Description
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore.
Cost Management
Erin Bognar Deputy Director, Planning and Integration
Traditional Cost Management vs. Earned Value Cost Management
There is an important and fundamental difference between the data available for analysis in a:
? ?
Traditional Cost Management environment Earned Value Cost Management environment
2
Traditional Cost Management
70
The graph shows the relationship of the budget (planned) versus what was actually spent.
60 50 40 30 20
Time Now
10 0 J Budget Actuals 5 10 F 10 20 M 15 30 A 20 40 M 25 50 J 30 60 J 35 A 40 S 45 O 50 N 55 D 60
3
Earned Value Cost Management
In EVMS there are three data sources: Budget Actuals Earned Value
80 60 40 20 0 J BCWS BCWP ACWP 5 8 10 F 10 15 20 M 15 25 30 A 20 30 40 M 25 35 50 J 30 45 60 J 35 A 40 S 45 O 50 N 55 D 60
4
In Summary
Traditional Cost Management provides:
? ?
How much money and time a particular job is likely to require prior to starting and once started How much money was spent at any given time.
EVM Cost Management adds:
?
What work has been accomplished to date for the funds expended (what you got for what you spent)
5
What is Cost Management?
“Includes the processes required to ensure that the project is completed with the approved budget” PMBOK Guide 2004
6
What are the Cost Management Processes?
PROJECT COST MANAGEMENT
7.1 Cost Estimating
.1 Inputs .1 Enterpirse environmental factors .2 Organizational process assets .3 Project scope statement .4 Work breakdown structure .5 WBS dictionary .6 Project management plan -Schedule management plan -Staffing management plan -Risk register .2 Tools and Techniques .1 Analogous estimating .2 Determine resource cost rates .3 Bottom-up estimating .4 Parametric estimating .5 Project management software .6 Vendor bid analysis .7 Reserve analysis .8 Cost of quality .3 Outputs .1 Activity cost estimates .2 Activity cost estimate detail .3 Requested changes .4 Cost management plan (updates)
7.2 Cost Budgeting
.1 Inputs .1 Project scope statement .2 Work breakdown structure .3 WBS dictionary .4 Activity cost estimates .5 Activity cost estimate detail .6 Project Schedule .7 Resource Calendars .8 Contract .9 Cost Management Plan .2 Tools and Techniques .1 Cost aggregation .2 Reserve analysis .3 Parametric estimating .4 Funding limit reconciliation .3 Outputs .1 Cost baseline .2 Project funding requirements .3 Cost management plan (updates) .4 Requested changes
7.3 Cost Control
.1 Inputs .1 Cost baseline .2 Project funding requirements .3 Performance reports .4 Work performance information .5 Approved change requests .6 Project management plan .2 Tools and Techniques .1 Cost change control system .2 Performance measurement analysis .3 Forecasting .4 Project performance reviews .5 Project management software .6 Variance management .3 Outputs .1 Cost estimate (updates) .2 Cost baseline (updates) .3 Performance measurements .4 Forecasted completion .5 Requested changes .6 Recommended corrective actions .7 Organizational process assets (updates) .8 Project management plan (updates)
7
Project Phases/Process Group Map
Project Management Process Groups Knowledge Areas
Cost Management Monitoring & Controlling
Cost Control
Initiating
Planning
Executing
Closing
Cost Estimating Cost Budgeting
Vs..
8
Implementation of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.)
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information
What will you do with the cost information when the job is done?
?
WBS and level of cost collection should consider not only the natural division of work but also consider future use of cost information
? ? future proposals comparative cost analysis - “best method of performance”
9
Implementation of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.)
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information
?
Strive for consistency between the Estimating and Accounting chart of accounts What level of cost detail is necessary and sufficient?
?
10
Implementation of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.)
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information Allocate Cost to Work Activities (Budget)
Document Cost Baseline
WBS No.
Description
Est'd Cost $10k $18k $12k $2k $4k $10k $20k $76k
8 5
9 5
Construction Week 10 11 12 13 14 15 16 17 18 19
1.04.04 Foundation 1.04.02 Framing 1.04.03 Roof 1.04.04 Sheathing and Barrier 1.04.05 Insulation 1.04.06 Doors and Windows 1.04.07 Brick Veneer Total
9
9 6 2 2 2 6 4 8 4 4 4 4 4 4 6
5
5
9
13
8
12
4
8
11
Implementation of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.)
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information Allocate Cost to Work Activities (Budget)
? Develop a “going-in” strategy
Document Cost Baseline
Develop Cost Management Plan
•Management of Cost Variances •Cost Change Control •Performance Measurement
or plan on not just how to control overruns but how to reduce costs: ? ? ? Incentives Competitive Procurements Methods Improvements
• • • • Questioning Attitudes Technology Deployment Value Engineering Trade-off Analysis
12
Are any performance measurement techniques placing you at risk?
?
