan
AC
ETC
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EAC Equations
Application
AC + ETC
AC + BAC - EV
AC+(BAC-EV)/ (cumulative
CPI x cumulative SPI)
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AC )
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8. Schedule: use PV
9. For variance interpretation, negative is bad, positive is good
10. For CPI and SPI interpretation, >1 is good, <1 is bad
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10
11
$5,000
20
21
30
$5,000
Notation
$10,000
31
40
D
$15,000
Start
Finish
Task ID
Task A, B, C and D are the critical path of the project. Each task is 10 days in
duration and their costs are as shown in the diagram. At the end of day 23,
Tasks A and B are complete, Task C is 50% complete, and $14, 000 over all
have been spent up to this point.
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10
11
$5,000
20
21
$5,000
Notation
30
C
$10,000
31
40
D
$15,000
Start
Finish
Task ID
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10
11
$5,000
20
21
$5,000
Notation
30
C
$10,000
31
40
D
$15,000
Start
Finish
Task ID
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10
11
20
21
$5,000
$5,000
Notation
Schedule Variance, SV
SV = EV PV
= $15,000 - $13,000
= $2,000
30
$10,000
31
40
D
$15,000
Start
Finish
Task ID
Cost Variance, CV
CV = EV - AC
= $15,000 - $14,000
= $ 1,000
Variance at Completion, VAC
VAC = BAC EAC
= $35,000 - $32,666
= $ 2,334
PMGT- 401: Project Management Fundamentals
07 Project Cost Management
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