The various processes for planning, estimating, budgeting, financing, financing, managing and controlling costs to complete the project within the approved budget, thereby ensuring that the project is completed within the approved budget
Project cost management focuses on the cost of resources required to complete project activities, but should also consider the impact of project decisions on the cost of use, maintenance, and support of the project's products, services, or results.
Trends and Emerging Practices
Earned value management (EVM), earned schedule (ES), actual time (AT), schedule performance index (SPI) = ES/AT
Tailoring considerations
knowledge management
Does the organization have an easy-to-use, formal knowledge management system and financial database that project managers are required to use?
Estimates and Budgets
Does the organization have formal or informal policies, procedures and guidelines related to cost estimating and budgeting?
Earned value management
Does the organization use earned value management to manage projects?
Use of agile methods
Does the organization use agile methods to manage projects? What impact does this have on cost estimates?
governance
Does the organization have formal or informal audit and governance policies, procedures and guidelines?
For projects that are highly volatile, whose scope is not fully defined, and where changes occur frequently, detailed costing may not be of much help. In this case, lightweight estimating methods can be used to quickly generate high-level forecasts of project labor costs, which can be easily adjusted when changes occur, while detailed estimates are suitable for short-term planning using just-in-time.
plan
7.1
planning cost management
The process of determining how to estimate, budget, manage, monitor, and control project costs.
The primary role is to provide guidance and direction on how to manage project costs throughout the project period.
This process is performed only once or only at predefined points in the project. Cost management efforts should be planned early in the project planning phase.
enter
project management plan
Progress management plan. Risk management plan. See section 4.1.3.1
business environment factors
organizational culture and structure that influence cost management;
market conditions;
Determines which products, services and outcomes are available in local and global markets;
Currency Exchange Rate;
Published commercial information;
The project management information system can provide a variety of methods for managing costs;
Differences in productivity between regions can have a huge impact on project costs.
organizational process assets
Tools & Techniques
data analysis
Data analysis techniques for this process include (but are not limited to) alternatives analysis. Analysis of alternatives may include a review of strategic methods of raising funds, such as self-financing, equity investment, borrowed investment, etc. It may also include consideration of methods of raising project resources such as make, purchase, hire or lease.
Meeting
Attendees may include the project manager, project sponsor, selected project team members, selected stakeholders, project cost owners, and other necessary personnel.
output
cost management plan
Define the unit of measurement for each resource, set the degree to which cost estimates are rounded up or down, specify an acceptable interval for activity cost estimates (such as ±10%), and organize program links. Control critical value. Performance Measurement Rules. report format.
7.2
*Estimated cost
The process of making an approximate estimate of the monetary resources required to complete project activities.
The main function is to determine the funds required for the project. This process should be carried out regularly throughout the project as needed.
enter
project management plan
See section 4.2.3.1. Cost management plan. Quality management plan. Scope benchmark.
project files
Lessons learned register. Project schedule. Resource requirements. Risk register.
business environment factors
market conditions. Published Business Information. Exchange rates and inflation rates.
organizational process assets
Tools & Techniques
*Parameter estimation
See section 6.4.2.3
Accuracy depends on the maturity of the parametric model and the reliability of the underlying data
*Bottom-up estimation
The accuracy of a bottom-up estimate, and the cost itself, often depends on the size or other attributes of the individual activity or work package
*Three-point estimation method
Most optimistic cost (cO)
Most pessimistic cost (cP)
Hypothetical distributions over three ranges of estimates, using the formula to calculate period cost (cE)
Triangular distribution. cE= (cO cM cP) /3
Beta distribution. cE= (cO 4cM cP) /6
*data analysis
Alternatives analysis
For example, evaluate the impact of buying and manufacturing deliverables on cost, schedule, resources, and quality respectively.
*Reserve analysis
To cope with cost uncertainty, a contingency reserve (sometimes called a "contingency") can be included in the cost estimate
For example, you can predict that some project deliverables will need to be reworked, but you don’t know how much work the rework will entail. Contingency reserves can be set aside to cover these unknown amounts of rework
project management information system
Used to assist in cost estimating
output
Estimate basis
The amount and type of supporting information required for a cost estimate will vary by application area, and regardless of its level of detail, supporting documentation should clearly and completely describe how the cost estimate was derived.
7.3
*Budgeting
The process of summarizing the estimated costs of all individual activities or work packages to establish an approved cost baseline.
Its main function is to determine the cost baseline against which project performance can be monitored and controlled.
This process is performed only once or only at predefined points in the project
The project budget includes all funds approved to execute the project, while the cost baseline is the approved project budget allocated by time period, including contingency reserves, but does not include management reserves
enter
project management documents
Cost management plan. Resource Management Plan. Scope benchmark.
project files
Basis for estimation. Cost Estimate. Project schedule. Risk register.
business documents
Business case. Benefit Management Plan.
business environment factors
organizational process assets
Tools & Techniques
*Expert judgment
Previous similar projects; information on the field; financial principles; funding requirements and sources.
cost summary
The cost estimate is first summarized into the work packages in the WBS, and then the work packages are summarized into the higher levels of the WBS (such as control accounts), and finally the total cost of the entire project is obtained.
*Historical information review
Reviewing historical information can help with parameter or analog estimation. Historical information can include various project characteristics (parameters) that are used to build mathematical models that predict the total project cost.
Analog and parametric models can vary widely in cost and accuracy.
