ادارة تكلفة المشروع

Project Cost

Management

Prepared by: Mohamed Dahi 2013

Project Cost Management

Knowledge Area

Process

InitiatingPlanningExecutingMonitoring & Control

Closing

Cost Cost EstimatingCost Budgeting

 Cost Control

Financial Statement

Income statement P/LBalance Sheet

Economic Analysis

Benefit-cost ratio- Higher BCR, more preferable Payback Period-Shorter period more preferred project Break Event Point ROI (Return on investment) IRR (internal rate of return Higher IRR, more preferable

project NPV- Higher PV, more preferable project value is>=0

The project cost management process include

Cost estimatingCost budgetingCost controlling

Project Cost Management• The process involved in estimating, budgeting, and

controlling cost so that the project can be completed within approved budget

• Life cycle costingLooking at the cost of whole life of the product (include maintenance)

• Value analysis (value engineering)Looking at less costly way to do the same work within the same scope

• Law of Diminishing ReturnsE.g. adding twice resource to task may not get the task done in half cost/time

Resource planning

Determining what resources and quantities of them should be used.

Cost estimating

Developing an estimate of the costs and resources needed to complete a project.

Cost budgeting

Allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.

Cost controlling

Controlling changes to the project budget.

The main outputs of the cost estimating process are:

Cost estimates Supporting detail Cost management plan

Cost Management Plan

Describes how cost variances will be managed on the project.

Content: Level of accuracy Reporting format Rules for measuring cost performance Cost baseline Control thresholds Cost change control procedures

7.1 Cost Estimating

The process of developing approximation of the monetary resources needed to complete project activities

Points for estimating (WBS-person doing work -historical information- No Padding –Realistic)

What do you need before estimating costso Cost trade-offs المقايض111ة)) risk must be

considered How is estimating done?

Feedback to tender depart.

1.The proposal estimate is prepared before proposal and initiation to commit resources to the first stage of the project. الجدوى لدراسة مرافق – order of magnitude)-تقديرmade without any detailed eng-data).مقترح)(ROM)

2. The budget estimate is prepared during proposal and early planning , and commit resources to design and appraisal. التصميمية البدائل تقييم اجل من -تقدير

3. The sanction estimate is prepared during design and appraisal to gain funding for the project, or approval from the project sponsor. - االجازة اولية تقديرات

4. The control estimate is prepared during implementation planning. تفصيلية تقديرات

5. A tender estimate is prepared as part of the process of bidding for a contract. العطاء سعر

Estimating methods used to prepare types of estimate:

Type of Estimate Accuracy(%)

Proposal estimate + - 50

Budget estimate - +20

Sanction estimate + - 10

Control estimate + - 5

Tender estimate + - 2

approximateDefinitiveEstimate

Types of Cost

Variable Costs Change with the amount of production/work e.g. material, supplies, wages

Fixed Costs Do not change as production change e.g. set-up, rental

Direct Costs Directly attributable to the work of project e.g. team travel, recognition, team wages

Indirect Costs overhead or cost incurred for benefit of more than

one project e.g. taxes, fringe benefit, janitorial services Cost reserves: amount of money needed above the

estimate to reduce risk of overruns of project objectives to a level acceptable to the organization

Inputs

1.Scope baseline

2.Project schedule

3.Human resource plan

4.Risk register

5.Enterprise environmental factors

6.Organizational process assets

Tools & Techniques

1.Expert judgment

2.Analogous estimating

3.Parametric estimating

4.Bottom-up estimating

5.Three-point estimates

6.Reserve analysis

7.Cost of quality

8.Project management estimating software

9.Vendor bid analysis

Outputs

1.Activity cost estimates

2.Basis of estimates

3.Project document updates

Cost Estimating Tools

• Analogous estimates -unit method Using the actual cost of a previous, similar

project Used when there is limited information Form of expert judgment- used in the early

project stages• Bottom up estimating Estimating the cost of individual work

items ,then rolling up to get total project cost• Parametric modeling-(statistical ) Using project characteristics in a mathematical

model-may be simple with very few parameters e.g. (construction per squire foot calculation) -

• Three Point Estimating

One point estimating

 Approximation of a single quantity or a single numerical

value, instead of that of a whole range of quantities or

values.

