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Project Cost Management

Participant’s Notes:

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©2015 Holcim Technology Ltd

 Project Cost Management

Participant’s Notes:
• Due to the iterative nature of projects,
the more we discover about the project,
__________________________ the more accurate our estimate will be.
Refining our data as we progressively
__________________________ elaborate our project plan produces a
more definitive estimate.
__________________________ • Tip: Spend only as much time estimating
as needed to make the business
__________________________ decision at hand. Estimating costs
money too!
__________________________ • Note: The PMBOK® Guide – Third
Edition, p. 161 cites slightly difference
__________________________ accuracy levels for a rough order of
magnitude estimate e.g. “…a project in
__________________________ the initiation phase could have a rough
order of magnitude (ROM) estimate in
the range of -50% to +100%. Later in the
__________________________ project, as more information is known,
estimates could narrow to a range of -
__________________________

__________________________

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©2015 Holcim Technology Ltd

10% to +15%”.

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 Project Cost Management

Participant’s Notes:
• Indirect costs (continued)
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• Freight

________________________________ • Testing and inspection

• Spare parts
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• Insurance
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• Escalation

________________________________ • Permits and licenses

• Special packing
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• Special shipping
________________________________ • Duty

________________________________ • Exchange rate

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©2015 Holcim Technology Ltd

 Project Cost Management

Participant’s Notes: • Since project managers often control

__________________________
__________________________
__________________________
resources through the line managers
rather than directly, project managers end
up controlling direct labor costs by
opening and closing work orders. Work
orders define the charge numbers for
each cost account or management control
point.

• By Dr. Kerzner’s definition, a cost account

__________________________
__________________________
__________________________
__________________________
__________________________
a.k.a control account (see PMBOK® Guide
– Third Edition, p. 355) is an identified
level at a natural intersection point of the
work breakdown structure and the
organizational breakdown structure (OBS)
at which functional responsibility for the
work is assigned, and actual direct labor,
material, and other direct costs are
compared with actual work performed for
management control purposes.

• Government sectors may refer to these

__________________________ management control points as control
account plans, or CAPS.
__________________________

©2015 Holcim Technology Ltd

 IIL-CERT5

The Project Management Certificate

Program – 5 DAY

• The cost baseline is the total estimated cost of the project. During
project execution the budget is displayed graphically using an “S”
curve that indicates the accumulated actual costs of the project over a
period of time compared with the budgeted costs for that time period.
The “S” curve provides a “time- phased” view of the project costs and
budget. The “S” curve graphics will display a progressive summary of
costs over the life cycle of the project.
• Funding usually occurs in incremental or periodic amounts that are not
continuous, and, therefore, appears as a step function in the figure
above.

Project Cost Management 6-6


Participant’s Notes:
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©2015 Holcim Technology Ltd
Project Cost Management
• Initially developed by the Department of
Defense (DOD) and called cost/schedule
control systems criteria (C/SCSC 35).
Later modified by industry as the earned
value management system (EVMS 32)
ANSI Standard 748.
• Earned value compares work that has
been planned (what has been scheduled
to be completed within the measurement
period) with work that has been done
(work performed within the measurement
period), and compares the planned cost of
the work completed (what we had planned
to pay) with the actual cost of the work
(what we actually paid).
 Project Cost Management

Participant’s Notes:
• EVM provides a useful
________________________________ method for looking at the
current status of the
schedule and cost for a
________________________________
project.

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©2015 Holcim Technology Ltd

 Project Cost Management

Participant’s Notes:

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©2015 Holcim Technology Ltd


Participant’s Notes:
• Earned value management is a
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Project Cost Management
technique used to integrate, measure,
and report project performance for the
project’s scope, schedule, and
resources. This technique allows the
project manager to relate project
schedule, cost, and scope using specific
mathematical formulas, that, when used
in calculations, will indicate where
variances to the plan exist and where
corrective action may be required.

Participant’s Notes:
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Project Cost Management
• Simply stated, earned value
management attempts to answer two
questions:
• Where are we today?
• Where will we end up?
• The more frequently you address these
two questions, the easier it becomes to
take the necessary corrective actions.
Variances from a baseline are easier to
manage when the variances are small
and are detected early.
• The formulas noted above are some of
the most commonly used.
 Project Cost Management

• If you plan to sit for the PMP® exam, you will want to memorize these
formulas.

Participant’s Notes:

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• At some point in your project, you
Participant’s Notes:
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• The EAC is compared with the
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©2015 Holcim Technology Ltd
Project Cost Management
may be asked to determine an
estimate of the project or cost when
it is completed. The estimate at
completion (EAC) is the projected
final cost of the project based on
the information taken at the time of
measurement. It will be affected by
overall project performance and
may change each time project
performance is measured.
project’s budget at completion
(BAC) to determine how well the
project is expected to perform
against the plan. The effectiveness
of the original estimating process
used in project planning will be a
major factor in the degree of
variance.
 Project Cost Management

Participant’s Notes:
• Although multiple formulae
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exist for calculating EAC, it is
important that whatever
formula is selected be used
for the entire project.
Changing formulae during the
project can lead to faulty
conclusions.

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 Project Cost Management

Participant’s Notes: • Here is a summary of key

earned value management
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Participant’s Notes:
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Project Cost Management
• To effectively assess project
performance using earned value,
you must consider both cost and
schedule. Earned value
management is a method that
allows the project team to
effectively report how a project is
performing. This performance is in
relation to cost and schedule at a
specific point in time. Earned
value can predict the potential final
results of the project.
• The technique literally provides an
overall project assessment at a
glance. Used correctly, EVM will
identify if cost and schedule
variances have occurred and
signal the project team to consider
possible actions that may be taken
to bring the project back on track
with the original plan.

Participant’s Notes:
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Project Cost Management
• EVM may be used by different
participants based on the type of
contract.
• With a fixed- price contract, the seller
is bearing the risk of increased cost,
so the seller may use EVM to
maintain cost control.
• With a cost- reimbursable contract,
the buyer has assumed some or all
risk for cost growth, so the buyer
may use EVM to maintain cost
control.
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 Project Cost Management

©2015 Holcim Technology Ltd