Project Cost Management

Prepared By Eng.Ahmed Hassan, PMP

• A Cost can be direct or indirect:
Direct cost:
Direct costs are those for activities or services that benefit
specific projects, e.g., salaries for project staff and
materials required for a particular project. Because these
activities are easily traced to projects, their costs are
usually charged to projects on an item-by-item basis.
Indirect cost:
indirect costs are those for activities or services that
benefit more than one project. Their precise benefits to a
specific project are often difficult or impossible to trace.
For example, it may be difficult to determine precisely how
the activities of the director of an organization benefit a
specific project. Prepared By Eng.Ahmed Hassan, PMP
• A Cost can be Variable or Fixed :

variable cost:
Costs change with amount of production/work. (e.g.
wages, material)
 Fixed Costs:
These costs do not change as production changes. (e.g.
rental cost, set-up cost)

Prepared By Eng.Ahmed Hassan, PMP

Prepared By Eng.Ahmed Hassan, PMP
Project Cost Management

Prepared By Eng.Ahmed Hassan, PMP

 Plan Cost Management
Plan Cost Management is the process of defining how the project
costs will be estimated, budgeted, managed, monitored, and
controlled. The key benefit of this process is that it provides
guidance and direction on how the project costs will be managed
throughout the project

Prepared By Eng.Ahmed Hassan, PMP

 Plan Cost Management:Inputs
1. Project Charter
2. Project Management Plan
 Schedule management Plan
 Risk management Plan
3. Enterprise Environmental Factors
4. Organizational Process Assets

Prepared By Eng.Ahmed Hassan, PMP

 Plan Cost Management : T&T
1. Expert Judgment
2. data analysis
technique that can be used for this process includes but is not limited
to alternatives analysis. Alternatives analysis can include reviewing
strategic funding options such as: self-funding, funding with equity,
or funding with debt. It can also include consideration of ways to
acquire project resources such as making, purchasing, renting, or
leasing.
3. Meetings
Project teams may hold planning meetings to develop the cost
management plan.
Prepared By Eng.Ahmed Hassan, PMP
 Plan Cost Management : Output
1. Cost management plan
• The cost management plan is a component of the
project management plan and describes how the
project costs will be planned, structured, and
controlled..
• Units of measure (days, km, liters, m2 …etc.)
• Levels of precision (rounding up or down: $100.49 to
$100 or $101)
• Control thresholds (amount of variation before taking
action, e.g. $20.000)
• Reporting formats (format and frequency for cost reports)
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
 Estimate Costs
Estimate Costs is the 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

Prepared By Eng.Ahmed Hassan, PMP

 Estimate Costs : Inputs
1. Project management plan
 Cost management plan
 Quality management plan
 Scope baseline
2. Project documents
 Lessons learned register
 Project schedule
 Resources requirements
 Risk register
3. Enterprise Environmental Factors
4. Organizational Process Assets Prepared By Eng.Ahmed Hassan, PMP
 Estimate Costs : T&T
1. Expert Judgment
2. Analogous Estimating
This technique relies on the actual cost of previous similar
projects as the basis for estimating the cost of the current
project.
Generally less costly and time consuming than other
techniques, but it is also generally less accurate
3. Parametric Estimating
Parametric estimating uses a statistical relationship
between historical data and other variables to calculate an
estimate for activity parameters.
Prepared By Eng.Ahmed Hassan, PMP
 Estimate Costs : T&T
4. Bottom-Up Estimating
the smaller the activity, the more accurate is the cost estimate.
5. Three-Point Estimating or PERT Estimate
a weighted average, more accuracy.
T = O+4M+P / 6
6. DATA ANALYSIS
 Alternative Analysis
 Reserve Analysis
a contingency reserve may be used to account for cost uncertainty
 Cost of Quality (COQ)
Assumptions about costs of quality may be used to prepare the
activity cost estimate.
Prepared By Eng.Ahmed Hassan, PMP
 Estimate Costs : T&T
7. PROJECT MANAGEMENT INFORMATION SYSTEM (PMIS)
The project management information system can include
spreadsheets, simulation software, and statistical analysis tools to
assist with cost estimating

