Download project scope management

PROJECT COST
MANAGEMENT
Ir. AGUNG NUGROHO, M.Kom
Teknik Elektro FT UNDIP
OVERVIEW
Project Management Knowledge Area
1.
2.
3.
4.
5.
6.
7.
8.
9.
Project Integration Management
Project Scope Management
Project Time Management
Project Cost Management
Project Quality Management
Project Human Resources Management
Project Communication Management
Project Procurement Management
Project Risk Management
OVERVIEW
How to Achieve Project Success?
By balancing stakeholders’ competing
demands for :
Cost
Time
Scope
Quality
PROJECT COST MANAGEMENT
Project Cost Management includes the
processes involved in planning, estimating,
budgeting, and controlling costs so that the
project can be completed within the approved
budget (PMBOK, Third Edition)
1. Cost Estimating
2. Cost Budgeting
3. Cost Controlling
PROJECT COST MANAGEMENT
1. Cost Estimating
Developing an approximation of the costs of the
resources needed to complete project activities
2. Cost Budgeting
Aggregating the estimated costs of individual
activities or work packages to establish a cost
baseline
3. Cost Controlling
Influencing the factors that create cost variances
and controlling changes to project budget
PROJECT COST MANAGEMENT
1. Cost Estimating
2. Cost Budgeting
3. Cost Controlling
PROCESS FLOW DIAGRAM
Project Cost Classification (1/3)
 Direct Cost
Direct
Materials
Direct Labor Cost
 Indirect Cost
Supervisory
Cost
Construction Equipment / Tools
 Overhead Cost
Office and its facilities
Benefits
Project Cost Classification (2/3)
Other Classification (1)
 Expenses
Office Facilities
 Transportation & Traveling
 Accommodation

 Personnel
Labor Cost
 Supervisory Cost

 Material Cost

Permanent Materials
 Subcontracting Cost

Works
Project Cost Classification (3/3)
Other Classification (2)
 Manpower (Direct & Indirect)
 Material (Direct & Indirect)
 Equipment
 Subcontracts
Factors Influencing Cost
 Type of Contract
Unit
Rate, Lump Sum, Cost Plus Fee
 Payment Terms
Down
Payment, Milestone, Periodic
 Scope of Responsibilities
Construction,
Design & Build (EPC), Turnkey, BOT
 Monetary Factors
Interest




Rate, Exchange Rate, Escalation Clause
Degree of Uncertainty (Risk Factor)
Project Implementation Period & Timing
Accessibility / Location
Constructability & Suitability of the Design
Cost Estimating
Cost Estimating
A good estimate depends on:
• Project Complexity and Size
• Requirements Stability
• Past Experience
• The Moment When the Estimate is Done
Cost Estimating Methods
 Analogous / Top-Down Estimating
 Using actual cost from previous, similar project as the
basis for estimating the current project (uses expert
judgment)
 Bottom-Up Estimating
 Estimate cost per individual or work package (based
on WBS) are rolled up to get a project total cost
 Parametric Estimating
 Use mathematical model to predict project cost (eq.
cost per linear meter or cost per installation)
Cost Estimate Accuracy
WBS
Level
Types of Estimates
Estimating
Methods
Data Collection
Contingency
Accuracy
(%)
1
Preliminary cost estimates
Parametric
Rough project scope
15 - 30
(-30 - +50)
2, 3
Budget Estimates
Analogy
Project scope & capacity
10 – 15
(-15 - +30)
General specification
Rough Unit Price
4, 5, 6
Definitive Cost Estimate
Project Data
Well-defined project plan
Vendor quotes
Specification
Unit Price
5 – 10
(-5 - +15)
Estimation Accuracy vs. Time
[Boehm et al., "Cost Models for Future Software Life Cycle Processes: COCOMO 2.0« , Annals of Software Engineering, 1995]
Cost Budgeting
Cost Budgeting Methods (1/2)
 Cost Aggregation
 Aggregated for the higher component level of the
WBS, such as control accounts
 Reserve Analysis
 Budget reserved for unplanned, but potentially
required, changes to project scope and cost. Project
Manager must obtain approval before obligating or
spending this reserve
 Parametric Estimating
 Use mathematical model to predict project cost (eq.
cost per linear meter or cost per installation)
Cost Budgeting Methods
8. Cost Budgeted
$1,423
7. Management Reserve
$68
6. Cost Baseline
$1,355
5. Contingency Reserve
$105
4. Project
$1,250
3. Control Account
2. Work Packages
1. Activities
(2/2)
$250
$25
$850
$400
$100
$500
$25
$25
$25
Cost Budgeting Outputs (1/3)
Cost Baseline

