4 - Project Cost Management

P ROJECT C OST M ANAGEMENT
September 2015 Hisham Haridy, PMP, PMI-RMP

Cost Management
The processes involved in estimating, budgeting, and controlling costs so

that the project can be completed within the approved budget
Plan Cost Estimate Determine Control

Management Costs Budget Costs
Process involves Process of Aggregating the Influencing the
identifying how you developing an estimated cost of factors that create
are going to plan, approximation individual activities or cost variance and
manage, and (estimate) for the work package to controlling changes
control project cost of the establish a cost to the project
costs. resources baseline for measuring budget (manage the
necessary to project performance. actual changes
complete the when and as they
project activities. occur).
PROJECT COST MANAGEMENT September 2015

DEFINATIONS
Life Cycle Costing
The total cost to the organization for the ownership and acquisition of the product
over its full life cycle.
This is the concept of life cycle costing-looking at the cost of the whole life of
the product, NOT just the cost of the project.
Life-cycle cost include construction costs, operational and maintenance costs,
taxes, financing, replacement and renovation.
Value Analysis
This concept is sometimes referred to as value engineering in the real world.
It involves finding a less costly way to do the same work. Value analysis requires
the systematic use of techniques to identify the required project functions,
assign values to these functions, and provide functions at the lowest overall cost
without loss of performance.

DEFINITIONS
Types of Cost
Variable Fixed
These costs change with the amount Costs do not change as
of production or the amount of production changes.
work. Examples include set-up,
Examples include the cost of rental, etc.
material, supplies, and wages.
Direct Indirect
These costs are directly attributable Indirect costs are overhead

to the work on the project. items or costs incurred for the
Examples are team travel, team benefit of more than one
wages, recognition, and costs of project.
material used on the project. Examples include taxes,
benefits, and janitorial services.

DEFINITIONS
Cost and Price
Cost Price
Cost Estimating is the determination of Pricing is a business decision that

approximately how much will it cost the determines how much to charge for the
performing organization to provide the product or service
product or service involved
Price = Cost + Profit
Direct cost + Indirect cost + Overhead

DEFINITIONS
Cost and Price

Plan Cost Management
The process that establishes the policies, procedures, and documentation for
planning, managing, expending, and controlling project costs.
Tools and
Inputs Techniques Outputs
1. Project management plan 1. Expert judgment 1. Cost management plan

2. Project charter 2. Analytical techniques
3. Enterprise environmental 3. Meetings
factors
4. Organizational process
assets
The key benefit of this process is that it provides guidance and direction on how the project costs will
be managed throughout the project.

INPUTS
1. Project Management Plan
Scope baseline
Schedule baseline
Other cost- scheduling, risk, and communications
related
decisions from the project management plan.
2. Project Charter
The project charter provides the summary budget from which
the detailed project
costs are developed.
The project charter also defines the project approval
requirements that will influence the management of the project
costs.

INPUTS
3. Enterprise Environmental Factors
Organizational culture and structure
Market conditions
Published commercial information
Project management information system
Currency exchange rates for project costs sourced from
more than one country.
3. Organizational Process Assets

Financial controls procedures
Historical information and lessons learned knowledge bases;
Financial databases
Existing formal and informal cost estimating and budgeting-
related policies, procedures, and guidelines.

TOOLS AND TECHNIQUES
1. Expert judgment
Guided by historical information, provides valuable insight
about the environment and information from prior
similar projects.
Expert judgment can also suggest whether to combine
methods and how to reconcile differences between them.
2. Analytical techniques
Developing the cost management plan may involve choosing strategic options to
fund the project such as: self-funding, funding with equity, or funding with debt.
The cost management plan may also detail ways to finance project resources such
as making, purchasing, renting, or leasing.
Techniques may include: payback period, return on investment, internal
rate of return, discounted cash flow, and net present value.

3. Meetings
Project teams may hold planning meetings to develop the cost management plan.
Attendees:
Project manager
Project sponsor
Selected project team members
Selected stakeholders
Anyone with responsibility for

project costs, and others as
needed.

OUTPUTS
1. Cost Management Plan
It could be called Budget Management Plan or Budget Plan.
It can be formal or informal.
How you will manage costs.
The cost management processes and their associated tools and techniques are
documented in the cost management plan.
The level of accuracy needed for estimates (level of accuracy)
Reporting format to be used.
The currencies that will be used.
Level of accuracy
Organizational procedures links
Control thresholds.
Rules of measuring cost performance.
Process descriptions.
Additional details.