8. Decision Making

Prepared By Eng.Ahmed Hassan, PMP

 Estimate Costs : Outputs
1. Activity Cost Estimates
This is the cost estimate for all of the activities in your
activity list.
2. Basis of Estimates
Here is where you list out all of the rates and reasoning
you have used to come to the numbers you are presenting
in your estimates.
3. Project Documents Updates
Assumption log - Lessons Learned Register – Risk Register

Prepared By Eng.Ahmed Hassan, PMP

Prepared By Eng.Ahmed Hassan, PMP
Accuracy of Estimates:
• Ranges are wider in the beginning of the project and will narrow
as more information is determined during project.
 Rough Order of Magnitude (ROM) Estimate:
• Usually made in initiating
• In the range of - %25 to +75% from actual
 Budget Estimate:
• Usually made in planning
• In the range of -10% to +25% from actual
 Definitive Estimate:
• Later during the project, the estimates will become more refined
• In the range of -5% to +10% from actual

Prepared By Eng.Ahmed Hassan, PMP

 Determine Budget
• Determine Budget is the process of aggregating the
estimated costs of individual activities or work packages
to establish an authorized cost baseline.

Prepared By Eng.Ahmed Hassan, PMP

 Determine Budget : Inputs
1. Project management plan
 Cost management plan
 Resource management plan
 Scope baseline
2. Project documents
 Basis of Estimates
 Cost Estimates
 Project schedule
 Risk register

Prepared By Eng.Ahmed Hassan, PMP

 Determine Budget : Inputs
3. BUSINESS DOCUMENTS
 Business case
The business case identifies the critical success factors for the
project, including financial success factors.
 Benefits management plan
includes the target benefits, such as net present value calculations,
timeframe for realizing benefits, and the metrics associated with
the benefits.
4. AGREEMENTS
3. Enterprise Environmental Factors
4. Organizational Process Assets
Prepared By Eng.Ahmed Hassan, PMP
 Determine Budget : T&T
1. Expert Judgment
2. Cost Aggregation
Cost estimates are aggregated by work packages in accordance with
the WBS
3. Data Analysis
4. Historical information review
Reviewing historical information can assist in developing parametric
estimates or analogous estimates. Historical information may include
project characteristics (parameters) to develop mathematical models
to predict total project costs. Such models may be simple (e.g.,
residential home construction is based on a certain cost per square
foot of space) or complex (e.g., one model of software development
costing uses multiple separate adjustment factors, each of which has
numerous points within it). Prepared By Eng.Ahmed Hassan, PMP
 Determine Budget : T&T
5. Funding Limit Reconciliation

funding limits may be set by the customer to which spending must

be reconciled. This might cause rescheduling and reallocation of
resources to regulate cash flow.

6. FINANCING
It is common for long-term infrastructure, industrial, and public
services projects to seek external sources of funds. If a project is
funded externally, the funding entity may have certain requirements
that are required to be met.
Prepared By Eng.Ahmed Hassan, PMP
 Determine Budget : Output
1. Cost Baseline
The cost baseline is the approved version of the time-phased
project budget, excluding any management reserves, which can
only be changed through formal change control procedures
Management reserves are added to the cost baseline to produce
the project budget.
2. Project Funding Requirements
Total funding requirements and periodic funding requirements
(e.g., quarterly, annually)
3. Project Documents Updates
Cost estimates – project Schedule – Risk Register

Prepared By Eng.Ahmed Hassan, PMP

Prepared By Eng.Ahmed Hassan, PMP
 Control Costs
Control Costs is the process of monitoring the status of the
project to update the project costs and managing changes
to the cost baseline.

