05-Project Cost Management

Module 7
Project Cost Management
Agus Suhanto
Module Overview
• Lesson 1: Key Concepts & Terms

• Lesson 2: Plan Cost Management
• Lesson 3: Estimate Costs
• Lesson 4: Determine Budget
• Lesson 7: Control Costs
Lesson 1: Key Concepts & Terms
• Project Cost Management

• Project Cost Management Processes
• Key Terms
• Trends & Emerging Practices
• Tailoring Considerations
• Considerations for Adaptive Environment
Project Cost Management
Project cost management is the processes

involved in planning, estimating, budgeting,
financing, funding, managing, and controlling costs
so that the project can be completed within the
approved budget.
Project Cost Management Processes
• Plan Cost Management

• Estimate Costs
• Determine Budget
• Control Costs
Key Terms
• Earned value management (EVM): a project

management technique for measuring project
performance and progress based on the comparison of
work performed and work planned.
• Life cycle costing: the concept of looking at cost over the
entire life of the product, not just the cost of the project to
create the product.
• Value analysis (value engineering): the concept that
focuses on finding a less costly way to do the same work.
• Cost risk: cost-related risks.
Key Terms (continued)
• Types of costs:
• Variable costs: costs that change with the amount of work.
• Fixed costs: costs that do not change with the amount of work.
• Direct costs: costs directly attributable to the work on the project
• Indirect costs: overhead items or costs incurred for the benefit of
more than one projects.
• Cost estimate ranges:
• Rough order of magnitude (ROM): used during project initiating;
typical range -25 to +75 percent.
• Budget estimate: when starting the plan iteration; typical range -10
to +25 percent.
• Definitive estimate: as progress planning progresses; typical range
± 10 percent or -5 to +10 percent.
Trends & Emerging Practices
• Expansion of EVM to include the concept of

earned schedule (ES)
Tailoring Considerations
• Knowledge management
• Estimating and budgeting
• Earned value management
• Use of agile approach
• Governance
Considerations for Adaptive Environments
• Agile practice uses lightweight estimation

methods to generate high-level forecast for
project costs.
• Detailed estimates are reserved for short-term
planning horizons in a just-in-time fashion.
• In a strict-budget projects, the scope and schedule
are more often adjusted to stay within the cost
constraints.
Lesson 2: Plan Cost Management
• Plan Cost Management Overview

• Plan Cost Management Data Flow
• Plan Cost Management Input
• Plan Cost Management Tools & Technique
• Plan Cost Management Output
Plan Cost Management Overview
• Plan cost management is the process of defining

how the project costs will be estimated, budgeted,
managed, and controlled.
• The key benefit: it provides guidance and direction
on ho the project costs will be managed
throughout the project.
Plan Cost Management Data Flow
Plan Cost Management Input
• Project charter
• Project management plan
• Schedule management plan
• Risk management plan
• Enterprise environmental factors

• Organizational process assets
Plan Cost Management Tools & Techniques
• Expert judgment
• Data analysis
• Alternative analysis
• Meetings
Plan Cost Management Output

• Cost management plan
• Units of measure
• Level of precision
• Level of accuracy
• Organizational procedure links
• Control thresholds
• Rules of performance measurements
• Reporting formats
• Additional details
Lesson 3: Estimate Costs
• Estimate Costs Overview

• Estimate Costs Data Flow
• Estimate Costs Input
• Estimate Costs Tools & Techniques
• Estimate Costs Output
Estimate Costs Overview
• Estimate costs is the process of developing an

approximation of cost of resources needed to
complete project work.
• Key benefit: it determines the monetary resources
required for the project.
Estimate Costs Data Flow
Estimate Costs Input

• Quality management plan
• Scope baseline
• Project documents
• Lessons learned register
• Project schedule
• Resource requirements
• Risk register
• Enterprise environmental factors
Estimate Costs Tools & Techniques
• Expert judgment • Project management

• One-point estimating information system
• Analogous estimating • Decision making
• Parametric estimating • Voting
• Bottom-up estimating
• Three-point estimating
• Triangular distribution
• Beta distribution
• Data analysis
• Alternative analysis
• Reserve analysis
• Cost of quality
Three-point Estimating Formula
• Triangular distribution:
𝑐𝑂 + 𝑐𝑀 + 𝑐𝑃
𝑐𝐸 =
3
• Beta distribution:
𝑐𝑂 + 4 𝑐𝑀 +𝑐𝑃
𝑐𝐸 =
6
Estimate Costs Output
• Cost estimates
• Basis of estimates
• Project documents updates

