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project cost management
This is a project cost management mind map, which is introduced from the following four aspects: 1. What is cost? 2. Specific process 3. Reasons for out-of-control costs 4. Related terms
Edited at 2021-08-02 15:52:59
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project cost management
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- Outline
project cost management
What are costs?
Cost is the monetary value or price of a project activity or its components, including the monetary value of the resources required to perform, complete, or create the activity or its components.
Specific costs include: direct labor hours, other direct expenses, indirect labor hours, other indirect expenses, and purchase price.
The sum of various costs consumed throughout the project is the project cost.
Specific process:
1. Develop a cost management plan?
Developed standards for project cost structure, estimating, budgeting and control.
The result is a cost management plan that outlines templates and establishes standards for project cost structure, estimating, budgeting, and control.
content:
1. Accurate level.
Activity cost estimates will be accurate to specified accuracy based on scope of activity and project size and may include contingency costs.
2. Unit of measurement.
Define measurement units for various resources, such as people-months and people-days
3. Organization program link
4. Lower control limit
5. Earned value rules
1. Define the earned value management calculation formula required to complete the estimate.
2. Establish earned value credit standards.
3. Define which level in the WBS should be used for earned value technical analysis.
6. Report format
7. Process description
8. Cost change control system and its relationship with the overall change control system
2. Cost estimation
Prepare an approximate cost of resources required to complete project activities.
Estimating the cost of activities involves estimating the approximate cost of resources required to complete each activity.
Labor, materials, equipment, services, facilities and special items such as inflation and contingency reserves.
In addition to direct costs, there are major factors that need to be considered but are easily overlooked:
1. Indirect costs
Such as management costs, house rent, insurance, etc.
Project estimates that are too rough or too detailed may lead to an increase in project costs.
2. Learning curve
The time cost spent by initial project team members learning new technologies and methods. Implementing a project that has never been done before will also have a learning curve.
3. Project completion time limit
Impact of project duration on costs
4. Quality requirements
5. Reserve
The cost is mainly used to prevent risks. Including emergency reserves and management reserves.
The main steps:
1. Identify and analyze the components of costs
Determine the types of physical resources required to complete project activities. These resources will be obtained through internal allocation or procurement within the enterprise. After creating the project cost component account, it will be formed
resource requirement table
chart of accounts
Any coding system for monitoring project costs. Accounting accounts are usually based on the organization's chart of accounts, which may be done by the accounting department.
2. Estimate the cost of each account based on the identified project cost components.
3. Analyze the results of cost estimation, find out various costs that can replace each other, and coordinate the proportional relationship between various costs
The ultimate function of planning is to optimize management. Commonly used optimization methods include: schedule optimization, cost optimization and resource optimization. No matter how much the project cost estimate is reduced, the project's contingency and management reserves should not be cut.
enter:
1. Business environment factors
2. Organizational process assets
1. Cost estimation policy
2. Cost estimation template
3. Historical information
4. Project documents
5. Project team knowledge
6. Lessons Learned
3. Project scope statement
4. Work breakdown structure WBS
5. Work breakdown structure glossary
6. Project management plan
1. Progress management plan
2. Staffing management plan
3. Risk register
Output:
1. Activity cost estimation
2. Supporting details for activity cost estimates
3. Requested changes
4. Cost management plan update
Tools and Techniques:
1. Analogous estimation
The cost is usually lower than other methods, and the accuracy is often poorer. is an expert judgment
2. Determine resource rates
3. Bottom-up estimation
4. Parameter estimation
5. Project management software
6. Supplier bidding analysis
7. Reserve analysis
A contingency reserve is an estimated cost used freely by the project manager to deal with expected but uncertain times. These events are called "known unknowns" and are part of the project scope and project cost baseline.
8. Quality cost
Includes identification and consideration of various costing options.
Accuracy increases with project performance.
When estimating costs, estimators need to consider possible causes of cost deviations, including risks.
The basis information comes from the results of various relevant processes in overall project management, scope management, schedule management, quality management, human resources management, communication management, risk management and procurement management. Once these results are received, all this information becomes the basis for the cost management process.
3. Cost budget
Total estimated costs across activities or work packages to establish a cost baseline.
basic concept:
1. Characteristics of project cost budget
1. Planning
In the project plan, allocate costs to each component of the WBS as accurately as possible.
2. Binding
3. Controlling
2. Principles to be followed when preparing project cost budgets
1. Based on project needs
2. Linked to project goals, project quality goals and progress goals must be considered at the same time.
3. Be practical and feasible
4. There should be flexibility
3. Steps to develop project cost budget
1. Allocate the total project cost to each work package in the project work breakdown structure
2. Reallocate the costs of each work package to the activities included in the work package
3. Determine the time plan and project cost plan for various cost budget expenditures
The cost budget plan is mainly formed based on the resource investment time period.
Project cost budgets provide a baseline for measuring project performance
enter:
1. Project scope statement
2. Work breakdown structure
3. Work breakdown structure glossary
4. Activity cost estimation
5. Activity cost estimation support details
6. Project progress plan
Planned start and end times of project activities, schedule milestones, work packages, planning packages, and control accounts.
7. Resource calendar
8. Contract
9. Cost management plan
When preparing the cost budget, the cost management subplan and other subplans of the project management plan will be considered.
Output:
1. Cost basis
A time-phased budget used as a baseline for measuring and monitoring the overall cost execution (performance) of a project.
2. Project funding requirements
Whether it is overall demand or staged demand, it is determined based on the cost baseline, and a certain tolerance can be set to deal with early completion or cost overruns.
