PROJECT COST MANAGEMENT

PROJECT COST MANAGEMENT

Importance of Project Cost Management
Study about previous risks faced in cost management Cost overrun should be avoided

Project cost Management

Project team completes a project within an approved

budget. Three main cost management processes

Cost Estimating Cost budgeting Cost control

BASIC PRINCIPLES OF COST MANAGEMENT

Profits ( are revenues minus expenditures) Life cycle costing Cash flow analysis Direct costs Indirect costs

Sunk costs
Learning curve theory Reserves
Contingency Reserves Management Reserves

COST ESTIMATING
To complete projects within budget constraints

Types of cost estimates

TYPES OF ESTIMATE Rough Order of Magnitude(RO M) WHEN DONE Very early in the project life cycle, often 3-5 yrs before project completion Early, 1-2 yrs out WHY DONE Provides estimate of cost for selection decisions Puts dollars in the budget plans HOW ACCURATE

-25% to +75%

Budgetary

-10% to +25%

Definitive

Provides details Later in the for purchases , project less than estimates actual

-5% to +10%

COST ESTIMATION TOOLS AND TECHNIQUES

Analogous estimates or top down estimates Bottom up estimates Parametric modeling
COCOMO Model

Computerized tools
Spreadsheets Project management software

Typical problems with IT Cost Estimates Complex task Lagging experience Communication

Sample Cost Estimate

WBS items Project Managem ent Hardware Software #Units/ Hrs 1920 Cost/Unit/ Hr $175 Subtotals WBS Level 1 totals $306,300 % of total

144000

20%

104 100

$4600 4200

$76,000 $20000

$76000 $614000

5% 40%

Testing
Training and support

$69000

$69000

5%

2000

$1275

$156000

$202,400

13%

EARNED VALUE MANAGEMENT

Planned Value

Actual cost
Earned value Cost variance Schedule variance Cost performance index Schedule performance index

Earned Value calculations for One activity after week one

ACTIVITY Earned Value (EV) Planned Value (PV) Actual Cost (AC) Cost Variance( CV) Schedule Variance (SV) Cost Performance Index( CPI) WEEK 1 5000 10000 15000 -10000 -5000 33%

Schedule Performance Index(SPI)

50%

The earned value calculations for the above table are

Cost performance index

EV=10000 X 50% =5000 CV=5000-15000= -10000 SV=5000-10000= -5000 CPI=5000/15000 = 33% SPI=5000/10000 = 50%

Project Portfolio Management

Put all your projects in one database

Prioritize the projects in your database

Divide you projects into 2 or 3 budgets Automate the repository