Estimate Costs
The process of developing an approximation of the monetary resources needed
to complete project activities
Inputs Tools and Techniques Outputs

1. Cost management plan 1.Expert judgment 1. Activity cost estimates
2. Human resource management 2. Analogous estimating 2. Basis of estimates
plan 3. Parametric estimating 3. Project documents updates
3. Scope baseline 4. Bottom-up estimating
4. Project schedule 5. Three-point estimating
5. Risk register 6. Reserve analysis
6. Enterprise environmental 7. Cost of quality
factors 8. Project management software
7. Organizational process 9.Vendor bid analysis
assets
10.Group decision-making
techniques
The key benefit of this process is that it determines the amount of cost required to complete
project work.

INPUTS
1. Cost management plan
The method will be used, level of accuracy required for estimates,..etc.
2. Human resource management plan

Lists the resources (including the quantity and their skills).
Labor rates, reward system, training,etc.
3. Scope baseline
All the components of the scope baseline, including the project scope statement,
WBS, and WBS dictionary.
4. Project schedule
It contains the activities, the type and quantity of resources needed to complete
the work, and when the work will occur.
A schedule is needed before a budget. May be changed due to price conditions.
INPUTS
5. Risk register
Like rewards systems, risk management will save time and money, but there are
costs associated with the efforts to control risks.
Risks are more properly thought of as both an input to the Estimate Costs process
and an output. Planning is iterative.
6. Enterprise environmental factors

Company culture and existing systems.
marketplace conditions and commercial cost databases.
While estimating, you might review the different countries from which supplies
might be procured and at what costs.
7. Organizational process assets

Policies on estimating, templates, processes, procedures, lessons learned, and
historical information .

1. Expert judgment
Cost estimates are influenced by numerous variables such as labor rates, material
costs, inflation, risk factors, and other variables.
Expert judgment, guided by historical information, provides valuable insight about
the environment and information from prior similar projects.
Expert judgment can also be used to determine whether to combine methods of
estimating and how to reconcile differences between them.
Available from many sources:
Other business units within organization
Consultants
Stakeholders
Professional and technical associations.
Industry groups.

2. Analogous estimating (Top Down Estimating) or Order of magnitude
When estimating costs, this technique relies on the actual cost of previous,
similar projects as the basis for estimating the cost of the current project.
It is a gross value estimating approach (total cost), sometimes adjusted for
known differences in project complexity.
Analogous estimating is a form of expert judgment.
There is a limited amount of detailed information about the project (in early
project phases). Then review the estimate when more details become available.
Quick but less accurate.
Gives the project management an idea of the level of managements expectations.
Does not take into account the differences between projects.
Extremely difficult for projects with uncertainty.

3. Parametric estimating
Using project characteristics (or parameters) in a mathematical model to predict

costs.
On other word parametric estimating uses a statistical relationship

between historical data and other variables.
More accurate but takes time and expense to do this form of estimating.
Provides a basis for monitoring and controlling, performance measurement and

management.
Gains buy-in from the team because the team creates estimates they can live
with.
Requires that the project be defined and well understood before work begins.
Example; price per square meter.

4. Bottom-up estimating
Detailed estimating is done for each activity (if available) or work package (if
activities are not defined), and the estimates are then rolled up into
control accounts and finally into an overall project estimate.
To do this well requires an accurate WBS.
5. Three-point estimates (Probabilistic Estimate) Weighted Average
The accuracy of activity duration estimates can be improved by considering

estimation uncertainty and risk. This concept originated with the Program
Evaluation and Review Technique (PERT).
PERT uses three estimates to define an approximate range for an activitys

duration:
O = Optimistic
P = Pessimistic
M = Most likely

The final cost estimate could be calculated based on an average of the three
estimates, or by using a formula.
EC= O + 4M + P S.D. = P O
V = ((P O)/6)2
6 6
EC = Estimated Cost
S.D. = Standard Deviation.
V = Variance.
Final Cost Estimate (FCE) = EC +/- S.D.

6. Reserve analysis
In risk analysis, you identify which activities on your project have significant risks
and determine how much time and money to set aside to deal with the risks
if they happen.
Risk contingency reserves are used for the specifically identified risks (known
risks), and a lump sum management reserve is used to accommodate
unidentified risks (unknown risks). The work should include making sure individual
activity estimates are not padded.
7. Cost of quality
The cost of work added to the project to accommodate quality planning should be
added to the project estimate.