Prepared By Eng.Ahmed Hassan, PMP

 Control Costs: Inputs
1. Project management plan
Cost management plan
Cost baseline
• Performance measurement baseline
2. Project documents
Lessons learned register
3. Project Funding Requirements
4.Work Performance Data
5. Organizational Process Assets
Prepared By Eng.Ahmed Hassan, PMP
 Control Costs: T&T
1. Expert Judgement
2. Data Analysis
• Earned Value Management
 Earned value management (EVM) is a methodology that
combines scope, schedule, and resource measurements to
assess project performance and progress.
 It is a commonly used method of performance measurement
for projects.
 It integrates the scope baseline with the cost baseline, along
with the schedule baseline, to form the performance
baseline, which helps the project management team assess
and measure project performance and progress.
Prepared By Eng.Ahmed Hassan, PMP
 Control Costs: T&T
• Earned Value Management
• Planned value. Planned value (PV) is the authorized budget
assigned to scheduled work.
• Earned value. Earned value (EV) is a measure of work performed
expressed in terms of the budget authorized for that work.
• Actual cost. Actual cost (AC) is the realized cost incurred for the
work performed on an activity during a specific time period.
• Schedule variance. Schedule variance (SV) is a measure of
schedule performance expressed as the difference between the
earned value and the planned value.
• Cost variance. Cost variance (CV) is the amount of budget deficit or
surplus at a given point in time, expressed as the difference
between earned valuePrepared
and Bythe actual cost.
Eng.Ahmed Hassan, PMP
 Control Costs: T&T
• Earned Value Management (EVM)
• Schedule performance index.
The schedule performance index (SPI) is a measure of
schedule efficiency expressed as the ratio of earned
value to planned value.
• Cost performance index.
The cost performance index (CPI) is a measure of the
cost efficiency of budgeted resources, expressed as a
ratio of earned value to actual cost.

Prepared By Eng.Ahmed Hassan, PMP

 Control Costs: T&T
3. To-Complete Performance Index (TCPI)
As the project progresses, the project team may
develop a forecast for the estimate at
completion (EAC) that may differ from the
budget at completion (BAC) based on the
project performance.
4. Project management information system

Prepared By Eng.Ahmed Hassan, PMP

• We are about to produce 20 tables in 20 days cost is $20 for
each.
• How much BAC = ???
BAC = $20 * 20 tables = $400
• Today is day 4 How much is the PV ?
PV = $20 x 4 tables = $80
• At day 4 i earned only 3 tables, how much is the EV ?
EV = $20 x 3 tables = $60
AC = $90
SV = EV – PV = 60 – 80 = -$20
CV =EV – AC = 60 – 90 = -$30
SPI = EV / PV = 60 / 80 = 0.75
Prepared By Eng.Ahmed Hassan, PMP
CPI = EV / AC = 60 / 90 = 0.666
• Estimate At Completion (EAC) actual costs incurred for work
completed, plus an estimate to complete (ETC) the remaining
work.
EAC 3 Cases
• EAC forecast for ETC work performed at the budgeted rate
EAC = AC + ( BAC – EV )
= 90 + ( 400 – 60 ) = $430
• EAC forecast for work performed at the percent CPI
EAC = BAC / CPI
= 400 / .66 = $606.6
• EAC forecast for ETC work considering both SPI and CPI factors
• EAC = AC + [ ( BAC – EV ) / ( CPI * SPI ) ]
= 90 + [ (400 – 60 ) / ( 0.75 * 0.66 ) ]
= $868.68
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
 Control Costs: Outputs
1 . Work performance information
2. Cost forecasts
3 . Change requests
4 .Project management plan updates
 Cost management plan
 Cost baseline
 Performance measurement baseline
5 .Project documents updates
Assumption log - Basis of estimates – Cost estimates -
Lessons learned register - Risk register
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
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Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
Prepared By Eng.Ahmed Hassan, PMP
• To-Complete Performance Index (TCPI)

The To Complete Performance Index (TCPI)

gives you the future cost performance
index that you must follow for the
remaining work if you want to complete it
within the given budget

Prepared By Eng.Ahmed Hassan, PMP

 Two Cases
Case 1 - If you are under budget

TCPI = (BAC – EV)/(BAC – AC)

Case 2 – if you are over budget

TCPI = (BAC – EV)/(EAC – AC)

Prepared By Eng.Ahmed Hassan, PMP

 TCPI

• Greater than 1.0 = Harder to complete

• Exactly 1.0 = Same to complete

• Less than 1.0 = Easier to complete

Prepared By Eng.Ahmed Hassan, PMP

 Variance at Completion
• The difference between the budget at
completion and the estimate at completion

VAC = BAC – EAC

• Positive = Under planned cost

• Neutral = On planned cost
• Negative = Over planned cost

Prepared By Eng.Ahmed Hassan, PMP