session 8- Cost Planning and Definition (1)

1. MBP1123|Scope, Time & Cost Management
Prepared by Dr. Zohreh
Project Cost Planning &Definition
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2. Project Time Definition & Network Analysis
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• Cost Definition
• Cost Estimating – Project Life Cycle Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk – Allowance to Uncertainty
• Cost Control

3. Cost Definition
• The amount or equivalent paid or charged for something : price
• The outlay or expenditure (as of effort or sacrifice) made to
achieve an object
• Loss or penalty incurred especially in gaining something
Some examples of cost are :
• She attends college at a cost of $15,000 a year.
• The average cost of raising a family has increased dramatically.
• They believe that everyone should have access to adequate
medical care, regardless of cost.
Project Cost Planning &Definition
• CostDefinition
• Cost Estimating – Project Life Cycle
Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk –
Allowance to Uncertainty
• Cost Control
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4. Cost Estimating
• Estimating schedule activity cost involve developing an
approximation of the cost of the resources needed to complete
each schedule activity
• In approximating costs, the estimator considers the possible
causes of variation of the cost estimates, including risks.
identifying and considering various• Cost estimating includes
costing alternatives.
Project Cost Planning &Definition
• Cost Definition
• Cost Estimating – Project Life Cycle
Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk –
Allowance to Uncertainty
• Cost Control
3

5. Life Cycle Cost
• Life-cycle costs are all the anticipated costs associated with a
project or program alternative throughout its life.
• Sum of all recurring and one-time (non-recurring) costs over the
full life span or a specified period of a good, service, structure, or
system.
• It includes purchase price, installation cost, operating costs,
maintenance and upgrade costs, and remaining (residual or
salvage) value at the end of ownership or its useful life.
Project Cost Planning &Definition
• Cost Definition
• Cost Estimating – Project Life Cycle
Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk –
Allowance to Uncertainty
• Cost Control
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6. Life Cycle Cost
is employed to evaluate alternative designLCC analysis
configurations, alternative manufacturing methods, alternative
support schemes, etc.
The LCC process includes :
– defining the problem or project (scope),
– defining the requirements of the cost model being used,
– collecting historical data/cost relationships/cost data,
– defining the schedule, and
– developing the estimate and analysing the results.
Project Cost Planning &Definition
• Cost Definition
• Cost Estimating – Project Life Cycle
Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk –
Allowance to Uncertainty
• Cost Control
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7. Life Cycle Cost – Example
Project Cost Planning &Definition
eCycle
Funds
Risk–
• Cost Definition
• Cost Estimating – Project Lif
Costing
• Cost Budgeting – Source of
• Cost Implication to Quality
• Cost Implication to Project
Allowance to Uncertainty
• Cost Control
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8. Cost Budgeting – Source of Funds
1. Some companies make profit by selling a product for more than it
costs to produce. This is the most basic source of funds for any
company and hopefully the method that brings in the most
money.
2.Like individuals, companies can borrow money. This can be
done privately through bank loans, or it can be done publicly
through a debt issue. The drawback of borrowing money is the
interest that must be paid to the lender.
3. A company can generate money by selling part of itself in the
form of shares to investors, which is known as equity funding.
Project Cost Planning &Definition
• Cost Definition
• Cost Estimating – Project Life Cycle
Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk –
Allowance to Uncertainty
• Cost Control
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9. Cost of Quality
The "cost of quality" isn't the price of creating a quality product or
service. It's the cost of NOT creating a quality product or service.
Every time work is redone, the cost of quality increases. Obvious
examples include:
• The reworking of a manufactured item.
• The retesting of an assembly.
• The rebuilding of a tool.
• The correction of a bank statement.
• The reworking of a service, such as the reprocessing of a loan
operation or the replacement of a food order in a restaurant.
Project Cost Planning &Definition
• Cost Definition
• Cost Estimating – Project Life Cycle
Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk –
Allowance to Uncertainty
• Cost Control
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10. Cost Control
• Effective management of a program during the operating cycle
requires that a well-organized cost and control system be
designed, developed, and implemented.
• In this way, immediate feedback can be obtained, whereby the
up-to-date usage or resources can be compared to target
objectives established during the planning cycle.
Project Cost Planning &Definition
• Cost Definition
• Cost Estimating – Project Life Cycle
Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk –
Allowance to Uncertainty
• Cost Control
9

11. Cost Control System
The requirements for an effective control system include :
– Thorough planning of the work,
– Good estimating of time, labour and cost,
– Clear communication of the scope of the required tasks
– A disciplined budget and authorization of expenditures
– Timely accounting of physical progress and cost expenditures
– Periodic re-estimation of time and cost to complete remaining
work
Frequent and periodic comparison of actual progress and expenditure
to schedules and budgets.
Project Cost Planning &Definition
• Cost Definition
• Cost Estimating – Project Life Cycle
Costing
• Cost Budgeting – Source of Funds
• Cost Implication to Quality
• Cost Implication to Project Risk –
Allowance to Uncertainty
• Cost Control
10

12. Questions
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