Project Financial and Cost Management

FIN 628

Dr. Hatim Bukhari

 Technical Project Management

The Cost Management Process

K. Peng
 Important Cost Management Concepts
“Life Cycle Costing”

• Looking at costs over the entire life of the product, not just the cost of the project.
• For example, reduce quality to save $9,000 on project cost, and maintenance costs are $100,000
over the life of the product
• Where maintenance could cost $20,000 if the quality was not reduced
• The $9,000 project "savings" cost the company S80,000 (or $71,000 in additional cost).
 Important Cost Management Concepts
“Value Analysis or Value Engineering”

• Its focus is on finding a less costly way to do the same work. "How can we decrease cost on the
project while maintaining the same scope?"
• Value analysis refers to finding ways provide required features at the lowest overall cost without
loss of performance.
 Technical Project Management

K. Peng
Plan Cost Management
Plan Cost Management

• The process that

establishes the policies,
procedures, and
documentation for
planning, managing,
expending, and
controlling project costs.
The project charter provides the preapproved financial resources from
which the detailed project costs are developed. The project charter also
defines the project approval requirements that will influence the
management of the project costs.

The schedule management plan establishes the criteria and the

activities for developing, monitoring, and controlling the schedule. The
schedule management plan provides processes and controls that will
impact cost estimation and management.
 The risk management plan provides the approach for identifying,
analyzing, and monitoring risks. The risk management plan provides
processes and controls that will impact cost estimation and
management.
The enterprise environmental factors that can influence the Plan
Cost Management process include:
• Market conditions describe what products, services, and results
are available in the regional and global markets.
• Currency exchange rates for project costs.
• Databases that track skills and human resource costs and provide
standard costs for material and equipment.
• Published seller price lists.
• Productivity differences in different parts of the world can have a
large influence on the cost of projects
The organizational process assets that can influence the Plan Cost
Management process include:
• Financial controls procedures (e.g., time reporting, required
expenditure and disbursement reviews, accounting
• Codes, and standard contract provisions
• Historical information and lessons learned repository
• Financial databases
• Existing formal and informal cost estimating and budgeting-
related policies, procedures, and guidelines.
A data analysis technique that
can be used for this process Expert Judgment should be
includes alternatives analysis. considered from individuals or groups
Alternatives analysis can with specialized knowledge or training
include reviewing strategic in the following topics:
funding options such as: self-
• Previous similar projects
funding, funding with equity,
or funding with debt. • Information in the industry,
discipline, and application area
It can also include
consideration of ways to • Cost estimating and budgeting
acquire project resources such
• Earned value management.
as making, purchasing, renting,
or leasing.
 Project teams may hold planning
meetings to develop the cost
management plan. Attendees may
include the project manager, the
project sponsor, selected project team
members, selected stakeholders,
anyone with responsibility for project
costs, and others as needed
 The cost management processes and their associated tools and techniques are
documented in the cost management plan. It should establish the following:
• Units of measure: Each unit used in measurements (such as staff hours, staff days, or
weeks for time measures; meters, liters; or lump sum in currency form) is defined for
each of the resources.
• Level of precision: This is the degree to which cost estimates will be rounded up or
down (e.g., US$995.59 to US$1,000), based on the scope of the activities and
magnitude of the project.
• Level of accuracy: The acceptable range (e.g., ±10%) used in determining realistic
cost estimates is specified, and may include an amount for contingencies.
• Reporting formats: The formats and frequency for the cost reports are defined.
• Organizational procedures links: The work breakdown structure (WBS) provides
the framework for the cost management plan. The WBS component used for the
project cost accounting is called the control account. Each control links directly to
the performing organization’s accounting system.
• Control thresholds: Variance thresholds for monitoring cost performance
specified to indicate anagreed-upon amount of variation to be allowed before
some action needs to be taken. Thresholds are typically expressed as percentage
deviations from the baseline plan.
• Additional details: Additional details about cost management activities include
but are not limited to:
• Description of strategic funding choices,
• Procedure to account for fluctuations in currency exchange rates
• Procedure for project cost recording.
• Rules of performance measurement: Earned value management (EVM)
rules of performance measurement are set. For example, the cost
management plan may:
• Define the points in the WBS at which measurement of control
accounts will be performed;
• Establish the EVM techniques (e.g., weighted milestones, fixed-formula,
percent complete, etc.) to be employed
• Specify tracking methodologies and the EVM computation equations
for calculating projected estimate at completion (EAC) forecasts to
provide a validity check on the bottom-up EAC.
 Technical Project Management

