Week 6- Part 1&2

Module 4 - Project Planning Process

Planning – Structured approach
• Determine how you will plan for each
knowledge area
• Determine detailed requirements
• Create project scope statement
• Assess what to purchase and create
procurement documents
• Determine planning team
• Create WBS
• Create activity list
• Create network diagram
• Estimate resource requirement
• Estimate time and cost
• Determine critical path
• Develop schedule
• Develop budget
• Develop quality standards, processes
• Create process improvement plan
• Determine roles and responsibilities
• Plan communication and stakeholder engagement
• Perform risk identification
• Go back-iterations
• Finalize procurement documents
• Create change management plan
• Finalize how to execute and control part of all
management plans
• Develop realistic and final PM plan and
performance measurement baselines
• Gain formal approval of plan
• Hold kick-off meeting
Cost Management process
• How each part of cost management fits into overall project
management process
Cost management Project management process(Done
during)
Plan cost management Planning process group
Estimate cost Planning process group
Determine budget Planning process group
Control cost Monitoring and control process group
Project cost management
• Project Cost Management includes the processes involved in
planning, estimating, budgeting, financing, funding, managing, and
controlling costs so that the project can be completed within the
approved budget
Schedule management plan
• The process that establishes the policies, procedures, and
documentation for planning, managing, expending, and controlling
project costs.

Inputs Tools and techniques Outputs

.1 Project management plan .1 Expert judgment

.2 Project charter .2 Analytical techniques Cost management plan
.3 Enterprise environmental .3 Meetings
factors
.4 Organizational process assets
Contd…
• This process involves answers following questions
• How will I go about cost planning for project?
• How effectively I will mange project to the cost baselines, control cost
and cost variance?
Cost management plan
It includes
• Specifications for how cost estimates be stated – CURRENCY
• Level accuracy
• Reporting formats
• Rules for measuring cost performance
• Whether cost will include both direct and indirect costs
• Guidelines for establishing cost baseline
• Control thresholds
• Cost change control procedures
• Information on cost controls
• Information on how cost estimates, determine and control procedures will be conducted
• Funding decisions
• Methods for documenting costs
• Guidelines for dealing with potential fluctuations in resource costs and exchange rates
• Roles and responsibilities for various cost activities
Estimate cost management
• 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
plan
.3 Scope baseline
.4 Project schedule
.5 Risk register
.6 Enterprise environmental
factors
.7 Organizational process assets
.2 Analogous estimating .2 Basis of estimates
.3 Parametric estimating .3 Project documents updates
.4 Bottom-up estimating
.5 Three-point estimating
.6 Reserve analysis
.7 Cost of quality
.8 Project management software
.9 Vendor bid analysis
.10 Group decision-making
techniques
Contd…
• It includes
• Costs quality controls
• Costs of risk efforts
• Cost of project managers time
• Cost of project management activities
• Cost directly associated with project including labor, material, trainings,
workshops, computers etc.,
• Expenses of physical resources and space directly for project
• Profit if applicable
• Overhead costs like management salaries and general office expenses
Type of cost
Variable cost
• These costs change with the amount of production or amount of work. For instance cost of
material, supplies, wages etc.,
Fixed costs
• These costs do not change as production changes. For instance cost of set up, rent, utilities
etc.,

Direct costs
• These costs are directly attributable to the work on project. For instance as team travel,
team wages and cost of material used on project.
Indirect costs
• These costs are overhead items or costs incurred for the benefit of more then one project.
For instance taxes, fringe benefits and janitorial services
Bottom up estimating

• A method of estimating a component of work. The cost of individual

work packages or activities is estimated to the greatest level of
specified detail. The detailed cost is then summarized or “rolled up”
to higher levels for subsequent reporting and tracking purposes. The
cost and accuracy of bottom-up cost estimating are typically
influenced by the size and complexity of the individual activity or
work package.
Determine Budget
• The process of aggregating the estimated costs of individual activities
or work packages to establish an authorized cost baseline.

Inputs Tools and techniques Outputs

.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 documents
.5 Project schedule .5 Funding limit updates
.6 Resource calendars reconciliation
.7 Risk register
.8 Agreements
.9 Organizational process
assets
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 (such as control accounts)
and ultimately for the entire project.

13
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 and is used as a
basis for comparison to actual results. It is developed as a summation
of the approved budgets for the different schedule activities.
Control Costs
• The process of monitoring the status of the project to update the
project costs and managing changes to the cost baseline.
Inputs Tools and techniques Outputs