• Assumption log
• Risk register
Lesson 4: Determine Budget
• Determine Budget Overview

• Determine Budget Data Flow
• Determine Budget Input
• Determine Budget Tools & Techniques
• Determine Budget Output
Determine Budget Overview
• Determine budget is the process of aggregating

the estimated costs of individual activities or work
packages to establish an authorized cost baseline.
• Key benefit: it determines the cost baseline
against which project performance can be
monitored or controlled.
Determine Budget Data Flow
Determine Budget Input
• Project management plan • Agreements

• Cost management plan • Enterprise environmental
• Resource management plan factors
• Scope baseline • Organizational process
• Projects documents assets
• Cost estimates
• Project schedule
• Risk register
• Business documents
• Business case
• Benefits management plan
Determine Budget Tools & Techniques
• Expert judgment
• Cost aggregation
• Data analysis
• Historical information
review
• Funding limit
reconciliation
• Financing
Determine Budget Output

• Cost baseline
• Project funding
requirements
• Cost estimates
• Project schedules
• Risk register
Lesson 7: Control Cost
• Control Cost Overview

• Control Cost Data Flow
• Control Cost Input
• Control Cost Tools & Techniques
• Control Cost Output
Control Cost Overview
• Control cost is the process of monitoring the

status of the project to update the project costs
and managing changes to the cost baseline.
• Key benefit: the cost baseline is maintained
throughout the project.
Control Cost Data Flow
Control Cost Input

• Cost baseline
• Performance measurement baseline
• Project funding requirements
• Work performance data
Control Cost Tools & Techniques
• Expert judgment
• Data analysis
• Earned value analysis
• Variance analysis
• Trend analysis
• To-complete performance index
• Project management information system
EVM Formula
• Variances • Estimate at completion

• 𝐶𝑉 = 𝐸𝑉 − 𝐴𝐶 • EAC = AC + bottom up ETC
• 𝑆𝑉 = 𝐸𝑉 − 𝑃𝑉 • EAC = BAC / CPI
• 𝑉𝐴𝐶 = 𝐵𝐴𝐶 − 𝐸𝐴𝐶 • EAC = AC + BAC – EV
• Indexes • EAC = AC + 𝑆𝑃𝐼 × 𝐶𝑃𝐼
𝐵𝐴𝐶 − 𝐸𝑉
• 𝐶𝑃𝐼 = 𝐸𝑉 𝐴𝐶
• 𝑆𝑃𝐼 = 𝐸𝑉 𝑃𝑉
• To-complete performance
index
𝐵𝐴𝐶 −𝐸𝑉
• 𝑇𝐶𝑃𝐼= 𝐵𝐴𝐶 −𝐴𝐶 or
𝐵𝐴𝐶 −𝐸𝑉
• 𝑇𝐶𝑃𝐼= 𝐸𝐴𝐶 −𝐴𝐶
Control Cost Output
• Work performance • Cost estimates

information • Lessons learned register
• Cost forecasts • Risk register
• Change requests
updates
• Cost baseline
• Performance measurement
baseline
• Assumption log
Quiz
Module Reviews
References
• [PMBOK6] – The PMBOK 6th edition from pmi.org

• [RITA9] – Rita Mulcahy’s PMP Exam Prep 9th
edition from RMC Publications™

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Module 7

Project Cost Management

• Lesson 1: Key Concepts & Terms

• Project Cost Management

Project cost management is the processes

• Plan Cost Management

• Earned value management (EVM): a project

• Expansion of EVM to include the concept of

• Agile practice uses lightweight estimation

• Plan Cost Management Overview

• Plan cost management is the process of defining

• Enterprise environmental factors

• Project management plan

• Estimate Costs Overview

• Estimate costs is the process of developing an

• Project management plan

• Expert judgment • Project management

• Project documents updates

• Determine Budget Overview

• Determine budget is the process of aggregating

• Project management plan • Agreements

• Project management plan

• Control Cost Overview

• Control cost is the process of monitoring the

• Project management plan

• Variances • Estimate at completion

• Work performance • Cost estimates

• [PMBOK6] – The PMBOK 6th edition from pmi.org

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