K. Peng
Estimate Costs
 What Costs Should be Estimated?
The costs of all efforts to complete the projects includes:
• Costs directly associated with the project such as labor, equipment, material, and training
• Cost of quality efforts
• Cost of risk efforts
• Cost of the project managers time
• Cost of project management activities
• Expenses for physical office space used directly for the project
• Overhead cost such as management salaries and general office expenses
• Procurement costs
 Types of Costs

• Variable and fixed costs

• Variable costs change with the amount of production or the amount of work
• The cost of material, supplies, and wages
• Fixed costs do not change as production change
• The cost of set up, rent, and utilities

• Direct and indirect

• Direct cost are costs that can be directly related to producing the deliverable of the project
• Team wages team travel, recognition expenses, and cost of material used on the project
• Indirect cost are not directly related to the project deliverables, but indirectly related to performing the project
• Cost of electricity, Internet, rent and officesupplies.
• The process of
developing an
approximation of
the monetary
resources needed
to complete
project activities.
Cost management plan describes estimating methods
that can be used and the level of precision and
accuracy required for the cost estimate.

Quality management plan describes the activities and

resources necessary for the project management team to
achieve the quality objectives set for the project.
Scope baseline includes the project scope statement, WBS, and WBS dictionary:
• Project scope statement reflects funding constraints by period for the
expenditure of project funds or other financial assumptions and constraints.
• Work breakdown structure provides the relationships among all the project
deliverables and their various components.
• WBS dictionary provides an identification of the deliverables and a
description of the work in each WBS component required to produce each
deliverable.
 Lessons learned earlier in the project regarding developing cost estimates or
previous projects can be applied to later phases in the project to improve the
accuracy and precision of the cost estimates.

Project schedule includes the type, quantity, and amount of time that team and
physical resources.
• Adjust schedule according to price changing forecast
• Develop time-phased spending plan
Resource requirements identify the types and quantities of resources required
for each work package or activity

The risk register contains details of individual project risks that have been
identified and prioritized, and for which risk responses are required.
 The enterprise environmental factors include but are not limited to:
• Market conditions: products, services, and results available in the market. From whom,
and under what terms and conditions. Regional and/or global supply and demand
• Published commercial information from commercial databases that track skills and
human resource costs, and provide standard costs for material and equipment.
• Exchange rates and inflation: fluctuations of currencies and inflation need to be
understood and built into the Estimate Cost process.

The organizational process assets include cost estimating policies, cost estimating templates, and
historical information and lessons learned repository.
Expertise should be considered
from individuals or groups with
specialized knowledge or training
in the following topics:
• Previous similar projects;
• Information in the
industry, discipline, and
application area
• Cost estimating methods
Analogous (Top-Down) cost
estimating uses values, or
attributes, of a previous project
that are similar to the current
project
• less costly and less time-
consuming
• less accurate
Parametric estimating uses a
statistical relationship between
historical data and other variables
(e.g., square footage in construction)
to calculate an estimate for activity
cost.
Costs can be quantitatively
determined by multiplying the
quantity of work to be performed by
the cost of labor per unit of work
Bottom-up estimating is a method of estimating
project duration or cost by aggregating the
estimates of the lower-level components of the
WBS.
When an activity’s duration or cost cannot be
estimated with a reasonable degree of
confidence, the work within the activity is
decomposed into more detail. The detail
durations and cost are estimated. These
estimates are then aggregated into a total
quantity for each of the activity’s durations.
 Exercise

What are the advantages and disadvantages of

Analogous cost estimating?
 Analogous cost estimating
Technical Project Management

Advantages Disadvantages
• Quick • Less accurate
• Activities do not need to be identified • Estimates are prepared with a limited amount of detailed
• Less costly to create information and understanding of the project or key
• Cost constraints created by management and project deliverable
initiating give the project manager data to evaluate high • Requires considerable experience to do well
level project feasibility • There may be in fighting to gain the biggest piece of the
• Overall project costs will be capped for a project budget without being able to justify the need
analogous estimates • Extremely difficult for projects with uncertainty or where there
is no history of similar project for the subject matter expert to
referrers
• Do not take into account the differences between projects
K. Peng
 Exercise