3. Cost management plan (updated)
4. Requested changes
Tools & Techniques
1. Cost summary
2. Reserve analysis
Management Reserve is a budget set aside to cover unplanned but potentially required changes to project scope and cost. They are the "unknown unknowns" and the project manager must obtain approval before dipping into or spending this reserve. The management reserve is not part of the project cost baseline but is included in the project's budget. Because they are not allocated as budgets, they are not part of the earned value calculation.
3. Parameter estimation
4. Fund limit balance
4. Cost control
Influence factors causing cost deviations and control changes to project budgets.
main content:
1. Apply factors that cause cost basis changes
2. Ensure change requests are approved
3. When changes occur, manage those actual changes
4. Ensure that potential cost overruns do not exceed authorized project phase funds and overall funds.
5. Monitor cost execution (performance) and identify deviations from cost performance
6. Accurately record all cost baseline deviations
7. Prevent erroneous, inappropriate or unapproved changes from being included in cost or resource usage reports
8. Notify project stakeholders of approved changes
Find the causes of positive and negative deviations for project cost control as part of overall change control.
enter:
1. Cost basis
2. Project funding requirements
3. Performance report
4. Work performance information
1. Completed and unfinished deliverables
2. Authorized and actual costs
3. Complete the remaining cost estimate
4. Percentage of work completed
5. Approved change request
6. Project management plan
Output:
1. Cost estimate (updated)
2. Cost baseline (updated)
3. Performance measurement
Cost deviation CV, schedule deviation SV, schedule execution (performance) index SPI and cost execution (performance) index CPI
4. Complete the prediction
Estimate the EAC value when the calculation is completed or the EAC value reported by the implementing organization
5. Requested changes
6. Recommended corrective actions
7. Organizational process assets (update)
Tools and Techniques:
1. Cost change control system
Documented in the cost management plan, the procedures to be followed for changes to the cost baseline are specified, including forms, documentation, tracking systems and approval levels for approving changes.
The cost change control system is closely linked to the overall change control process.
2. Performance measurement analysis
EV, AC, SV, PV, CV, SPI, CPI?
3. Forecasting technology
EAC, ETC, ECPI?
4. Project performance review
Compare cost execution for a certain period of time, planned activity or work package overruns and underbudgets, completion milestones, completed milestones, etc.
1. Deviation analysis
Compare actual project performance to planned or desired performance.
2. Trend analysis
Examine project performance over a certain period of time to determine whether performance is improving or deteriorating
3. Earned value analysis
Earned value techniques compare planned performance with actual performance
5. Project management software
6. Deviation management
A cost management plan describes how cost deviations will be managed, such as by applying different responses to major or minor issues.
When most work is completed, the number of deviations tends to decrease. Large deviations are allowed in the early stages and will decrease as you near completion.
Reasons for out-of-control costs:
1. Insufficient understanding of engineering projects
1. Insufficient understanding of the characteristics of information system engineering cost control and insufficient estimation of the difficulty.
2. The scale of engineering projects is unreasonable. Large and comprehensive projects often have long construction periods and are too technically difficult, resulting in the investment of technical personnel failing to keep up with the needs of engineering construction, and the acceptance of information system engineering by various departments of the construction unit. Changes in capabilities and concepts cannot keep up with the needs of information system construction.
3. The designers and implementers of the engineering project lack cost awareness, resulting in the project construction design not meeting the requirements of cost control.
4. Lack of responsibility for the use of project costs, arbitrary spending, extravagance and waste.
2. The organizational system is not perfect
1. The system is imperfect
2. Failure to fulfill responsibilities
3. The project manager of the construction unit does not have a clear division of investment labor, resulting in poor leadership in investment control.
3. Methodological issues
1. Lack of relevant reports and data processing methods required for project investment control.
2. Lack of systematic cost control procedures and clear specific requirements, unclear requirements for cost control tasks at different stages of project progress, and lack of consistent control throughout the entire project progress.
3. Lack of scientific, strict, clear and complete cost control methods and work systems.
4. Lack of utilization of computer-aided investment control procedures.
5. Lack of dynamic comparative analysis of planned values and actual values, and timely provision of various required status reports and experience summaries.
4. Technical constraints
1. Since project cost estimation occurs in the early stages of project construction, the relevant information about the project is not well understood, and the project planning and design cannot meet the cost estimation requirements until late at night.
2. The project cost estimation method adopted is not perfect enough and inconsistent with the actual situation of the project or with the obtained project data.
3. The data for project cost calculation is inaccurate or has missing items, resulting in low calculation costs.
4. The designer failed to compare and optimize the design plans, causing the project design plan to exceed the project cost target.
5. The price of materials or equipment has increased significantly beyond the expected floating range.
6. Changes in project planning and design cause an increase in related costs.
7. Underestimate the risks that may be encountered during project implementation, resulting in a substantial increase in implementation costs.
Related terms:
1. The whole life cycle of the product
The cost of a product or system over its entire life cycle.
2. Cost type
1. Variable costs
Costs that vary with production volume, workload, or time become variable costs. Also called variable costs.
2. Fixed costs
Non-recurring costs that do not change with changes in production volume, workload, or time.
3. Direct costs
Costs that are directly attributable to project work are direct costs. Such as personnel wages, travel expenses, materials and equipment usage expenses, etc.
4. Indirect costs
The expenses allocated to this project from the general administrative expense account or the project costs shared by several projects form the indirect costs of the project, such as taxes, additional benefits, and security costs.
3. Management reserves
Costs that are planned out separately to prepare for unforeseen events in the future. Cost or schedule reserves are included to reduce the risk of deviations from cost or schedule targets, and the use of management reserves requires changes to the project baseline.
4. Cost basis
The approved time-based cost expenditure plan is used to measure and monitor the actual execution costs of the project.
5. Learning curve theory