Analog costing

Computing cost of an item on the basis of the cost of a

similar (analogous) item and using adjustment factors to

account for differences between the two items.

Parametric cost estimating

Methodology that employs one or more cost estimating

relationships for quantifying research and development

(R&D) costs.

Ranges Of Estimates

Rough Order of Magnitude.

  An approximation, made with a degree of knowledge and

confidence that the estimated figure falls within a

reasonable range of values-

Budget Estimate

Approximation of the cost of an activity, job, program or

project, prepared for budgeting and planning purposes

only. Not accurate enough to provide a basis for a firm

commitment, it represents only the budget maker's

understanding of the scope and expense of what needs to

be done.Definitive Estimate

• Most difficult to estimate as very little project info is available, made during initiating process- parametric method

EstimateAccuracy

Rough Order of

Magnitude(ROM)

-/+50%

Budget Estimate

-10%

+25%

Definitive Estimate

-5%

+10%

• Used to finalize the Request for Authorization (RFA), and establish commitment, made during early planning phase- analogy method

• During the project and refined • late planning & execution- • grassroots method

Quality/Accuracy of Cost Estimation

Ball ParkWBS level 1

WBS level 2,3

WBS level 4,5,6

7.2 Cost BudgetingProcess of aggregating the estimated cost

of individual activities or work packages to establish an authorized cost baseline.

Allocating the overall cost estimate to individual activates or work packages, in order to establish a cost baseline for measuring project performance.

Inputs1.Activity cost

estimates

2.Basis of estimates

3.Scope baselines

4.Project schedule

5.Resource calendars

6.Contracts

7.Organizational process assets

Tools & Techniques1.Cost aggregation

2.Reserve analysis

3.Expert judgment

4.Historical relationship

5.Funding limit reconciliation

Outputs1.Cost

performance baseline

2.Project funding requirements

3.Project document updates

Cost Aggregation

Reserves & risk management are important while estimating! Contingency reserves: Cost

Baseline the cost impacts of the remaining risk

Management reserves: Cost Budgetextra fund to cover unforeseen risk or changes to the project

Activity estimates

Work package estimates

Control account estimates

Project estimates

Contingency reserves

Management reserves

Cost baseline

Cost Budget

A 1$25 A2$25 A 3$25

WP 1$100 WP2$250

CA1$850 CA2$480

WP3$500

$1.250

$105

$1.355

$68

$1.423

WP4$175

A 5$45A 4$25

Example

Activity estimates

Work package estimates

Control account estimates

Project estimates

Contingency reserves

Management reserves

Cost baseline

Cost Budget

Time

Cum

ulat

ive

valu

es

Expenditures

Cost Baseline

Funding Requirements

Is the time phased budget that is used as the basis against whish the progress is measured

7.3 Control CostThe process of monitoring the status of the project to update the project budget and managing changes to the cost baseline

للمالك بالنسبة التكاليف مراقبة من االهدافوالمقاول

اعادة له تتحقق حتى له المحدد الميعاد فى المشروع استالمالمال راس دورة

التكاليف تعويض عقود حالة تكون cost reimbursementفىعن مسئوال سيكون النه التكالف مراقبة هى المالك مسئولية

المواد جميع شراء

المحدد الميعاد فى المشروع وتسليم تنفيذ من التأكدمخطط هو كما تسير الفعلية التكاليف من التاكد

مقدما االسعار محددة العقود حالة المقاول price given in advanceفى يقوممسئوليته تكون وبذلك المواد جميع شراء عن المسئول فهو لذلك معين بسعر المشروع بأخذ

المخطط الربح هامش يقل ال حتى االساسية

التشطيبات اثناء وخاصة المتابعة فترات وتقليل تكثيف الى يؤدى المشروع انشطة وتكثف تعقدالمتابعة فترات زادت المشروع زمن زاد فكلما المشروع مدة على اساسا المتابعة فترات تعتمد