What are the advantages and disadvantages of

Bottom-up estimating?
 Bottom-up estimating

Advantages Disadvantages
• More Accurate as it uses analogous 3 point or • Takes time on money to use this estimating
parametric estimating at the activity level technique
• gains by in from the team because the team • tendency for the team to pad estimates unless they
creates estimates they can live with understand the use of reserves
• based on a detailed analysis of the project and • requires that the project be defined and well
the deliverables understood before estimating begins
• provides a basis for monitoring and controlling • requires time to break the project down into smaller
performance measurement and management pieces
Three-point estimates helps define an
approximate range for an activity’s duration:
• Most likely (tM)
• Optimistic (tO)
• Pessimistic (tP)
• (Beta Distribution)Weighted Average
(P+4M+O)/ 6
• (Triangular Distribution)( P+M+O) / 3
Alternatives analysis is a technique used to evaluate
identified options in order to select which options
or approaches to use to execute and perform the
work of the project.
An example would be evaluating the cost, schedule,
resource, and quality impacts of buying versus
making a deliverable.
Reserve analysis: cost estimates may include
contingency reserves (sometimes called
contingency allowances) to account for cost
uncertainty.
Contingency reserves are the budget within the
cost baseline that is allocated for identified risks.
Management Reserve is for the unknown risks by
management for whole project
Cost of quality: the cost of work added to the
project to accommodate quality efforts should be
added to the project estimates.
This includes evaluating the cost impact of
additional investment in conformance versus the
cost of nonconformance.
• Cost Of Conformance
• Cost Of Non Conformance
The project management information system can
include spreadsheets, simulation software, and
statistical analysis tools to assist with cost
estimating. Such tools simplify the use of some cost-
estimating techniques and thereby facilitate rapid
consideration of cost estimate alternatives.
The decision-making techniques that can be used
in the Estimate Costs process include but are not
limited to voting.
Voting is an assessment process having multiple
alternatives with an expected outcome in the form
of future actions. These techniques are useful for
engaging team members to improve estimate
accuracy and commitment to the emerging
estimates.
Cost estimates include quantitative assessments of:
• Costs required to complete project work
• Contingency amounts to account for identified risks
• Management reserve to cover unplanned work
• Cost estimates can be presented in summary form or in
detail. It includes:
• Direct labor, materials, equipment, services, facilities,
information technology, and special categories such as
cost of financing
The supporting documentation should provide a clear and complete
understanding of how the cost estimate was derived.
Supporting detail for cost estimates may include:
• Documentation of the basis of the estimate (i.e., how it was developed)
• Documentation of all assumptions made
• Documentation of any known constraints
• Documentation of identified risks included when estimating costs
• Indication of the range of possible estimates (e.g., US$10,000 (±10%) to
indicate that the item is expected to cost between a range of values)
• Indication of the confidence level of the final estimate.
Project documents that may be updated as a result of carrying out this
process include but are not limited to:
• Assumption log: new assumptions may be made, new constraints
may be identified, and existing assumptions or constraints may be
revisited and changed. The assumption log should be updated with
this new information.
• Lessons learned register can be updated with techniques that were
efficient and effective in developing cost estimates.
• Risk register: The risk register may be updated when appropriate risk
responses are chosen and agreed upon during the Estimate Cost
process.
 Technical Project Management

K. Peng
Determine Budget
The process of aggregating
the estimated costs of
individual activities or work
packages to establish an
authorized cost baseline
The cost management plan describes how the project costs
will be structured into the project budget.
Resource management plan provides information on rates
(personnel and other resources), estimation of travel costs, and
other foreseen costs that are necessary to estimate the overall
project budget.
Scope baseline includes the project scope statement, WBS, and
WBS dictionary details for cost estimation and management.
Basis of estimates supporting detail for cost estimates contained in the basis for
estimates should specify any basic assumptions dealing with the inclusion or
exclusion of indirect or other costs
in the project budget.

Cost estimates for each activity within a work package are aggregated to obtain a cost
estimate for each work package.

Project schedule includes planned start and finish dates

for the project’s activities, milestones, work packages, and control accounts. This
information can be used to aggregate costs to the calendar periods in which the costs
are planned to be incurred.

Risk register should be reviewed to consider how to aggregate the risk response
costs. Updates to the risk register are included with project documents updates.
Business case identifies the critical success factors for the project,
including financial
success factors.

Benefits management plan includes the target benefits, such as net

present
value calculations, timeframe for realizing benefits, and the metrics
associated with the benefits.
Agreements’ information and costs relating to products, services, or results that have
been or will be purchased are included when determining the budget.

