Cost

• Plan Cost Management

o Defining how the project costs will be estimated, budgeted, managed, monitored, and controlled.

o It provides guidance and direction on how the project costs will be managed throughout the project

• Value Engineering

o Cost Type Aka, value analysis is finding a less costly way of doing work. It will look how to achieve a goal/scope the less costly way

• Fixed

o Costs that stay same throughout the life of a project . I.E. bulldozer

• Variable

o Costs that vary on a project. I.E. hourly labor, fuel for bulldozer

• Direct

o Expenses billed directly to the project. I.E. materials used to construct bldg

• Indirect

o Costs that are shared & allocated among several or all projects. i.e. mgr’s salary.

• Sunk

o Costs that have been invested into or expended upon the project. Sunk costs are like spilt milk

• Cost Management Plan

o How costs will be planned, structured and controlled

o Units of measure

o Level of accuracy

o Reporting formats

o Control threshold

• Estimate Costs

o Developing an approximation of the cost of resources needed to complete project work.

o Usually expressed in some from of currency, $, Euro, Yen, Won, etc.. 

o Accuracy of a project estimate will increase as the project progresses through the project life cycle

o Costs are estimated for all resources that will be charged to the project including but is not limited to labor, materials, equipment, services, and facilities, as well as special categories such as an inflation allowance, cost of financing, or contingency costs.

• Estimate Cost – Types

o Definitive Estimates: –5% to +10%

o Budget Estimates: –10% to +25%

o Rough Order of Magnitude Estimates: 25% to +75%

• Estimate Costs – Tools

o Expert Judgment

o Analogous Estimating

 Top down, Pasted projects, Not very detailed

o Parametric Estimating

 Statistical relationships between historical data and variables

• 8 hour work period, lay 50 cubic feet of concrete

• 1 hour work period, paint 32 square feet of drywall

 Bottom-up Estimating

• Separate estimate for each activity and aggregated up to summary nodes on WBS

• Greatest Level of specified detail

• Highly accurate, labor intensive

o Pert, Three point Estimating (Covered in Schedule Management)

o Data Analysis

 Reserve Analysis (Money set aside for Risk)

 Cost of Quality

• Failure

o Internal caused, (may need to rework, scrap)

o External caused, (Warranty work, Lost of business)

o Leads to rework and increasing spend rate

• Success

o Training, proper equipment, inspections Decision Making

 PMIS

 Decision Making

o Cost Estimates

 Costs associated with each activity. This includes labor, materials, equipment, facilities, inflation, services, etc…

o Basis of Estimates

 Range of possible estimates

 Confidence level of estimates

 How estimates were developed and by whom

o Project Document Updates

• Determine Budget

o Process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

o It determines the cost baseline against which project performance can be monitored and controlled.

• Determine Budget – Tools

o Cost Aggregation

 Details on what each schedule activity is scheduled to cost. These will be rolled up to each parent work package to determined total cost and budgetary requirements

o Data Analysis

 Reserve Analysis, Possible

• Contingency reserves for the project

o Contingency Reserves: The PM determines, manages, and controls the contingency reserves, which will address the cost impact of the remaining or known/unknown risks

o Management Reserve: The management determines the funds to cover unknown/ unknown risks to the project

• Designed for possible risk obstacles to the Baselines

 Historical Information Review

• Parametric or Analogous estimates based off historical projects

• Best used when project are very similar in nature

• Determine Budget - Tools

o Funding Limit Reconciliations

 Projects current run rate vs. what was planned over the life cycle of the project. Sections of the project may need to be reschedule due to budget limitations

o Financing

 Acquiring money for the project from an external source

• Determine Budget Output

o Cost Baseline

 Includes the cost of all the activities that are aggregated to work packages. The work packages and the contingency reserves are aggregated into control account. The sum of all control accounts is the cost baseline.

 Typically displayed in a S-Curve graph.

 The cost baseline represents the project cost, which includes the contingency reserves. The project budget is the cost baseline + management reserves.

o Project Funding Requirements

 What gets funded when and by how much. Is there a trigger point, Milestone point, etc..

o Project Document Updates