8. Project management estimating software
The software referred to here might be any software used for estimating.
If a project has hundreds or thousands of activities, each of which has similar cost
components added like overhead, software can speed up the calculations.
9. Vendor bid analysis
This work might also involve getting pricing from consultants,

vendors, and suppliers. Work provided by sellers may also require bid analysis.
Analysis of what the project should cost, based on the responsive bids from
qualified vendors.
Further cost estimating may then be necessary before finalizing agreement.

10. Group decision-making techniques
Team-based approaches, such as brainstorming, the Delphi or nominal group

techniques.

OUTPUTS
1. 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.
2. Basis of estimates
Supporting detail for activity cost estimates may include:

Documentation of the basis of the estimate (i.e., how it was developed),
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.
3. Project document updates
The risk register

OUTPUTS
Degree of Accuracy
Rough Order of
Magnitude (ROM)
Estimate
This type of
estimate is
usually made
during the
initiating
process.
A typical range for ROM estimates is +/-50 percent or -25% to +75% from
actual.
Budget Estimate
This type of estimate is usually made during the planning phase and is in the
range of -10 to +25 percent from actual.
Definitive Estimate
Later during the project (may be during planning phase), the estimate will
Determine Budget
The process of aggregating the estimated costs of individual activities or work
packages to establish an authorized cost baseline

1. Cost management plan 1. Cost aggregation 1. Cost baseline
2. Scope baseline 2. Reserve analysis 2. Project funding
3. Activity cost estimates 3. Expert judgment requirements
4. Basis of estimates 4. Historical relationships 3. Project
document
5. Project schedule 5. Funding limit reconciliation
updates
6. Resource calendars
7. Risk register
8. Agreements
The key benefit of this process is that it determines the cost baseline against
which project
performance can be monitored and controlled.

INPUTS
1. Cost management plan
2. Scope baseline
Scope statement.
Work breakdown structure.
WBs dictionary.
3. Activity cost estimates

Cost estimates for each activity within a work package are aggregated to obtain a
cost estimate for each work package.
4. Basis of estimates
Supporting detail for cost estimates should be specified.
Any basic assumptions dealing with the inclusion or exclusion of indirect costs in
the project budget are specified in the basis of estimates.

INPUTS
5. Project schedule
The information in project schedule that can be used to aggregate costs to the
calendar periods in which the costs are planned to be incurred.
6. Resource calendars
Resource calendars provide information on which resources are assigned to the
project and when they are assigned.
This information can be used to indicate resource costs over the duration of the
project.
7. Risk register
The risk register should be reviewed to consider how to aggregate the
risk response costs.
Updates to the risk register are included with project document updates.

INPUTS
8. Agreements
A procurement agreement includes terms and conditions, and may incorporate
other items that the buyer specifies regarding what the seller is to perform
or provide.
It can also be called an understanding, a contract, a subcontract, or a purchase
order.

Existing formal and informal cost budgeting-related policies, procedures, and
guidelines,
Cost budgeting tools, and
Reporting methods.

1. Cost aggregation
To create a budget, activity costs, including costs for risk contingencies, are rolled
up to work package costs.
Work package costs are

then rolled up to
account costs and
control
finally into
costs. project

2. Reserve analysis
Budget reserve analysis can establish both the contingency reserves and the
management reserves for the project.
Contingency reserves Management reserves
are to address the cost impacts of the risks are any extra funds to be set aside to
remaining during risk response planning. cover unforeseen risks or changes to the
project.
Cost Baseline (1) = Cost estimate + Cost Budget(2) = Cost Baseline +
Contingency. Management Reserve.
(1) Represents the funds authorized for the (2) How much money the company should
project manager to manage and control. have available for the project.

3. Expert judgment
Available from many sources:
Other business units within organization
Consultants
Stakeholders
Professional and technical associations.
Industry groups.
4. Historical relationships
After the cost baseline and cost budget are completed, many estimators will
compare these numbers to parametric estimates, expert judgment, or
historical relationships in order to do a sanity check.
Both the cost and accuracy of analogous and parametric models can vary widely.
They are most likely to be reliable when:
Historical information used to develop the model is accurate,
Parameters used in the model are readily quantifiable, and
Models are scalable, such that they work for a large project, a small project,
and phases of a project.
5. Funding limit reconciliation

The expenditure of funds should be reconciled with any funding limits on the
commitment of funds for the project.
A variance between the funding limits and the planned expenditures will
sometimes necessitate the rescheduling of work to level out the rate of
expenditures.
This can be accomplished by placing imposed date constraints for work into the
project schedule.

