1. Project Co$t Management

2. Project Co$t Management
Knowledge
Area
Process
Initiating Planning Executing
Monitoring &
Control
Closing
Cost
Cost Estimating
Cost Budgeting
Cost Control
Enter phase/
Start project
Exit phase/
End project
Initiating
Processes
Closing
Processes
Planning
Processes
Executing
Processes
Monitoring &
Controlling Processes

3. • The process involved in estimating, budgeting, and controlling cost
so that the project can be completed within approved budget
• Value analysis (value engineering)
– Looking at less costly way to do the same work within the same
scope
Project Cost Management
Life cycle costing
Looking at the cost of whole life of the product (include maintenance)

4. cost management plan
- Level of accuracy (e.g., $100, $1,000),
based on the scope of the activities and magnitude of the
project, and may include an amount for contingencies.
-Units of measure
(e.g. staff hours, staff days, weeks)
-Reporting Format
-Rules of performance measurement.
(Earned Value Management rule)

5. • Types of Cost
• Variable Costs
– Change with the amount
of production/work
– e.g. material, supplies,
wages
• Fixed Costs
– Do not change as
production change
– e.g. set-up, rental

6. • Direct Costs
– Directly attributable to
the work of project
– e.g. team travel,
recognition, team wages
• Indirect Costs
– overhead or cost
incurred for benefit of
more than one project
– e.g. taxes, fringe
benefit, janitorial
services

7. • Quality/Accuracy of Cost Estimation
• Most difficult to estimate as very little project info
is available, made during initiating process
Estimate Accuracy
Rough Order
of Magnitude
(ROM)
+/- 50%
Budget
Estimate
-10%
+25%
Definitive
Estimate
-5%
10%
• Used to finalize the Request for Authorization
(RFA), and establish commitment, made during
planning phase
• During the project and refined

8. Scope baseline
- Scope statement.
-information can be used in estimating cost.
-are assumptions include indirect cost or not?
- Work breakdown structure
- Relationships between all component and deliverables
- WBS dictionary.
- a description of the work in each WBS component required to
produce each deliverable

9. Project Schedule
- the type and quantity of
resources.
- Schedule activity
resources and their
respective durations
- availability and quantities
required of staff and
material needed to
perform schedule
activities.

10. Human Resource Plan
-Project staffing attributes,
personnel rates, and related
rewards /recognition

11. • Risk Register
- consider risk
mitigation costs.
• Risks which can be
either threats or
opportunities,
typically have an
impact on both
activity and overall
project costs.

12. TOOLS & TECHNIQUES
• Cost of Quality (COQ)
• Assumptions about costs of quality to prepare
the activity cost estimate.
• Vendor Bid Analysis
- analysis of what the project should cost, based on
the responsive bids from qualified vendors.
- Where projects are awarded to a vendor under
competitive processes, additional cost estimating
work can be required of the project team to
examine the price of individual deliverables

13. Estimate Cost
• The process of developing approximation of the monetary resources
needed to complete project activities
Inputs
1. Scope baseline
2. Project schedule
3. Human resource plan
4. Risk register
5. Enterprise
environmental factors
6. Organizational process
assets
Tools &
Techniques
1. Expert judgment
2. Analogous estimating
3. Parametric estimating
4. Bottom-up estimating
5. Three-point estimates
6. Reserve analysis
7. Cost of quality
8. Project management
estimating software
9. Vendor bid analysis
Outputs
1. Activity cost estimates
2. Basis of estimates
3. Project document
updates

14. Activity Cost Estimates
• Activity cost estimates are quantitative
assessments of the probable costs required to
complete project work.
• Cost estimates can be presented in summary
form or in detail.
• Costs are estimated for all resources that are
applied to the activity cost estimate.

15. ACTIVITY COST ESTIMATES
Project
Title:
Date
Prepared:
WBS ID
Resourc
e
Direct
Costs
Indirect
Costs Reserve Estimate Method
Assumptions/
Constraints
Additional
Information Range
Confidence
Level
From
WBS
Type of
resource,
labor,
material,
etc.
Costs
relate
d to
the
projec
t
Indirect
costs.
Contingenc
y reserve
amounts.
Approximat
e cost
Method
used, such
as
parametric
, analgous,
etc
Any
assumptions
used in
developing the
estimate, such
as labor cost
per hour.
Information
on cost of
quality,
interest
rate, or
other
Range of
estimate if
applicable.
Degree of
confidence
in the
estimate.

16. ACTIVITY COST ESTIMATES
Project
Title:
Date
Prepared:
WBS ID
Resourc
e
Direct
Costs
Indirect
Costs Reserve Estimate Method
Assumptions/
Constraints
Additional
Information Range
Confidence
Level
From
WBS
Type of
resource,
labor,
material,
etc.
Costs
relate
d to
the
projec
t
Indirect
costs.
Continge
ncy
reserve
amounts.
Approximate
cost
Method
used, such
as
parametric
, analgous,
etc
Any
assumptions
used in
developing the
estimate, such
as labor cost
per hour.
Information
on cost of
quality,
interest
rate, or
other
Range of
estimate if
applicable.
Degree of
confidence
in the
estimate.
Constructing private hospital
5/11/2012
500 7525 analogous
Prices
not
exceed
From
7000-
7525
90%
High
quality
cost
1000
257000machine1.1.1.3

17. Basis of Estimates
- Documentation of the basis of the estimate
- Documentation of all assumptions made,
- Documentation of any known constraints,
- Indication of the range of possible estimates
(e.g., $10,000 (±10%) to indicate that the item is
expected to cost between a range of values)
- Indication of the confidence level of the final estimate.