المشروع على المتابعة زادت كلما تزداد التنفيذ فى الدقة درجة

للمالك بالنسبة

للمقاول بالنسبة

المتابعة فترات اختيار على تؤثر التى العاومل

Inputs

1.Project management plan

2.Project funding requirement

3.Work performance information

4.Organizational process assets

Tools & Techniques

1.Earned value management

2.Forecasting

3.To-complete performance index

4.Performance reviews

5.Variance analysis

6.Project management software

Outputs

1.Work performance measurement

2.Budget forecast

3.Organizational process updates

4.Change requests

5.Project management plan updates

6.Project document updates

How to control cost?

Follow the cost management plan

Look at any organizational process asset that are availableManage change Recording all appropriate change Preventing incorrect change Ensuring requested changes are agreed upon Managing the actual changes when and as they

occur

Measure and measure and measure (monitoring)

Progress Report:A method to control schedule and cost

Progress/performance report (output from communication area)

Where work cannot be measured, estimate could be done by a guess-rules

50/50 Rule 20/80 Rule 0/100 Rule PCT: the amount of units completed copmared to the

total amount planned Activity is considered X percent complete when it

begins and get credit for the last Y percent only when it is complete

Earned Value Technique

Method to measure project

performance against

scope, schedule and cost

baseline (performance

measurement baseline

It builds on the concept of comparing banana with banana not banana with watermelon.

Its enables P.M through a simple and effective analysis ,to get timely updates and forecasts on project’s time and cost performance.

BCWSPV

ACWPAC

BCWP

EV

How EV Works?

The value the contractor is entitled to

receive from the owner based on

estimated prices and actual amount of

work performed.

This is way called earned value EV = PCT * BAC

Planned value (PV) Is the cost of work that's been budgeted for

a schedule activity or WBS component to be completed during a given time period .

PV is also called (BCWS)

Actual Cost (AC) Is the cost of completing the work ( a

schedule activity or WBS component ) in a given time period. AC is also called (ACWP)

Earned Value (EV) Is the value of the work ( a schedule activity

or WBS component ) completed to date as it is compares to the budget amount assigned to the work component. EV is also called (BCWP)

Earned Value Management

The Big Picture Cost Performance Index (CPI)

CPI = EV / AC Schedule Performance Index (SPI)

SPI = EV / PV

Image captured from Practice Standard for Earned Value Management, PMI © 2005

CV = EV - AC SV = EV - PV

Interpretation of basic EVM performance measures

Exercise

You have a project to build a box. The box is six sided. Each side is to

take one day to build and is budgeted for $1000 per side. The sides are

planned to be completed one after the other. Today is the end of day

three.

Using the following project status chart, calculate PV, EV, AC, BAC, CV,

CPI, SV, SPI, EAC, ETC, VAC.

Describe your interpretation based on the calculation!

Project is below/over budget?

Project is late/ahead schedule?

How much more money we need?