OUTPUTS
1. Cost baseline
The approved
of the time-phased project budget, excluding
version management any
reserves,
It can only be changed through formal change control procedures and is used as a
basis for comparison to actual results.
It is developed as a summation of the approved budgets by time period and is

typically displayed in the form of an S-curve.
In the earned value management technique the cost

performance baseline is referred to as the
performance measurement baseline (PMB).

OUTPUTS
2. Project funding requirements
Total funding requirements and periodic funding requirements (e.g., quarterly,

annually) are derived from the cost baseline.
The cost baseline will include projected expenditures plus anticipated liabilities.
Funding often occurs in

incremental amounts that are not
continuous, which appear as
steps.
The total funds required = cost

baseline + management reserves
3. Project document updates
Project documents that may be updated include but are not limited to: Risk
register, Cost estimates, and Project schedule.

Control Costs
The process of monitoring the status of the project to update the project budget
and managing changes to the cost baseline
1. Project management plan 1. Earned Value Management 1. Work performance

2. Project funding 2. Forecasting information
requirements 3. To-complete performance 2. Budget forecasts
3. Work index (TCPI) 3. Change requests
performance
4. Performance reviews 4. Project management plan
data
5. Project management updates
software
5. Project document
assets
6. Reserve analysis updates
assets updates
The key benefit of this process is that it provides the means to recognize variance from the plan
in order to take corrective action and minimize risk.

INPUTS
1. Project management plan
The project management plan contains the following information that is used to
control cost:
Cost Performance baseline.
Cost management plan.
2. Project funding requirements
Total funding requirements and periodic funding requirements (e.g., quarterly,

annually) are derived from the cost baseline.
3. Work performance information

Work performance information includes information about project progress, such
as which deliverables have started, their progress and which deliverables
have finished.
Information also includes costs that have been authorized and incurred, and
estimates for completing project work.
INPUTS
The organizational process assets that can influence the Control Costs process
include, but are not limited to:
Existing formal and informal cost control-related policies, procedures, and
guidelines;
Cost control tools; and
Monitoring and reporting methods to be used.

1. Earned value management
A management methodology for integrating scope, schedule, and
resources/Cost, and for measuring project performance and

objectively
progress.
Performance is measured by determining the
budgeted cost of work performed (i.e., earned
value) and comparing it to the actual cost
of work performed (i.e., actual cost).
Progress is by comparing the

measured
earned value to the planned value.

Analysis
EAC
VAC
BAC
Target Cost ETC
Project
Cost
CV
AC slippage
SV
PV
Data Date
Schedule
EV
slippage
Time
Old Acronym Old Term New New Term
Acronym
BCWS Budgeted Cost of Work Scheduled PV Planned value
BCWP Budgeted Cost of Work Performed EV Earned value
ACWP Actual Cost of Work Performed AC Actual value

Terms
Acronym Terms Interpretation
PV Planned Value The estimated value of the work planned to be done.
EV Earned Value The estimated value of the work actually accomplished.
AC Actual Cost The actual cost incurred for the work accomplished.
BAC Budget at Completion The BUDGET for the TOTAL project effort.
EAC Estimate at Completion The expected TOTAL project to cost (forecast).
ETC Estimate to Completion Currently, the expected cost to finish the project (forecast)
VAC Variance at Completion Currently, the expected variance to be at the end of

the project.

Formulas
Schedule Variance (SV)
SV = EV - PV -ve Behind Schedule
+ve Ahead schedule
Cost Variance (CV)
CV = EV - AC -ve Over
budget
+ve Under budget
Cost Performance Index (CBI)
EV Earned Value 1 Over budget

CBI = =
AC Actual 1 Under budget
Schedule Performance Index (SBI)
EV Earned Value 1 Behind Schedule

SBI = =
PV Budget 1 Ahead Schedule
Analysis
SV Best
+ Case
Over budget Under budget

A head of schedule A head of schedule
CV
- +
Behind schedule Behind schedule
Worst
-
Case