The enterprise environmental factors that can influence the Estimate Costs process
include but are not limited to exchange rates. For large-scale projects that extend
multiple years with multiple currencies, the fluctuations of currencies need to be
understood and built into the Determine Budget process.

The organizational process assets that can influence the Determine Budget process
include but are not limited to:
• Existing formal and informal cost budgeting-related policies, procedures, and
guidelines;
• Historical information and lessons learned repository.
• Cost budgeting tools; and
• Reporting methods.
Expertise should be considered from individuals or
groups with specialized knowledge or training in the
following topics:
• Previous similar projects;
• Information in the industry, discipline, and
application area;
• Financial principles; and
• Funding requirement and sources.
Cost estimates are aggregated by work packages in
accordance with the WBS. The work package cost
estimates are then aggregated for the higher
component levels of the WBS (such as control
accounts) and, ultimately, for the entire project.
Reserve analysis establishes the management
reserves for the project. Management reserves are an
amount of the project budget withheld for
management control purposes and are reserved for
unforeseen work that is within scope of the project.
Management reserves are intended to address the
unknown unknowns that can affect a project.
Reviewing historical information can assist in The expenditure of funds should be reconciled with
developing parametric estimates or analogous any funding limits on the commitment of funds for
estimates. Historical information may include the project.
project characteristics (parameters) to develop
mathematical models to predict total project A variance between the funding limits and the
costs. Such models may be simple (e.g., residential planned expenditures will sometimes necessitate
home construction is based on a certain cost per the rescheduling of work to level out the rate of
square foot of space) or complex (e.g., one model expenditures. This is accomplished by placing
of software development costing uses multiple imposed date constraints for work into
separate adjustment factors, each of which has the project schedule.
numerous points within it).

Financing entails acquiring funding for projects. It is common for long-term infrastructure, industrial,
and public services projects to seek external sources of funds. If a project is funded externally, the
funding entity may have certain requirements that are required to be met.
The cost baseline is the approved version of the time-phased project budget, excluding any
management reserves, which can only be changed through formal change control
procedures. It is used as a basis for comparison to actual results. The cost baseline is
developed as a summation of the approved budgets for the different schedule activities.
Total funding requirements and periodic funding requirements (e.g., quarterly, annually) are
derived from the cost baseline. The cost baseline will include projected expenditures plus
anticipated liabilities. Funding often occurs in incremental amounts, and may not be evenly
distributed. The total funds required are those included in the cost baseline plus management
reserves, if any. Funding requirements may include the source(s) of the funding.

• Cost estimates are updated to record any additional information.

• Project schedule: Estimated costs for each activity may be recorded as part of
the project schedule.
• Risk register: New risks identified during this process are recorded in the risk
register and managed using the risk management processes.
 Technical Project Management

K. Peng
Control Costs
The process of monitoring
the status of the project to
update the project costs
and managing changes to
the cost baseline
 Important Concepts in Cost Monitoring
• Any increase to the authorized budget can only be approved through the Perform Integrated
Change Control process.
• Monitoring the expenditure of funds without regard to the value of work being accomplished
for such expenditures has little value to the project.
• Much of the effort of cost control involves analyzing the relationship between the consumption
of project funds and the work being accomplished for such expenditures.
• The key to effective cost control is the management of the approved cost baseline.
 Project cost control includes:
• Influencing the factors that create changes to the authorized cost baseline;
• Ensuring that all change requests are acted on in a timely manner;
• Managing the actual changes when and as they occur;
• Ensuring that cost expenditures do not exceed the authorized funding by period, by WBS
component, by activity, and in total for the project;
• Monitoring cost performance to isolate and understand variances from the approved cost
baseline
 Project cost control includes:
• Monitoring work performance against funds expended;
• Preventing unapproved changes from being included in the reported cost or resource usage;
• Informing appropriate stakeholders of all approved changes and associated cost; and
• Bringing expected cost overruns within acceptable limits.
Cost management plan describes how the project
costs will be managed and controlled.

Cost baseline is compared with actual results to determine if a

change, corrective action, or preventive action is necessary.

Performance measurement baseline is needed when using earned

value analysis, the performance measurement baseline is compared
to actual results to determine if a change, corrective action, or
preventive action is necessary.
Work performance data contains data on project status such as
which costs have been authorized, incurred, invoiced, and paid.