The historical information used to build the model is accurate
Parameters in the model are easy to quantify;
The model can be adapted to work on large projects, small projects and various project phases.
Funding Limit Balance
Balance capital expenditures against any restrictions on project funding. Differences between funding constraints and planned expenditures require adjustments to the work's schedule, which can be accomplished by adding mandatory dates to the project schedule
output
*Cost basis
Is an approved, time-phased project budget that does not include any management reserves and can be changed only through a formal change control process and is used as a basis for comparison with actual results. Calculate the sum. Contains contingency reserves
The cost baseline is an approved estimate of the different schedule activities
Cost of the work package—Cost of the control account—Cost baseline—Add management reserves to the cost baseline to get the project budget.
For projects using earned value management, the cost baseline refers to the performance measurement baseline
Project funding requirements
Determine total funding requirements and periodic (e.g. quarterly or annual) funding requirements
Project file updates
Cost Estimate. Project schedule. Risk register.
control
7.4
Control costs
Monitor project status to update project costs and manage the process of cost baseline changes.
The role is to maintain the cost baseline throughout the project
This process needs to be carried out throughout the project.
The analysis should focus on the relationship between the expenditure of project funds and the corresponding work completed. The key to effective cost control is managing an approved cost baseline.
enter
project management plan
Performance measurement benchmarks.
When using earned value analysis, performance measurement baselines are compared to actual results to determine whether changes, corrective actions, or preventive actions are necessary.
Project funding requirements
organizational process assets
Tools & Techniques
expert judgment
Deviation analysis; earned value analysis; forecasting; financial analysis.
data analysis
Earned value analysis
(EVA)
Plan value.
Planned Value (PV) is the approved budget allocated for planned work and is an approved budget prepared to complete an activity or Work Breakdown Structure (WBS) component, excluding management reserves
EVM integrates scope baseline, cost baseline and schedule baseline to form a performance measurement baseline.
At a given point in time, planned value represents the work that should have been completed.
The sum of PV is sometimes called the Performance Measurement Baseline (PMB), and the total planned value of the project is also called the Budget at Completion (BAC).
Earned value EV
Earned value (EV) is a measurement of work performed
The EV value must not be greater than the total PV budget of the corresponding component
EV is often used to calculate the completion percentage of a project, specify progress measurement criteria for each WBS component, and is used to assess the work being implemented.
actual cost
Actual cost (AC) is the actual cost incurred to perform an activity within a given period of time. It is the total cost incurred to complete the work corresponding to EV.
There is no cap on AC, any cost incurred to achieve EV must be taken into account
Deviation analysis
Deviation analysis is used to explain the causes, effects and corrective measures of deviations to determine the consequences of deviations.
This baseline (see Section 7.3.3.1) determines the cause and extent and determines whether corrective or preventive action is required.
Cost deviation CV=EV-AC
Progress deviation SV = EV – PV
Variance at completion VAC = BAC – EAC
progress deviation
Expressed as the difference between earned value and planned value, it is an indicator of project schedule performance, and will eventually equal zero when the project is completed.
cost deviation
It is the budget deficit or surplus at a given point in time, expressed as the difference between earned value and actual cost. Negative CV is generally irreversible. The difference between the completion budget and actual cost.
schedule performance index
It is an indicator for measuring schedule efficiency, expressed as the ratio of earned value to planned value, and reflects the efficiency of the project team in completing the work. SPI = EV/PV
When SPI is less than 1.0, it means that the amount of work completed does not meet the planned requirements;
When the SPI is greater than 1.0, it means that the amount of work completed exceeds the plan.
Since SPI measures the total workload of the project, performance on the critical path also needs to be analyzed separately.
To confirm whether the project will be completed earlier or later than the planned completion date.
cost performance index
It is an indicator that measures the cost efficiency of budgeted resources, expressed as the ratio of earned value to actual cost CPI = EV/AC
When the CPI is less than 1.0, it means that the cost of the completed work is overrun;
When CPI is greater than 1.0, it means there is a balance in costs so far
trend analysis
Review project performance over time to determine whether performance is improving or deteriorating.
chart
In earned value analysis, the three parameters of planned value, earned value and actual cost can be monitored and reported either in stages (usually on a weekly or monthly basis) or on a cumulative basis.
predict
Forecast the estimate at completion (EAC), which may differ from the budget at completion (BAC). If it is apparent that the BAC is no longer feasible, the project manager should consider forecasting the EAC
When calculating EAC, the actual cost of the work completed is usually used, plus the estimate to complete of the remaining work (ETC).
*Performance index to completion
The To-Complete Performance Index (TCPI) is a cost performance indicator that the use of remaining resources must achieve in order to achieve specific management goals. It is the ratio of the cost required to complete the remaining work to the remaining budget.
If it is apparent that the BAC is no longer feasible, the project manager should consider using a predicted EAC. Once approved, the BAC will be replaced with EAC.
TCPI = (BAC – EV) / (BAC – AC)
project management information system
output
job performance information
Including information about the performance of project work (against the cost baseline), deviations in work performed and work costs can be assessed at both the work package level and the control account level. For projects using earned value analysis, CV, CPI, EA, VAC and TCPI will be recorded in the work performance report
Project Management Plan Update
Cost management plan. Cost basis. Performance measurement benchmarks.
Management reserves are included in the project budget and not in the cost baseline;
Contingency reserves are included in the cost baseline
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