2. Forecasting
Estimated at Completion (EAC); There are three scenarios
i. Assumes that work from a specific point forward will progress at planned rates
where or not these rates have prevailed to this point.
EAC = AC + (BAC EV)
ii. Assumed that the rate of progress to date will continue to prevail.
BAC
EAC = CPI
iii. Uses current project status and tender for forecasting (SPI and CPI)
EAC = AC + ETC (Estimated to complete)

(BAC EV)
CPI X SPI

Variance at Completion (VAC);
VAC = BAC - EAC
Estimate to Complete (ETC);
ETC = EAC - AC

3. To-complete performance index (TCPI)
In order to stay within budget, what rate must we meet for the
remaining work?
It is the calculated projection of cost performance that must be achieved on the
remaining work to meet a specified management goal, such as the BAC or
the EAC.
Equation for the TCPI based on the BAC:
= (BAC EV) work remaining

(BAC AC) Funds remaining
Equation for the TCPI based on the EAC:
= (BAC EV) work remaining

(EAC AC) Funds remaining


4. Performance reviews
If EVM is being used, the following information is determined:
Variance analysis.
Trend analysis.
Earned value performance.
5. Project management software

Project management software is often used to monitor the three EVM dimensions
(PV, EV, and AC), to display graphical trends, and to forecast a range of
possible final project results.
6. Reserve analysis
Reserve analysis is used to monitor the status of contingency and management
reserves for the project to determine if these reserves are still needed or
if additional reserves need to be requested.

Example
Activities 1 2 3 4 5 6 7 Budget
Cost
A 2,000 2,000 4,000
B 2,000 2,000 2,000 6,000
C 2,000 2,000 2,000 6,000
D 1,500 1,500 3,000
E 500 500 1,000
Cost/month 2,000 2,000 2,000 4,000 5,500 4000 500 20,000
cumulative 2,000 4,000 6,000 10,000 15,500 19,500 20,000

Example
1 2 3
Activities 4 5 6 7 % of
A 2,000 2,000 Completion
B 2,000 100%
C 16.5%
2,000 2,000
2,000 2,000 2,000 25%

D
0
E 1,500 1,500
500 500 0
Cost/month 2,000 2,000 2,000
Cumulative 2,000 4,000 6,000 1
4,000 5,500 4000 500 20,000
0,000 15,500 19,500 20,000
Cutoff date
Perform Budget EV Actual
Activities Work Cost (BCWP) Cost
A 100% 4,000 4,000 4,500
B 16.5% 6,000 1,000 1,500
C 25% 6,000 1,500 1,000
D 0% 3,000 0 0
E 0% 1,000 0 0
20,000 6,500 7,000
PV EV AC
6,000 6,500 7,000

Analysis
Schedule Variance (SV)
SV = 6,500 - 6,000 = 500 Ahead of Schedule
Cost Variance (CV)
CV = 6,500 - 7,000 = - 500 Over budget
Schedule Performance Index (SBI)

6,500
SBI = = 1.08 Ahead of Schedule
6,000
Cost Performance Index (CBI)
6,500
CBI = = 0.93 Over budget
7,000
Analysis
SV
+
Under budget
A head of schedule
Over budget
A head of schedule CV
- +
Behind schedule Behind schedule

2. Forecasting
Estimated at Completion (EAC);
EAC = 7,000 + (20,000 6,500) = 20,500
20,000
EAC = =
21,505
EAC = 0.93
7,000 + 13,441 =
20,441
Variance at Completion (VAC);
VAC = 20,000 - 21,505 = - 1,505

Estimate to Complete (ETC);
ETC = 21,505 - 7,000 = 14,505

Equation for the TCPI based on the BAC:
(13,500) work remaining

TCPI = = 1.04
(13,000) Funds remaining
Equation for the TCPI based on the EAC:
(13,500) work remaining

TCPI = = 0.93
(14,505) Funds remaining
+
TCPI
Status
Date (BAC)
1.00
Baseline plan
- TCPI
(EAC)

OUTPUTS
1. Work performance information
The calculated CV, SV, CPI, and SPI values for WBS components, in particular the
work packages and control accounts, are documented and communicated
to stakeholders.
2. Cost forecasts
Either a calculated EAC value or a bottom-up EAC value is documented and
communicated to stakeholders.
3. Change requests
Analysis of project performance may result in a change request to the cost
baseline or other components of the project management plan.
4. Project management plan updates

Cost baseline.
Cost management plan

Refreshments
Q1: One common way to compute estimate at completion (EAC) is to take the budget at
completion (BAC) and:
A. Divide by SPI.
B. Multiply by SPI.
C. Multiply by CPI.
D. Divide by CPI.
Q2: If earned value (EV) = 350, actual cost (AC) = 400, planned value (PV) = 325, what is
cost variance (CV)?
A. 350
B. -75
C. 400
D. -50

Refreshments
Q3: A project manager needs to analyze the project costs to find ways to decrease
costs. It would be BEST if the project manager looks at:
A. Variable costs and fixed costs.
B. Fixed costs and indirect costs,
C. Direct costs and variable costs.
D. Indirect costs and direct costs.