Contract payment schedules are often tied to your WBS structure and chosen earned value techniques
? Consider potential work suspension and resumption risks
• Should PM/CM activities be modified milestones versus level of effort?
?
Consider learning curves
• • • less experience (early in contract) - higher cost/unit more experience (later in contract) - lower cost/unit improvement comes with practice
13
What Metrics Do You Use for Cost Analysis?
CV %
CP I
SV
%
SV
CV
CV
V AC SV
TC PI
TCPI
CPI
SP I
EVMS Metrics & Analysis
CV%
CV
VA
VA
SV
SP I
TC PI
C
CV %
BCWS
BCWP
ACWP
BAC
EAC
VAC
SP I
SV
%
CP I
S V%
C
14
Change is inevitable, success is optional
-Yogi Berra
so Plan for Success
What is your plan for controlling internal change?
?
Evaluate cost uncertainty and your risk events upfront
? Establish a reserve and develop risk mitigation plans
?
Monitor cost and schedule performance for deviations Accurately record changes to the baseline Bring expected costs within acceptable limits
Identifying Deviations
Time Now
BA C Proje cte d Cost U nderrun at Comple tion (V A C) EAC (Projected A CW P at Completion) BCW S BCW P SV CV Proje cte d D ela y in Project Comple tion
?
COSTS ($)
?
A CW P
0 TIME
Time N ow
cte d Scheduled Proje Comple tion Comple tion
To date SV in units of time
16
What is your plan for controlling external change?
?
Monitor correspondence/field direction
? Monitor cost and schedule performance for variances ? Isolate change impacts (scope, schedule, and cost) ? Inform stakeholders of changes
?
?
Agree to a Not-to-Exceed Value
Document changes
? ? ? Schedule Performance reports Field notes/logs
Scope
After the smoke clears, it is not necessarily what was As-Planned said and Schedule/ done by either Cost Estimate Work party that determines the Performance Breakdownoutcome; it is what the Reporting Structure Variance Reports As-Built documents say was Daily Logs Schedule/ Change Notices said or done. Actual Costs
? Timely negotiations
17
Recap of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.) Physical Progress Reports
Change Control
18
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information
Allocate Cost to Work Activities (Budget)
Manage Work Orders
Document Cost Baseline
Develop Cost Management Plan
•Management of Cost Variances •Cost Change Control •Performance Measurement
Manage Procurements
Manage Disbursements
Performance Measurement Reports
Re-Plan
Analysis/ Corrective Action
Lessons-Learned
doc_942705494.pdf
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore.
Cost Management
Erin Bognar Deputy Director, Planning and Integration
Traditional Cost Management vs. Earned Value Cost Management
There is an important and fundamental difference between the data available for analysis in a:
? ?
Traditional Cost Management environment Earned Value Cost Management environment
2
Traditional Cost Management
70
The graph shows the relationship of the budget (planned) versus what was actually spent.
60 50 40 30 20
Time Now
10 0 J Budget Actuals 5 10 F 10 20 M 15 30 A 20 40 M 25 50 J 30 60 J 35 A 40 S 45 O 50 N 55 D 60
3
Earned Value Cost Management
In EVMS there are three data sources: Budget Actuals Earned Value
80 60 40 20 0 J BCWS BCWP ACWP 5 8 10 F 10 15 20 M 15 25 30 A 20 30 40 M 25 35 50 J 30 45 60 J 35 A 40 S 45 O 50 N 55 D 60
4
In Summary
Traditional Cost Management provides:
? ?
How much money and time a particular job is likely to require prior to starting and once started How much money was spent at any given time.
EVM Cost Management adds:
?
What work has been accomplished to date for the funds expended (what you got for what you spent)
5
What is Cost Management?
“Includes the processes required to ensure that the project is completed with the approved budget” PMBOK Guide 2004
6
What are the Cost Management Processes?
PROJECT COST MANAGEMENT
7.1 Cost Estimating
.1 Inputs .1 Enterpirse environmental factors .2 Organizational process assets .3 Project scope statement .4 Work breakdown structure .5 WBS dictionary .6 Project management plan -Schedule management plan -Staffing management plan -Risk register .2 Tools and Techniques .1 Analogous estimating .2 Determine resource cost rates .3 Bottom-up estimating .4 Parametric estimating .5 Project management software .6 Vendor bid analysis .7 Reserve analysis .8 Cost of quality .3 Outputs .1 Activity cost estimates .2 Activity cost estimate detail .3 Requested changes .4 Cost management plan (updates)
7.2 Cost Budgeting
.1 Inputs .1 Project scope statement .2 Work breakdown structure .3 WBS dictionary .4 Activity cost estimates .5 Activity cost estimate detail .6 Project Schedule .7 Resource Calendars .8 Contract .9 Cost Management Plan .2 Tools and Techniques .1 Cost aggregation .2 Reserve analysis .3 Parametric estimating .4 Funding limit reconciliation .3 Outputs .1 Cost baseline .2 Project funding requirements .3 Cost management plan (updates) .4 Requested changes
7.3 Cost Control
.1 Inputs .1 Cost baseline .2 Project funding requirements .3 Performance reports .4 Work performance information .5 Approved change requests .6 Project management plan .2 Tools and Techniques .1 Cost change control system .2 Performance measurement analysis .3 Forecasting .4 Project performance reviews .5 Project management software .6 Variance management .3 Outputs .1 Cost estimate (updates) .2 Cost baseline (updates) .3 Performance measurements .4 Forecasted completion .5 Requested changes .6 Recommended corrective actions .7 Organizational process assets (updates) .8 Project management plan (updates)
7
Project Phases/Process Group Map
Project Management Process Groups Knowledge Areas
Cost Management Monitoring & Controlling
Cost Control
Initiating
Planning
Executing
Closing
Cost Estimating Cost Budgeting
Vs..