.1 Project management plan .1 Earned value .1 Work performance

.2 Project funding management information
requirements .2 Forecasting .2 Cost forecasts
.3 Work performance data .3 To-complete .3 Change requests
.4 Organizational process performance index (TCPI) .4 Project management plan
assets .4 Performance reviews updates
.5 Project management .5 Project documents
software updates
.6 Reserve analysis .6 Organizational process
assets updates
Contd…
• Project cost control includes:
• Influencing the factors that create changes to the authorized cost baseline;
• Ensuring that all change requests are acted on in a timely manner;
• Managing the actual changes when and as they occur;
• Ensuring that cost expenditures do not exceed the authorized funding by period, by WBS
component, by activity, and in total for the project;
• Monitoring cost performance to isolate and understand variances from the approved
cost baseline;
• Monitoring work performance against funds expended;
• Preventing unapproved changes from being included in the reported cost or resource
usage;
• Informing appropriate stakeholders of all approved changes and associated cost; and
• Bringing expected cost overruns within acceptable limits.
Earned value management (EVM)
• 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.
• It is a project management technique that requires the formation of an
integrated baseline against which performance can be measured for the
duration of the project.
• The principles of EVM can be applied to all projects in any industry.
Contd…
• EVM develops and monitors three key dimensions for each work
package and control account:
• Planned value
• Earned value
• Actual cost
Planned value
• Planned value (PV) is the authorized budget assigned to scheduled work.
• It is the authorized budget planned for the work to be accomplished for an
activity or work breakdown structure component, not including
management reserve.
• This budget is allocated by phase over the life of the project, but at a given
moment, planned value defines the physical work that should have been
accomplished.
• The total of the PV is sometimes referred to as the performance
measurement baseline (PMB).
• The total planned value for the project is also known as budget at
completion (BAC).
Earned value
• Earned value (EV) is a measure of work performed expressed in terms of
the budget authorized for that work.
• It is the budget associated with the authorized work that has been
completed.
• The EV being measured needs to be related to the PMB, and the EV
measured cannot be greater than the authorized PV budget for a
component.
• The EV is often used to calculate the percent complete of a
project.Progress measurement criteria should be established for each WBS
component to measure work in progress.
• Project managers monitor EV, both incrementally to determine current
status and cumulatively to determine the long-term performance trends.
Actual cost
• Actual cost (AC) is the realized cost incurred for the work performed
on an activity during a specific time period. It is the total cost incurred
in accomplishing the work that the EV measured. The
• AC needs to correspond in definition to what was budgeted in the PV
and measured in the EV (e.g., direct hours only, direct costs only, or
all costs including indirect costs).
• The AC will have no upper limit; whatever is spent to achieve the EV
will be measured.
Variances from the approved baseline will
also be monitored:
• Schedule variance. Schedule variance (SV) is a measure of schedule
performance expressed as the difference between the earned value and
the planned value.
• It is the amount by which the project is ahead or behind the planned
delivery date, at a given point in time.
• It is a measure of schedule performance on a project. Equation: SV = EV –
PV
Significance:
• It can indicate when a project is falling behind or is ahead of its baseline schedule.
• The EVM schedule variance will ultimately equal zero when the project is completed
because all of the planned values will have been earned. Schedule variance is best
used in conjunction with critical path methodology (CPM) scheduling and risk
management.
Contd..
• 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 value
and the actual cost.
• It is a measure of cost performance on a project. Equation: CV= EV − AC.
• The cost variance at the end of the project will be the difference between
the budget at completion (BAC) and the actual amount spent.
Significance:
• The CV is particularly critical because it indicates the relationship of physical
performance to the costs spent. Negative CV is often difficult for the project to
recover.
Contd..
• Schedule performance index. The schedule performance index (SPI) is a
measure of schedule efficiency expressed as the ratio of earned value to
planned value.
• It measures how efficiently the project team is using its time. It is
sometimes used in conjunction with the cost performance index (CPI) to
forecast the final project completion estimates.
• Since the SPI measures all project work, the performance on the critical
path also needs to be analyzed to determine whether the project will finish
ahead of or behind its planned finish date.
• The SPI is equal to the ratio of the EV to the PV. Equation: SPI = EV/PV
• An SPI value less than 1.0 indicates less work was completed than was planned.
• An SPI greater than 1.0 indicates that more work was completed than was planned.
• 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.
• It is considered the most critical EVM metric and measures the cost
efficiency for the work completed.
• The CPI is equal to the ratio of the EV to the AC. The indices are useful
for determining project status and providing a basis for estimating
project cost and schedule outcome. Equation: CPI = EV/AC
• A CPI value of less than 1.0 indicates a cost overrun for work completed.
• A CPI value greater than 1.0 indicates a cost underrun of performance to date.
Other techniques
• Forecasting: 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.
• To-Complete Performance Index (TCPI): is a measure of the cost
performance that is required to be achieved with the remaining resources
in order to meet a specified management goal, expressed as the ratio of
the cost to finish the outstanding work to the remaining budget.
• Performance Reviews:
• Variance analysis
• Trend analysis
• Earned value performance
Points to remember
• Negative numbers for cost and schedule variance indicate problems in
those areas. The project is costing more than planned or taking
longer than planned
• CPI and SPI less than 100% indicate problems
• Change requests are not required for cost estimations
• Inadequate scope definitions make cost estimations impossible
• Earned value measurement is a very good reporting tool showing
where you stand on budget and schedule and used for forecasting
also
Exercise

• You have to build a new fence, fence is 4 side, Each side is to take one
day to build, and $1000 have been budgeted for each side. The sides
are planned to be completed one after the other. Today is the end of
3rd day.
• Being a project manager how will you see the status of the project in
terms of cost
Task Day 1 Day 2 Day 3 Day 4 Status at the
end of Day 3

Side 1 S -> F Completed

completed 100% spent
$1000
Side 2 S -> PF F Complete spent
completed $1200

Side 3 PS -> S -> PF 50% done spent

completed $600

Side 4 PS -> PF Not started as

completed yet
Assignment 5
Develop Project Management Plan for the project you are working on
• Develop detailed cost management plan