TaskProgressCost spent

Side 1100%$1,200

Side 2100%$1,000

Side 375%$750

Side 450%$500

Side 50%$0

Side 60%$0

Exercise Solution

ParameterCalculationResult

PV

EV

AC

BAC

CV

CPI

SV

SPI

EAC

ETC

VAC

Exercise SolutionParam

eterCalculationResult

PV1000 + 1000 + 1000

EV)100% x 1000) + (100% x 1000 + (

)75% x 1000) + (50% x 1000 (

AC1200 + 1000 + 750 + 500

BAC6 x 1000

CV3025 - 3450

CPI3025 / 3450

SV3025 - 3000

SPI3025 / 3000

EAC6000 / 0.88

ETC6818.18 - 3450

VAC6000 - 6818.18

3000

3025

3450

6000

-425

0.88

25

1.01

6818.18

3368.18

-818.18

CV =EV - AC SV =EV - PV

3450

CPI= 1.0

SPI= 1.0

0 0

ACPV EV

ON SCHEDULEON BUDGET

AC

PV

EV

CV =EV - AC SV =EV - PV

3000

3025

3450

CPI= 0.99

SPI= 0.88

-25 -425

AC

PV

EV

CV =EV - AC SV =EV - PV

3000

3025

3450

CPI= 1.15

SPI= 1.14

425 400

AC

PV

EV

CV =EV - AC SV =EV - PV

3000

3025

3450

-425 +25

CPI= 0.88 SPI= 1.01

BAC6000

EAC = 6000/ 0.88 = 6818.18Estimate at completion

ETC = 6818.18 – 3425)AC( = 3368.18Estimate to complete

VAC = 6000 – 6818.18 = - 818.18Variance at completion

AC

PV

EV

CV =EV - AC SV =EV - PV

3000

3025

3450

CPI=1.01

SPI= .88

+25 -400

LateOver

EarlyOver

EarlyUnder

LateUnder

AC

PV

EV

EV

EV EV

PV

PV

PV

AC

AC

AC

EVM – Hints to remember

EV comes first in every formula If it’s variance, the formula is EV –

something If it’s index, EV / something If it relates to cost, use Actual Cost If it relates to schedule, use PV Negative numbers are bad, positive is

good

Copied from Rita’s book

0.8 1.2

SPI1.10.9

CPI

1

1.1

0.9

0.8

1.2

وال الجدولة كفاءة كلفةتمخطط

ال زيادة والتنفيذ تحالة كلفةالعمل في ال المتقدم زيادة وتأخير تحالة كلفة

العمل في

ال توفير في تحالة وتأخير كلفةالعمل

ال توفير والتنفيذ تحالة كلفةالعمل في المتقدم

إضافية أعمال وجود وقتها قبل االعمال بعض بدء و المتوقع من أفضل العمال مهارات

� ايضا كلفتهم

المقدرة من أفضل االنتاجية العمل ساعات بعض اختصار مالئمة عمل ظروف

المقدرة من أسوأ االنتاجية االعمال بعض بدء تأخير مالئمة غير عمل ظروف

األسعار بعض زيادة المقدرة من أسوأ انتاجية المتوقع من أصعب أعمال جيدة غير خطة

Earned Value Technique

Revised Total Duration Baseline Duration/Schedule Performance Index4/0.33

= 12 months

EAC is an important forecasting value.

Earned Value: Graphical Representation

TIME

CO

ST

ScheduleVariance (SV)

CostVariance(CV)

ACTUAL

PLAN

EARNVALUE

Estimate at Completion

(EAC)

Budget at Completion

(BAC)

Projection of schedule delay at completion

Projection of cost variance at completion

(VAC)

TODAY(Reporting

day)

BAC

EAC

AC

EV

PV

Project is over budget & behind schedule

Image captured from Practice Standard for Earned Value Management, PMI © 2005

EV can be calculated by (%progress) x (planned man-days)

over budget, getting 0.88 dollar for every

dollar we spent,

ahead schedule, progressing 101% of the rate

planned,

probably will spend $6818 at the end

(estimation),

need $3368 to complete,

over budget at the end for about $818

(estimation)

Forecasting EAC

There are many ways to calculate EAC, depending on the

assumption made.

Simple EAC calculation (EAC = BAC/CPI) assume that the

cumulative CPI adequately reflects past performance that will

continue to the end of the project. (يستمر)

AC+(BAC-EV)

Used when current variances are thought to be atypical of the

future ( يستمر (لن

To-Complete Performance Index (TCPI)

Helps the team determine the

efficiency that must be achieved on

the remaining work for a project to

meet a specified endpoint, such as BAC

or the team’s revised EAC

TCPI AC)– (BAC Remaining Funds

EV)– (BAC RemainingWork

Forecasting EAC

Common alternative way to calculate EAC

Table captured from Practice Standard for Earned Value Management, PMI © 2005

Questions & Answers

Thank You

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