Professional Documents
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Estimate at Completion (EAC)
Estimate at Completion (EAC)
Planning
The process of determining what physical resources and what quantities of each should
be used to perform project activities.
Input includes: WBS, historical information, scope statement, resource pool description,
and organizational policies.
Methods used:
o
Expert judgment: consultants, professional and technical associations, industry
groups, other units within the performing organization.
o
Alternatives identification: Any technique such as brainstorming and lateral
thinking used to generate different approaches to the project.
Output includes: Resource requirements - a description of what types of resources are
required and in what quantities for each element of the WBS.
Cost Estimating:
The process of developing an estimate of the costs of the resources needed to complete
project activities.
Input includes: WBS, resource requirements, resource rates, activity duration estimates,
historical information, chart of accounts.
Methods used:
o
Analogous estimating: (top down estimating) Uses the actual cost of a previous
similar project as the basis for estimating the cost of the current project. Analogous
estimating is frequently used to estimate total project costs when there is a limited
amount of detailed information about the project. (e.g., in the early project phases) It is
generally less costly than other estimating techniques, but it is also generally less
accurate. Most reliable when 1) the previous projects are similar in fact and not just in
appearance, 2) the individuals or groups preparing estimates have the needed expertise.
o
Parametric modeling: Uses project characteristics (parameters) in a
mathematical model to predict project costs. Models may be simple or complex. Most
reliable when 1) the historical information used to develop the model was accurate, 2)
the parameters used in the model are readily quantifiable, and 3) the model is scalable.
o
Bottom-up estimating: Involves estimating the cost of individual work items, then
summarizing or rolling-up the individual estimates to get a project total. The cost and
accuracy of bottom-up estimating is driven by the size of the individual work items:
smaller work items increase both cost and accuracy. The project management team must
weigh the additional accuracy against the additional cost.
o
Computerized tools: Project management software and spreadsheets can assist
with cost estimating.
Output includes: cost estimates, supporting detail, and the cost management plan. The
cost management plan describes how cost variances will be managed. It is a subsidiary
element of the overall project plan.
Cost Budgeting
The process of allocating the overall cost estimates to individual work items in order to
establish a cost baseline for measuring project performance.
Output includes: Cost baseline - a time-phased budget used to measure and monitor cost
performance. It is developed by summing estimated costs by period and is usually
displayed in the form of an S-curve.
Cost Control
The process of:
o
Influencing the factors which create changes to the cost baseline to ensure that
changes are beneficial
o
Determining that the cost baseline has changed
o
Managing the actual changes when and as they occur.
Cost control includes:
o
Monitoring cost performance to detect variances from plan.
o
Ensuring that all appropriate changes are recorded accurately in the cost
baseline.
o
Preventing incorrect, inappropriate, or unauthorized changes from being
included in the cost baseline.
o
Informing appropriate stakeholders of authorized changes.
Input includes: cost baseline, performance reports, change requests, and cost
management plan
Output from cost control: revised cost estimates, budget updates, corrective action,
estimate at completion (EAC), and lessons learned.
Cost Estimating involves developing an assessment of how much it will cost the
performing organization to provide the product or service.
Pricing is a business decision -- how much the performing organization will charge for
the product or service.
Project Cost Management is primarily concerned with the cost of the resources needed to
complete the project.
Cost Types
Sunk Costs: A historical or expended cost. Since the cost has been expended, we no
longer have control over the cost. Sunk costs are not included when determining
alternative courses of action.
Fixed Costs: Nonrecurring costs that do not change based on the number of units.
Variable Costs: Costs that rise directly with the size of the project.
Indirect Costs: Costs that are part of the overall organization's cost of doing business
and are shared among all the current projects.
Opportunity Costs: The cost of choosing one alternative and, therefore, giving up the
potential benefits of another alternative.
Depreciation
Straight-line Method: Takes an equal credit during each year of the useful life of an
asset.
Accelerated Method: Writes off the expense even faster than straight-line.
o
Double-declining balance
o
Sum-of-the-years digits
__M _
(1 + r)**t
CV = BCWP - ACWP
SV = BCWP - BCWS
Rule of thumb: You can use indexes (CPI or SPI) to determine efficiency if you've
completed at least 20% of the project.
50-50 Rule of progress reporting: When beginning a task, charge 50% of its BCWS to its
account; when the task is completed, charge the remaining 50% to its account. Assumes:
all tasks generally are of the same size.
Capital
Current assets minus liabilities.