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Project Cost Management

Participant’s Notes:

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 Project Cost Management

Participant’s Notes:
• Due to the iterative nature of projects,
the more we discover about the project,
__________________________ the more accurate our estimate will be.
Refining our data as we progressively
__________________________ elaborate our project plan produces a
more definitive estimate.
__________________________ • Tip: Spend only as much time estimating
as needed to make the business
__________________________ decision at hand. Estimating costs
money too!
__________________________ • Note: The PMBOK® Guide – Third
Edition, p. 161 cites slightly difference
__________________________ accuracy levels for a rough order of
magnitude estimate e.g. “…a project in
__________________________ the initiation phase could have a rough
order of magnitude (ROM) estimate in
the range of -50% to +100%. Later in the
__________________________ project, as more information is known,
estimates could narrow to a range of -
__________________________

__________________________

__________________________

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10% to +15%”.

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 Project Cost Management

Participant’s Notes:
• Indirect costs (continued)
________________________________
• Freight

________________________________ • Testing and inspection

• Spare parts
________________________________
• Insurance
________________________________
• Escalation

________________________________ • Permits and licenses

• Special packing
________________________________
• Special shipping
________________________________ • Duty

________________________________ • Exchange rate

________________________________

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 Project Cost Management

Participant’s Notes: • Since project managers often control

resources through the line managers
__________________________ rather than directly, project managers end
up controlling direct labor costs by
opening and closing work orders. Work
__________________________
orders define the charge numbers for
each cost account or management control
__________________________ point.

• By Dr. Kerzner’s definition, a cost account

__________________________ a.k.a control account (see PMBOK® Guide
– Third Edition, p. 355) is an identified
__________________________ level at a natural intersection point of the
work breakdown structure and the
__________________________ organizational breakdown structure (OBS)
at which functional responsibility for the
work is assigned, and actual direct labor,
__________________________ material, and other direct costs are
compared with actual work performed for
__________________________ management control purposes.

• Government sectors may refer to these

__________________________ management control points as control
account plans, or CAPS.
__________________________

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 IIL-CERT5

The Project Management Certificate

Program – 5 DAY

• The cost baseline is the total estimated cost of the project. During
project execution the budget is displayed graphically using an “S”
curve that indicates the accumulated actual costs of the project over a
period of time compared with the budgeted costs for that time period.
The “S” curve provides a “time- phased” view of the project costs and
budget. The “S” curve graphics will display a progressive summary of
costs over the life cycle of the project.
• Funding usually occurs in incremental or periodic amounts that are not
continuous, and, therefore, appears as a step function in the figure
above.

Project Cost Management 6-6

 Project Cost Management

Participant’s Notes: • Initially developed by the Department of

Defense (DOD) and called cost/schedule
control systems criteria (C/SCSC 35).
________________________________ Later modified by industry as the earned
value management system (EVMS 32)
________________________________ ANSI Standard 748.
• Earned value compares work that has
________________________________ been planned (what has been scheduled
to be completed within the measurement
________________________________ period) with work that has been done
(work performed within the measurement
period), and compares the planned cost of
________________________________ the work completed (what we had planned
to pay) with the actual cost of the work
________________________________ (what we actually paid).

________________________________

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 Project Cost Management

Participant’s Notes:
• EVM provides a useful
________________________________ method for looking at the
current status of the
schedule and cost for a
________________________________
project.

________________________________

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 Project Cost Management

Participant’s Notes:

________________________________

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©2015 Holcim Technology Ltd

 Project Cost Management

Participant’s Notes:
• Earned value management is a
________________________________ technique used to integrate, measure,
and report project performance for the
________________________________ project’s scope, schedule, and
resources. This technique allows the
project manager to relate project
________________________________ schedule, cost, and scope using specific
mathematical formulas, that, when used
________________________________ in calculations, will indicate where
variances to the plan exist and where
________________________________ corrective action may be required.

________________________________

________________________________

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 Project Cost Management

Participant’s Notes:
• Simply stated, earned value
management attempts to answer two
________________________________ questions:

________________________________ • Where are we today?

• Where will we end up?

________________________________
• The more frequently you address these
two questions, the easier it becomes to
________________________________
take the necessary corrective actions.
Variances from a baseline are easier to
________________________________ manage when the variances are small
and are detected early.
________________________________ • The formulas noted above are some of
the most commonly used.
________________________________

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 Project Cost Management

• If you plan to sit for the PMP® exam, you will want to memorize these
formulas.

Participant’s Notes:

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 Project Cost Management

• At some point in your project, you

Participant’s Notes: may be asked to determine an
estimate of the project or cost when
________________________________ it is completed. The estimate at
completion (EAC) is the projected
________________________________ final cost of the project based on
the information taken at the time of
measurement. It will be affected by
________________________________ overall project performance and
may change each time project
________________________________ performance is measured.
• The EAC is compared with the
________________________________ project’s budget at completion
(BAC) to determine how well the
project is expected to perform
________________________________ against the plan. The effectiveness
of the original estimating process
________________________________ used in project planning will be a
major factor in the degree of
variance.

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 Project Cost Management

Participant’s Notes:
• Although multiple formulae
________________________________ exist for calculating EAC, it is
important that whatever
formula is selected be used
________________________________
for the entire project.
Changing formulae during the
________________________________ project can lead to faulty
conclusions.
________________________________

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 Project Cost Management

Participant’s Notes: • Here is a summary of key

earned value management
________________________________ formula.

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 Project Cost Management

• To effectively assess project

Participant’s Notes: performance using earned value,
you must consider both cost and
________________________________ schedule. Earned value
management is a method that
________________________________ allows the project team to
effectively report how a project is
performing. This performance is in
________________________________ relation to cost and schedule at a
specific point in time. Earned
________________________________ value can predict the potential final
results of the project.
________________________________ • The technique literally provides an
overall project assessment at a
glance. Used correctly, EVM will
________________________________ identify if cost and schedule
variances have occurred and
________________________________ signal the project team to consider
possible actions that may be taken
to bring the project back on track
with the original plan.

©2015 Holcim Technology Ltd

 Project Cost Management

Participant’s Notes: • EVM may be used by different

participants based on the type of
contract.
________________________________
• With a fixed- price contract, the seller
is bearing the risk of increased cost,
________________________________ so the seller may use EVM to
maintain cost control.
________________________________ • With a cost- reimbursable contract,
the buyer has assumed some or all
________________________________ risk for cost growth, so the buyer
may use EVM to maintain cost
control.
________________________________

________________________________

________________________________

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 Project Cost Management

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