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L4_Cost Management.ppt

  1. Project Costs Management Sections of this presentation were adapted from A Guide to the Project Management Body of Knowledge 6th Edition, Dr. M.K. Mlela
  2. Cost Management Overview •Key Concepts & Terms •Plan Cost Management •Estimate Costs •Determine Budget •Control Costs
  3. Key Concepts & Terms •Project Cost Management •Project Cost Management Processes •Key Terms •Trends & Emerging Practices •Tailoring Considerations •Considerations for Adaptive Environment
  4. Project Cost Management Project cost management is the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.
  5. Project Cost Management Processes • Plan Cost Management • Estimate Costs • Determine Budget • Control Costs Estimate Costs Determine Budget Cost Control Plan Cost Management
  6. Key Terms • Earned value management (EVM): a project management technique for measuring project performance and progress based on the comparison of work performed and work planned. • Life cycle costing: the concept of looking at cost over the entire life of the product, not just the cost of the project to create the product. • Value analysis (value engineering): the concept that focuses on finding a less costly way to do the same work. • Cost risk: cost-related risks.
  7. Key Terms (continued) • Types of costs: o Variable costs: costs that change with the amount of work. o Fixed costs: costs that do not change with the amount of work. o Direct costs: costs directly attributable to the work on the project o Indirect costs: overhead items or costs incurred for the benefit of more than one projects.
  8. Key Terms (continued) • Cost estimate ranges: o Rough order of magnitude (ROM): used during project initiating; typical range -25 to +75 percent. o Budget estimate: when starting the plan iteration; typical range -10 to +25 percent. o Definitive estimate: as progress planning progresses; typical range ± 10 percent or -5 to +10 percent.
  9. Trends & Emerging Practices •Expansion of EVM to include the concept of earned schedule (ES)  The common practice is to use EVM to evaluate the status of project cost and forecast the project's cost at completion while using CPM to evaluate the status of project schedule and forecast the project's completion time.  The Earned Schedule (ES) allows EVM metrics to be transformed to time or duration metrics to enhance the evaluation of project schedule performance and to forecast the duration needed to complete the project. •The Earned Value Management (EVM) and the Critical Path Method (CPM) are widely accepted methods and are often used simultaneously to evaluate project performance.
  10. Tailoring Considerations • Knowledge management Knowledge management is the process by which an enterprise gathers, organizes, shares and analyzes its knowledge in a way that is easily accessible to Client/stakeholders. Knowledge management involves data mining and some method of operation to push information to users to make it easily accessible. Does the organization have a formal knowledge management and financial database repository that a project manager is required to use and that is readily accessible? • Estimating and budgeting process of approximating the total expenditure of the project. Does the organization have existing formal or informal cost estimating and budgeting-related policies, procedures, and guidelines?
  11. • Earned value management Earned Value Management (EVM) is a project performance management methodology that integrates cost, schedule, technical scope, and risk to assess progress against a baseline, use that information to identify problems, and forecast cost (and, to a certain extent, schedule) at completion. Does the organization use earned value management in managing projects? Use of agile approach. Does the organization use agile methodologies in managing projects? How does this impact cost estimating? Governance. Does the organization have formal or informal audit and governance policies, procedures, and guidelines? Tailoring Considerations
  12. Plan Cost Management Plan Cost Management is the process of defining how the project costs will be estimated, budgeted, managed, monitored, and controlled. Estimate Costs Determine Budget Cost Control Plan Cost Management
  13. Plan Cost Management: Data Flow Diagram Plan Cost Management
  14. Estimate Costs Process of developing an approximation of the cost of resources needed to complete project work. The key benefit of this process is that it determines the monetary resources required for the project. This process is performed periodically throughout the project as needed. Estimate Costs Determine Budget Cost Control Plan Cost Management
  15. Estimate Costs: Data Flow Diagram Estimate Costs
  16. Determine Budget Estimate Costs Determine Budget Cost Control Plan Cost Management Process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. A a
  17. Determine Budget Determine Budget: Data Flow Diagram
  18. Control Costs Estimate Costs Determine Budget Cost Control Plan Cost Management Control Costs is the process of monitoring the status of the project to update the project costs and managing changes to the cost baseline. The key benefit of this process is that the cost baseline is maintained throughout the project.
  19. Control Costs Control Costs: Data Flow Diagram