The organizational process assets that can influence the Control

Costs process include:
• Existing formal and informal cost control-related policies,
procedures, and guidelines;
• Cost control tools; and
• Monitoring and reporting methods to be used.
Earned value analysis compares the
performance measurement baseline to the Examples of expert judgment during the
actual schedule and cost performance. Control Costs process include:
• Variance analysis,
EVM integrates the scope baseline with the • Earned value analysis,
cost baseline and schedule baseline to form • Forecasting, and
the performance measurement baseline. • Financial analysis.

EVM develops and monitors three key

dimensions for each work package and
control account:
• Planned value (PV)
• Earned value (EV)
• Actual cost (AC)
 Earned Value Management
• EVM is a Project Performance Measurement technique that integrates scope, time,& cost data.
Acronym Term Interpretation
PV Planed Value Authorized budget for work scheduled
EV Earned Value Budget cost for work done.
AC Actual Cost Actual cost incurred for the work accomplished.
BAC Budget At Completion Budget for the total project effort.
EAC Estimate At Completion Expectation of the total project to cost (a forecast).
ETC Estimate To Complete How much more do we expect it to cost to finish the project (a forecast) ?
VAC Variance At Completion How much over or under budget do we expect to be at the end of the project?
 Variance analysis
• Variance analysis, as used in EVM, is the explanation (cause, impact, and corrective actions) for cost (CV = EV –
AC), schedule (SV = EV – PV), and variance at completion (VAC = BAC – EAC) variances. Examples of variance
analysis include:
• Schedule variance (SV) is a measure of schedule performance expressed
. as the difference between the earned value and the planned value.

• Cost variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed
. as the difference between earned value and the actual cost.

• The schedule performance index (SPI) is a measure of schedule efficiency expressed as the ratio of
. earned value to planned value.

• The cost performance index (CPI) is a measure of the cost efficiency of budgeted
. resources, expressed as a ratio of earned value to actual cost.
 Cost Variance

CV = EV – AC
• The difference between Earned Value and Actual Cost
• Negative value = Cost Overrun or over budget
• Positive value = on or under cost or under budget
• Are we under or over budget? 1.0 or greater is good
 Schedule Variance

SV = EV – PV
• The difference between Earned Value and Planned Cost
• Negative value = behind schedule
• Positive value = on or ahead of schedule
• Are we ahead or behind schedule? 1.0 or greater is good
 Cost Performance Index

CPI = EV / AC
• The ratio of Earned Value to Actual Cost
• Value <1= Cost over budget
• Value >1= Cost below budget
• How efficiently are we using our resources
• Ex: We are only getting about 89 cents out of every dollar we put into the project –THIS IS BAD
 Schedule Performance Index

SPI = EV / PV
• The ratio of Earned Value to Planned Value
• Value <1= behind schedule
• Value > 1 = on or ahead of schedule
• How efficiently are we using time
• Ex: We are only progressing at about 83 percent of the rate planned –THIS IS BAD
 Exercise
• A project is estimated to cost $50,000 with a timeline of 50 days. After 25 days, the project
manager finds that 50% of the project is complete and Actual costs are $50,000. What is the
Cost Performance Index (CPI) ?

• The CPI is 1
• The CPI is 2
• The CPI is 0.5
• The CPI is 1.5
 Exercise
• If earned value (EV) = 350, actual cost (AC) = 400, and planned value (PV) = 325,
what is cost variance (CV)?

• A.350
• B. -75
• c. 400
• D. -50
 Estimate At Completion (1)

EAC = BAC / CPI

• The ratio of Budget at Completion to Cost Performance Index
• This formula is used if no variances from the BAC have occurred
• This formula is used if you will continue typically at the same rate of spending ( same
performance ).
• Default way if exam mentioned nothing.
• Past performance will be typically in future.
 Estimate At Completion (2)

EAC = AC+ ETC (bottom-up)

• This formula calculates actual costs to date +a new estimate for the remaining work.
• It is used when the original estimate was fundamentally flawed.
• It is used when your plan is no longer valid
 Estimate At Completion (3)

EAC = AC+ (BAC - EV)

• This formula calculates Actual Costs +Remaining Budget.
• It is used when current variances are thought to be a typical of the future.
• It is used if you will follow plan.
• It accepts the actual project performance to date (whether favorable or unfavorable)
 Estimate At Completion (4)
𝐵𝐴𝐶−𝐸𝑉
EAC = AC +
CPI X SPI
• ETC work will be performed at an efficiency rate that considers both the cost and schedule
performance.
• It is used when current variances are thought to be typical of the future and when project
schedule constraints will influence the completion of the remaining effort.
• Example, it might be used when the cumulative CPI is less than one and a firm completion date
must be met.
 Summary of EAC Cases