Refreshments
Q4: You provide a project cost estimate for the project to the project sponsor. He is
unhappy with the estimate, because he thinks the price should be lower. He asks you
to cut 15 percent off the project estimate. What should you do?
A. Start the project and constantly look for cost savings.
B. Tell all the team members to cut 15 percent from their estimates.
C. Inform the sponsor of the activities to be cut.
D. Add additional resources with low hourly rates.

Refreshments
Q5: Although the stakeholders thought there was enough money in the budget, halfway
through the project the cost performance index (CPI) is 0.7. To determine the root
cause, several stakeholders audit the project and discover the project cost budget
was estimated analogously. Although the activity estimates add up to the project
estimate, the stakeholders think something was missing in how the estimate was
completed. Which of the following describes what was missing?
A. Estimated costs should be used to measure CPI.
B. SPI should be used, not CPI.
C. Bottom-up estimating should have been used.
D. Past history was not taken into account.

4 - Project Cost Management

Uploaded by

Copyright:

Available Formats

You might also like

4 - Project Cost Management

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

4 - Project Cost Management

Uploaded by

Copyright:

Available Formats

P ROJECT C OST M ANAGEMENT

September 2015 Hisham Haridy, PMP, PMI-RMP

The processes involved in estimating, budgeting, and controlling costs so

Plan Cost Estimate Determine Control

PROJECT COST MANAGEMENT September 2015

PROJECT COST MANAGEMENT September 2015

These costs are directly attributable Indirect costs are overhead

PROJECT COST MANAGEMENT September 2015

Cost Estimating is the determination of Pricing is a business decision that

Price = Cost + Profit

Direct cost + Indirect cost + Overhead

PROJECT COST MANAGEMENT September 2015

PROJECT COST MANAGEMENT September 2015

1. Project management plan 1. Expert judgment 1. Cost management plan

PROJECT COST MANAGEMENT September 2015

PROJECT COST MANAGEMENT September 2015

3. Organizational Process Assets

PROJECT COST MANAGEMENT September 2015

PROJECT COST MANAGEMENT September 2015

Anyone with responsibility for

PROJECT COST MANAGEMENT September 2015

PROJECT COST MANAGEMENT September 2015

Inputs Tools and Techniques Outputs

PROJECT COST MANAGEMENT September 2015

2. Human resource management plan

Labor rates, reward system, training,etc.

6. Enterprise environmental factors

7. Organizational process assets

PROJECT COST MANAGEMENT September 2015

PROJECT COST MANAGEMENT September 2015

PROJECT COST MANAGEMENT September 2015

Using project characteristics (or parameters) in a mathematical model to predict

On other word parametric estimating uses a statistical relationship

Provides a basis for monitoring and controlling, performance measurement and

Example; price per square meter.

PROJECT COST MANAGEMENT September 2015

To do this well requires an accurate WBS.

5. Three-point estimates (Probabilistic Estimate) Weighted Average

The accuracy of activity duration estimates can be improved by considering

PERT uses three estimates to define an approximate range for an activitys

PROJECT COST MANAGEMENT September 2015

S.D. = Standard Deviation.

Final Cost Estimate (FCE) = EC +/- S.D.

PROJECT COST MANAGEMENT September 2015

PROJECT COST MANAGEMENT September 2015

9. Vendor bid analysis

This work might also involve getting pricing from consultants,

Further cost estimating may then be necessary before finalizing agreement.

PROJECT COST MANAGEMENT September 2015

Team-based approaches, such as brainstorming, the Delphi or nominal group

PROJECT COST MANAGEMENT September 2015

Supporting detail for activity cost estimates may include:

The risk register

PROJECT COST MANAGEMENT September 2015

Inputs Tools and Techniques Outputs

PROJECT COST MANAGEMENT September 2015

3. Activity cost estimates