The cost baseline is a time-phased budget that is used as
basis against which to measure, monitor, and control overall
cost performance on the project
Project
End
Award
Preliminary
Budget
Project
Budget
2 – 3 months
After Detailed
Design
Control
Budget
Cost Budgeting Outputs (2/3)
 Project Funding Requirement
 Total and Periodic Funding Requirement are derived
from the cost baseline and can be established to
exceed, usually by margin, to allow for either early
progress or cost overruns.
 Usually Not-continuous, as step fuction
Cost Budgeting Outputs (3/3)
Cost Control
Cost Control
Project Cost Control includes:
 Influencing the factors that create changes to the cost baseline
 Ensuring requested changes are agreed upon
 Managing the actual changes when and as they occur
 Assuring that potential cost overruns
 Monitoring cost performance
 Recording all appropriate changes
 Preventing incorrect changes
 Informing appropriate stakeholders of approved changes
 Acting to bring expected cost overruns within acceptable limits
Cost Control
Input to Cost Control
 Performance reports
 Performance reports provide information on project scope
and cost performance, such as which budgets have been
met and which have not
 Performance reports may also alert the project team to
issues that may cause problems in the future
 Change requests
 Change requests may occur in many forms—oral or written,
direct or indirect, externally or internally initiated, and
legally mandated or optional
 Changes may require increasing the budget or may allow
decreasing it
Cost Control
Cost Reporting vs Cost Control
Cost Reporting
 Know
what has to be done (control estimate)
 Know what has been done (commitment record)
Know how much has been achieved (earned value)
 Know what remains to be done (forecast)