• The CPI is expected to be the same for the remainder of the project, EAC = BAC/CPI

• The future work will be accomplished at the planned rate, EAC = AC + BAC – EV

• The initial plan is no longer valid, EAC = AC + Bottom-up ETC

• Both the CPI and SPI influence the remaining work, EAC = AC + [(BAC – EV)/(CPI x SPI)]
 Exercise
Assume 4 equal sides, budget 200$ per side, schedule 1 side per day. Finish 4 days & cost 800$.

• Day1: side 1 complete, budget of 200$ spent.

• Day2: side 2 started but not complete, Incurred cost will be 220$

• Day3: side 2 completed, and half of side 3 completed but team left early and only spent 140$
 Exercise

Assume 4 equal sides, budget 200$

per side, schedule 1 side per day.
Finish 4 days & cost 800$.
• Day1: side 1 complete, budget of 200$
spent.
• Day2: side 2 started but not complete,
Incurred cost will be 220$
• Day3: side 2 completed, and half of side 3
completed but team left early and only
spent 140$
 Exercise
Project of Highway Paving 100 Km; for each 10 Km we need a month with cost 100 k$, total project
budget is 1 million and duration 10 Month.
• MONTH1: 10 km complete, budget of 90k spent.
• MONTH2: 15 km complete, budget of 150k spent.
• MONTH3: 15 km complete, budget of 110k spent.
• MONTH4: 10 km complete, budget of 100k spent.

• Where we are now? Ahead or Behind

 Exercise
Project of Highway Paving 100 Km; for each 10 Km we need a month with cost 100 k$, total project
budget is 1 million and duration 10 Month.
• MONTH1: 10 km complete, budget of 90k spent.
• PV = 100 + 100 + 100 + 100 = 400 k
• MONTH2: 15 km complete, budget of 150k spent. • EV = (10+15+15+10)=50 km * 100k = 500k
• MONTH3: 15 km complete, budget of 110k spent. • AC = 90 + 150 + 110 + 100 = 450 k
• MONTH4: 10 km complete, budget of 100k spent. • CV = EV-AC = 500 – 450 = 50
• SV =EV-PV = 500 – 400 = 100
• CPI = EV/AC = 500 /450 = 1.1
• SPI = EV/PV = 500 / 400 = 1.25
 Variance at Completion

VAC = BAC − EAC

• The difference between the Budget at Completion and the Estimate at Completion ratio.
• This is a variance formula.
• Ex : As of today will we be under or over budget at the end of the project.
Work performance information includes information on how the
project work is performing compared to the cost baseline.

Variances in the work performed and the cost of the work are evaluated
at the work package level and control account level.

For projects using earned value analysis, CV, CPI, EAC, VAC, and TCPI
are documented for inclusion in work performance reports

Cost Forecast: Either a calculated EAC value or a bottom-up EAC value

is documented and communicated to stakeholders.
Change requests: Analysis of project performance may result in a change
request to the cost and schedule baselines or other components of the
project management plan. Change requests are processed for review and
disposition through the Perform Integrated Change Control process.
Cost management plan changes such as changes to control thresholds or specified
levels of accuracy required in managing the project’s cost, are incorporated

Cost baseline changes are incorporated in response to approved changes in scope,

resources, or cost estimates. In some cases, cost variances can be so severe that a
revised cost baseline is needed to provide a realistic basis for performance
measurement.

Performance measurement baseline changes are incorporated in response to

approved changes in scope, schedule performance, or cost estimates. In some cases,
the performance variances can be so severe that a change request is put forth to
revise the performance measurement baseline to provide a realistic basis for
performance measurement.
• Assumption log: Cost performance may indicate the need to revise
assumptions on resource productivity and other factors influencing cost
performance.
• Basis of estimates: Cost performance may indicate the need to revisit the
original basis of estimates.
• Cost estimates: Cost estimates may need to be updated to reflect the actual
cost efficiency for the project.
• Lessons learned register can be updated with techniques that were effective
in maintaining the budget, variance analysis, earned value analysis,
forecasting, and corrective actions that were used to respond to cost variances.
• Risk register may be updated if the cost variances have crossed, or are likely
to cross, the cost threshold.