18. COST ESTIMATING WORKSHEET
Project
Title: Date Prepared:
Parametric Estimates
WBS ID Cost Variable Cost per Unit Number of Units Cost Estimate
1.1 Square feet $9.50 36 $342
Analogous Estimates
WBS ID Previous Activity Previous Cost Current Activity Multiplier Cost Estimate
1.1
Build 160 sq ft.
deck $5,000
Build 200 sq. ft.
deck 1.25 $6,250
Three Point Estimates
WBS ID Optimistic Cost Most Likely Cost Pessimistic Cost
Weighting
Equation
Expected Cost
Estimate
1 $4,000 $5,000 $7,500 (o+4m+p)/6 $5,250
Constructing private hospital

19. BOTTOM-UP COST ESTIMATING WORKSHEET
Project
Title:
Date
Prepared:
WBS ID
Labor
Hours
Labor
Rates Total Labor Material Supplies Equipment Travel
Other Direct
Costs
Indirect
Costs Reserve Estimate
From
WBS.
From
duration
estimates.
By hour,
day or
fixed rate.
Hours x
rates.
From
quotes.
From
quotes.
From
quotes.
From
quotes.
As
appropriate.
Per
company
policy.
As
appropriate.
Sum of all
costs.
1.1.1.3 800 0.05 4 20 7000 25 20 25 250 500 7840
Constructing private hospital 5/11/2012

20. Cost Aggregation
Cost estimates are
aggregated by work
packages in accordance
with the WBS.
The work package cost
estimates are then
aggregated for the higher
component levels of the
WBS

21. Reserve Analysis
• Reserves & risk management are important
while estimating!
– Contingency reserves:  Cost Baseline
the cost impacts of the remaining
risk
– Management reserves:  Cost Budget
extra fund to cover unforeseen risk
or changes to the project
Activity estimates
Work package estimates
Control account estimates
Project estimates
Contingency reserves
Management reserves
Cost baseline
Cost budget

22. Historical Relationships
-use of project characteristics
(parameters) to develop
mathematical models to
predict total project costs.
(e.g., residential home
construction is based on a
certain cost per square foot of
space)

23. Funding Limit Reconciliation
-The expenditure of funds
should be reconciled with
any funding limits on the
commitment of funds

24. Determine Budget
Process of aggregating the estimated cost of individual activities or
work packages to establish an authorized cost baseline.
Inputs
1. Activity cost estimates
2. Basis of estimates
3. Scope baselines
4. Project schedule
5. Resource calendars
6. Contracts
7. Organizational process
assets
Tools &
Techniques
1. Cost aggregation
2. Reserve analysis
3. Expert judgment
4. Historical relationship
5. Funding limit
reconciliation
Outputs
1. Cost performance
baseline
2. Project funding
requirements
3. Project document
updates

25. - authorized time-phased budget at completion
- It is developed as a summation of the approved budgets by
time period and is typically displayed in the form of an S-curve,
Cost Performance Baseline

26. Project Funding Requirements
.
The total funds required
are those included in the
cost baseline, plus
management reserves

27. QUESTIONS?

28. 1- a cost management plan contains a description of:
A-the project costs
B- how resources are allocated
C- the budgets and how they were calculated
D- the WBS level at which earned value will be
calculated

29. 2- a definitive estimate is
A- a level of estimating that can be achieved without the
team help
B-created during the initiating process group
C- the most expensive to create
D- within a range of -10 percent to +25 percent of actual

30. 3- a project manager wants to decrease costs on a
project that a consultants is completing for her
company what costs should the project manager
consider to accomplish this?
A- variable and fixed
B- variable and direct
C-fixed and indirect
D- direct and indirect

31. 4- Which type of costs is team training?
A ) Direct
B ) E V
C ) Indirect
D ) fixed
31

32. 5- A project manager has completed a detailed
WBS and cost estimates for each work package.
To create a cost baseline from this data, the
project manager would :
A ) Use the highest level of the WBS to estimate
analogously
B ) Sum up the work package and risk contingency
reserve estimates.
C ) Roll up work package estimates into a project total
and add managements reserves.
D ) Gain expert opinions of the project costs.
32

33. 6- You are having difficulty estimating the cost of your
project. Which of the following BEST describes the
most probable cause of your difficulty?
A ) Inadequate scope definition
B ) Unavailability of desired resources
C ) Lack of historical records from previous
projects
D ) Lack of company processes
33

34. 7-If you use the Funding Limit Reconciliation technique
while performing the Determine Budget process, which
of the following will NOT change?
A) Activity Cost Estimates
B) Schedule
C) Resources required during an Iteration
D) Planned scope to be delivered in a Sprint

35. 8- Which is NOT true about Analogous Cost Estimating
A-Uses Expert Judgment
B-Used when reference projects are similar
C-Does not require high expertise on part of estimators
as estimates are based on previous projects
D-Useful in early phases of the project

36. Thank you