Cost Control
 Know
how performance compares to the budget
 Minimize cost overruns (corrective action)
 Check results of action taken (follow-up)
Performance Measurement Analysis
and Forecasting by EARNED VALUE
 Integrates scope, cost, and schedule measures to
help the project management team assess project
performance
 Methods of measuring project performance, by
comparing the amount of work planned with what
was actually accomplished to determine if cost and
schedule performance is as planned
 Enable the project manager to detect deviations
from plan as soon as the occur and to take
appropriate corrective action
EARNED VALUE ANALYSIS
Calculating 3 (three) keys values for each activity:
Planned Value (PV), also called the Budgeted Cost of
Work Scheduled (BCWS)
 Portion of the approved cost estimate planned to be spent
on the activity during a given period
Actual cost (AC), also called the Actual Cost of Work
Performed (ACWP)
 Total of direct and indirect costs incurred in accomplishing
work on the activity during a given period
Earned Value (EV), also called the Budgeted Cost of Work
Performed (BCWP)
 A percentage of the total budget equal to the percentage of
the work actually completed
EARNED VALUE –
Acronym
PV
Term
Planned Value
Terms to Know
Interpretation
What is the estimated value of the work planned to be done?
(BCWS = Budgeted Cost of Work Scheduled)
EV
Earned Value
What is the estimated value of the work actually
accomplished? (BCWP = Budgeted Cost of Work Performed)
AC
Actual Cost
What is the actual cost incurred for the work accomplished?
(ACWP = Actual Cost of Work Performed)
BAC
Budget at
Completion
How much did we BUDGET for the TOTAL project effort?
EAC
Estimate at
Completion
What do we currently expect to TOTAL project to cost?
ETC
Estimate to
Completion
From this point on, how much MORE do we expect it to cost
to finish the project?
VAC
Variance at
Completion
How much over or under budget do we expect to be at the
end of the project?
EARNED VALUE –
Name
Formula & Interpretation
Formula
Interpretation
Cost Variance (CV)
EV – AC
NEGATIVE = over budget
POSITIVE = under budget
Schedule Variance (CV)
EV – PV
NEGATIVE = behind schedule
POSITIVE = ahead of schedule
Cost Performance Index
(CPI)
EV
AC
We are getting $____ worth of work out of
every $ 1 spent. Funds are not being used
efficiently
Schedule Performance
Index (SPI)
EV
PV
We are progressing at ___ percent of the
rate originally planned
Estimate at Completion
(EAC)
There are many ways to
Calculate EAC, depending on
the assumptions made.
As of now, how much do we expect the total
project to cost? $____. See formulas at the
left
1.) BAC
CPI
- Used if no variances from BAC have
occurred or you will continue at the same
rate of spending.
EARNED VALUE –
Name
Formula & Interpretation
Formula
Interpretation
2.) AC + ETC
- Actual plus new estimate for remaining work.
Used when original estimate was fundamentally
flawed
3.) AC + (BAC – EV)
- Actual to date plus remaining budget. Used when
current variances are thought to be a typical of
the future. AC plus the remaining value of work
to perform
4.) AC + (BAC – EV)
CPI
- Actual to date plus remaining budget modified by
performance. Used when current variances are
thought to be typical of the future
Estimate to
Completion (ETC)
EAC – AC
How much more will the project cost?
Variance at
Completion (VAC)
BAC – EAC
How much over or under budget will we be at the
end of the project
EARNED VALUE –
Original Plan
EAC vs ETC
Today
BAC
PV
Current
AC
ETC
EAC
Graphics
Budget At
Completion
Schedule Variance
Cost Variance
Cumulative Value
Cost / Value
EARNED VALUE –
Data Date
Time
EARNED VALUE –
PV
EV
Graphics
AC
$4
BAC
EAC
cv3
sv3
$3
$2
$1
Period-1
Period-2
Period-3
Period-4
ETC3
EARNED VALUE –
CPI
SPI
SPI < 1
Behind Schedule
SPI = 1
On Schedule
SPI > 1
Ahead Schedule
CPI vs SPI
CPI < 1
CPI = 1
CPI > 1
Over Budget
On Budget
Under Budget
CPI < 1
SPI < 1
CPI = 1
SPI < 1
CPI > 1
SPI < 1
CPI < 1
SPI = 1
CPI = 1
SPI = 1
CPI > 1
SPI = 1
CPI < 1
SPI > 1
CPI = 1
SPI > 1
CPI > 1
SPI > 1
EARNED VALUE – example (1) CPI<1, SPI<1
Activity
Month-1
Month-2
Month-3
Month-4
Status End
of Month-3
House-1
Complete,
Spent $1,000
House-2
Complete,
Spent $1,100
House-3
50% done,
Spent $600
Not yet started
House-4
2,700
3,000
2,000
2,100
1,000
600
4,000
1,000
1,000
1,000
1,000
1,000
1,100
1,000
1,100
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
Month-1
Month-2
???
Month-3
Month-4
EARNED VALUE – example (1) CPI<1, SPI<1
What Is :
Calculation
Answer
Interpretation of the
answer
PV
1,000+1,000+1,000
3,000
We should have done
$3,000 worth of works
EV
Complete + Complete +
50% Done
1,000+1,000+500
2,500
We have actually
completed $2,500 worth of
work
AC
1,000+1,100+600
2,700
We have actually spent
$2,700
BAC
1,000+1,000+1,000+1,000
4,000
Our Project Budget is
$4,000
CV
2,500 – 2,700
– 200
We are over budget by
$200
CPI
2,500 / 2,700
0.926
We are only getting $0.926
out of every dollar we put
into the project
EARNED VALUE – example (1) CPI<1, SPI<1
What Is :
Calculation
Answer
Interpretation of the
answer
SV
2,500 – 3,000
– 500
We are behind schedule
SPI
2,500 / 3,000
0.833
We are only progressing
at 83.3% of the rate
planned
EAC
4,000 / 0.926
4,319
We currently estimate that
the total project will cost
$4,319
ETC
4,319 – 2,700
1,619
We need to spent $1,619
to finish the project
VAC
4,000 – 4,319
