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PROJECT COST MANAGEMENT

PROJECT COST MANAGEMENT. OVERVIEW. Project Management Knowledge Area Project Integration Management Project Scope Management Project Time Management Project Cost Management Project Quality Management Project Human Resources Management Project Communication Management

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PROJECT COST MANAGEMENT

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  1. PROJECT COST MANAGEMENT Teknik Elektro FT UNDIP

  2. OVERVIEW Project Management Knowledge Area 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

  3. OVERVIEW How to Achieve Project Success? By balancing stakeholders’ competing demands for : Cost Time Scope Quality

  4. PROJECT COST MANAGEMENT Project Cost Managementincludes the processes involved in planning, estimating, budgeting, and controlling costs so that the project can be completed within the approved budget(PMBOK, Third Edition) Cost Estimating Cost Budgeting Cost Controlling

  5. 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

  6. PROJECT COST MANAGEMENT • Cost Estimating • Cost Budgeting 3. Cost Controlling

  7. PROCESS FLOW DIAGRAM

  8. 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

  9. 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

  10. Project Cost Classification (3/3) Other Classification (2) • Manpower (Direct & Indirect) • Material(Direct & Indirect) • Equipment • Subcontracts

  11. 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

  12. Cost Estimating

  13. Cost Estimating • A good estimate depends on: • Project Complexity and Size • Requirements Stability • Past Experience • The Moment When the Estimate is Done

  14. 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)

  15. Cost Estimate Accuracy

  16. Estimation Accuracy vs. Time [Boehm et al., "Cost Models for Future Software Life Cycle Processes: COCOMO 2.0« , Annals of Software Engineering, 1995]

  17. Cost Budgeting

  18. 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)

  19. Cost Budgeting Methods (2/2) 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 $850 $400 2. Work Packages $250 $100 $500 1. Activities $25 $25 $25 $25

  20. 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 Control Budget 2 – 3 months After Detailed Design

  21. 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

  22. Cost Budgeting Outputs (3/3)

  23. Cost Control

  24. Cost Control • Project Cost Control includes: • Influencingthe factors that create changes to the cost baseline • Ensuringrequested changes are agreed upon • Managingthe actual changes when and as they occur • Assuringthat potential cost overruns • Monitoringcost performance • Recordingall appropriate changes • Preventingincorrect changes • Informingappropriate stakeholders of approved changes • Actingto bring expected cost overruns within acceptable limits

  25. 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

  26. Cost Control

  27. 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)

  28. 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

  29. 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

  30. EARNED VALUE –Terms to Know

  31. EARNED VALUE –Formula & Interpretation

  32. EARNED VALUE –Formula & Interpretation

  33. EARNED VALUE –EAC vs ETC Original Plan Today BAC PV Current ETC EAC AC

  34. EARNED VALUE –Graphics Cost / Value Budget At Completion Planned Value Schedule Variance Cost Variance Earned Value Cumulative Value Actual Cost Time Data Date

  35. PVEVAC EARNED VALUE –Graphics $ 4 BAC EAC ETC3 cv3 sv3 $ 3 $ 2 $ 1 Period-1 Period-3 Period-4 Period-2

  36. EARNED VALUE –CPI vs SPI

  37. 1,100 1,000 1,000 1,000 1,000 1,000 1,100 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 EARNED VALUE –example (1)CPI<1, SPI<1 4,000 ??? 2,700 3,000 600 2,100 2,000 1,000 1,000 Month-3 Month-4 Month-1 Month-2

  38. EARNED VALUE –example (1)CPI<1, SPI<1

  39. EARNED VALUE –example (1)CPI<1, SPI<1

  40. PVEVAC EARNED VALUE –example (1)CPI<1, SPI<1 $4,319 $4,000 $3,000 $2,000 $1,000 Month-1 Month-3 Month-4 Month-2

  41. 900 1,000 1,000 1,000 1,000 900 900 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 EARNED VALUE –example (2)CPI>1, SPI>1 3,200 4,000 ??? 400 3,000 2,000 1,900 1,000 1,000 Month-3 Month-4 Month-1 Month-2

  42. EARNED VALUE –example (2) CPI>1, SPI>1

  43. EARNED VALUE –example (2) CPI>1, SPI>1

  44. PVEVAC EARNED VALUE –example (2) CPI>1, SPI>1 $4,000 $3,656 $3,000 $2,000 $1,000 Month-1 Month-3 Month-4 Month-2

  45. 1,000 1,000 900 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 900 EARNED VALUE –example (3)CPI>1, SPI<1 4,000 ??? 3,000 2,300 400 2,000 1,900 1,000 1,000 Month-3 Month-4 Month-1 Month-2

  46. EARNED VALUE –example (3)CPI>1, SPI<1

  47. EARNED VALUE –example (3)CPI>1, SPI<1

  48. PVEVAC EARNED VALUE –example (3)CPI>1, SPI<1 $4,000 $3,680 $3,000 $2,000 $1,000 Month-1 Month-3 Month-4 Month-2

  49. 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,100 1,000 1,000 1,000 1,000 1,000 1,100 1,100 EARNED VALUE –example (4)CP<1, SPI>1 3,700 4,000 ??? 500 3,000 2,100 2,000 1,000 1,000 Month-3 Month-4 Month-1 Month-2

  50. EARNED VALUE –example (4)CP<1, SPI>1

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