– 319
We currently expect to be
$319 over budget when
the project is completed
EARNED VALUE – example (1) CPI<1, SPI<1
PV
EV
$4,319
$4,000
$3,000
$2,000
$1,000
Month-1
Month-2
Month-3
Month-4
AC
EARNED VALUE – example (2) CPI>1, SPI>1
Activity
Month-1
Month-2
Month-3
Month-4
Status End
of Month-3
House-1
Complete,
Spent $1,000
House-2
Complete,
Spent $900
House-3
Complete,
Spent $900
House-4
50% done,
Spent $400
3,200
4,000
3,000
400
1,000
2,000
1,900
1,000
900
1,000
1,000
1,000
1,000
900
1,000
900
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
Month-1
Month-2
Month-3
???
Month-4
EARNED VALUE – example (2) CPI>1, SPI>1
What Is :
Calculation
Answer
Interpretation of the
answer
PV
1,000+1,000+1,000
3,000
We should have done
$3,000 worth of works
EV
Complete + Complete +
Complete + 50% Done
1,000+1,000+1,000+500
3,500
We have actually
completed $3,500 worth of
work
AC
1,000+900+900+400
3,200
We have actually spent
$3,200
BAC
1,000+1,000+1,000+1,000
4,000
Our Project Budget is
$4,000
CV
3,500 – 3,200
300
CPI
3,500 / 3,200
1.094
We are under budget by
$300
We are getting $1.094 out
of every dollar we put into
the project
EARNED VALUE – example (2) CPI>1, SPI>1
What Is :
Calculation
Answer
Interpretation of the
answer
SV
3,500 – 3,000
500
SPI
3,500 / 3,000
1.167
We are progressing at
116.7% of the rate planned
EAC
4,000 / 1.094
3,656
We currently estimate that
the total project will cost
$3,656
ETC
3,656 – 3,200
456
We need to spent $456 to
finish the project
VAC
4,000 – 3,656
344
We currently expect to be
$344 under budget when
the project is completed
We are ahead of schedule
EARNED VALUE – example (2) CPI>1, SPI>1
PV
EV
AC
$4,000
$3,656
$3,000
$2,000
$1,000
Month-1
Month-2
Month-3
Month-4
EARNED VALUE – example (3) CPI>1, SPI<1
Activity
Month-1
Month-2
Month-3
Month-4
Status End
of Month-3
House-1
Complete,
Spent $1,000
House-2
Complete,
Spent $900
House-3
50% done,
Spent $400
Not yet started
House-4
4,000
3,000
2,300
1,000
2,000
1,900
1,000
400
1,000
1,000
1,000
1,000
900
1,000
900
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
Month-1
Month-2
Month-3
???
Month-4
EARNED VALUE – example (3) CPI>1, SPI<1
What Is :
Calculation
Answer
Interpretation of the
answer
PV
1,000+1,000+1,000
3,000
We should have done
$3,000 worth of works
EV
Complete + Complete + 50%
Done
1,000+1000+500
2,500
We have actually
completed $2,500 worth of
work
AC
1,000+900+400
2,300
We have actually spent
$2,300
BAC
1,000+1,000+1,000+1,000
4,000
Our Project Budget is
$4,000
CV
2,500 – 2,300
200
CPI
2,500 / 2,300
1.087
We are under budget by
$200
We are getting $1.087 out
of every dollar we put into
the project
EARNED VALUE – example (3) CPI>1, SPI<1
What Is :
Calculation
Answer
Interpretation of the
answer
SV
2,500 – 3,000
– 500
We are behind schedule
SPI
2,500 / 3,000
0.833
We are only progressing at
83.3% of the rate planned
EAC
4,000 / 1.087
3,680
We currently estimate that
the total project will cost
$3,680
ETC
3,680 – 2,300
1,380
We need to spent $1,380 to
finish the project
VAC
4,000 – 3,680
320
We currently expect to be
$320 under budget when
the project is completed
EARNED VALUE – example (3) CPI>1, SPI<1
PV
EV
$4,000
$3,680
$3,000
$2,000
$1,000
Month-1
Month-2
Month-3
Month-4
AC
EARNED VALUE – example (4) CP<1, SPI>1
Activity
Month-1
Month-2
Month-3
Month-4
Status End
of Month-3
House-1
Complete,
Spent $1,000
House-2
Complete,
Spent $1,100
House-3
Complete,
Spent $1,100
House-4
50% done,
Spent $500
3,700
500
2,100
1,000
1,100
1,000
1,000
1,000
1,000
1,100
1,000
1,100
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
Month-1
Month-2
???
1,000
3,000
2,000
4,000
Month-3
Month-4
EARNED VALUE – example (4) CP<1, SPI>1
What Is :
Calculation
Answer
Interpretation of the
answer
PV
1,000+1,000+1,000
3,000
We should have done
$3,000 worth of works
EV
Complete + Complete +
Complete + 50% Done
1,000+1,000+1,000+500
3,500
We have actually
completed $3,500 worth of
work
AC
1,000+1,100+1,100+500
3,700
We have actually spent
$3,700
BAC
1,000+1,000+1,000+1,000
4,000
Our Project Budget is
$4,000
CV
3,500 – 3,700
– 200
We are over budget by
$200
CPI
3,500 / 3,700
0.946
We are only getting $0.946
out of every dollar we put
into the project
EARNED VALUE – example (4) CP<1, SPI>1
What Is :
Calculation
Answer
Interpretation of the
answer
SV
3,500 – 3,000
500
SPI
3,500 / 3,000
1.167
We are progressing at
116.7% of the rate planned
EAC
4,000 / 0.946
4,228
We currently estimate that
the total project will cost
$4,228
ETC
4,228 – 3,700
528
VAC
4,000 – 4,228
– 228
We are ahead of schedule
We need to spent $528 to
finish the project
We currently expect to be
$228 over budget when the
project is completed
EARNED VALUE – example (4) CP<1, SPI>1
PV
EV
AC
$4,228
$4,000
$3,000
$2,000
$1,000
Month-1
Month-2
Month-3
Month-4
ECONOMIC ANALYSIS STANDARDS
 Present Value : (PV) = FV/(1+r)n
 Net Present Value (NPV) : The present value of the total benefits




(income or revenue) less the cost. Higher NPV is better
Internal Rate of Return (IRR) : Refer to the interest rate in
financial market. Higher IRR is better
Payback Period : The number of periods it takes to recover your
investment.
Benefit Cost Ratio (BCR) : Benefit to cost comparison. BCR>1 =
benefits are greater then the cost. BCR<1 = the cost are greater
then the benefits
Opportunity Cost : Cost opportunity given up by selecting one
project over another
Thank You