8
Implementation of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.)
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information
What will you do with the cost information when the job is done?
?
WBS and level of cost collection should consider not only the natural division of work but also consider future use of cost information
? ? future proposals comparative cost analysis - “best method of performance”
9
Implementation of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.)
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information
?
Strive for consistency between the Estimating and Accounting chart of accounts What level of cost detail is necessary and sufficient?
?
10
Implementation of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.)
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information Allocate Cost to Work Activities (Budget)
Document Cost Baseline
WBS No.
Description
Est'd Cost $10k $18k $12k $2k $4k $10k $20k $76k
8 5
9 5
Construction Week 10 11 12 13 14 15 16 17 18 19
1.04.04 Foundation 1.04.02 Framing 1.04.03 Roof 1.04.04 Sheathing and Barrier 1.04.05 Insulation 1.04.06 Doors and Windows 1.04.07 Brick Veneer Total
9
9 6 2 2 2 6 4 8 4 4 4 4 4 4 6
5
5
9
13
8
12
4
8
11
Implementation of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.)
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information Allocate Cost to Work Activities (Budget)
? Develop a “going-in” strategy
Document Cost Baseline
Develop Cost Management Plan
•Management of Cost Variances •Cost Change Control •Performance Measurement
or plan on not just how to control overruns but how to reduce costs: ? ? ? Incentives Competitive Procurements Methods Improvements
• • • • Questioning Attitudes Technology Deployment Value Engineering Trade-off Analysis
12
Are any performance measurement techniques placing you at risk?
?
Contract payment schedules are often tied to your WBS structure and chosen earned value techniques
? Consider potential work suspension and resumption risks
• Should PM/CM activities be modified milestones versus level of effort?
?
Consider learning curves
• • • less experience (early in contract) - higher cost/unit more experience (later in contract) - lower cost/unit improvement comes with practice
13
What Metrics Do You Use for Cost Analysis?
CV %
CP I
SV
%
SV
CV
CV
V AC SV
TC PI
TCPI
CPI
SP I
EVMS Metrics & Analysis
CV%
CV
VA
VA
SV
SP I
TC PI
C
CV %
BCWS
BCWP
ACWP
BAC
EAC
VAC
SP I
SV
%
CP I
S V%
C
14
Change is inevitable, success is optional
-Yogi Berra
so Plan for Success
What is your plan for controlling internal change?
?
Evaluate cost uncertainty and your risk events upfront
? Establish a reserve and develop risk mitigation plans
?
Monitor cost and schedule performance for deviations Accurately record changes to the baseline Bring expected costs within acceptable limits
Identifying Deviations
Time Now
BA C Proje cte d Cost U nderrun at Comple tion (V A C) EAC (Projected A CW P at Completion) BCW S BCW P SV CV Proje cte d D ela y in Project Comple tion
?
COSTS ($)
?
A CW P
0 TIME
Time N ow
cte d Scheduled Proje Comple tion Comple tion
To date SV in units of time
16
What is your plan for controlling external change?
?
Monitor correspondence/field direction
? Monitor cost and schedule performance for variances ? Isolate change impacts (scope, schedule, and cost) ? Inform stakeholders of changes
?
?
Agree to a Not-to-Exceed Value
Document changes
? ? ? Schedule Performance reports Field notes/logs
Scope
After the smoke clears, it is not necessarily what was As-Planned said and Schedule/ done by either Cost Estimate Work party that determines the Performance Breakdownoutcome; it is what the Reporting Structure Variance Reports As-Built documents say was Daily Logs Schedule/ Change Notices said or done. Actual Costs
? Timely negotiations
17
Recap of Cost Management Processes
Develop Cost Estimates (Parametric, Analogous, Bottoms-up, Etc.) Physical Progress Reports
Change Control
18
Work Breakdown Structure Activity Durations Chart of Accounts Resource Req. Resource Rates Expert Opinion Historical Information
Allocate Cost to Work Activities (Budget)
Manage Work Orders
Document Cost Baseline
Develop Cost Management Plan
•Management of Cost Variances •Cost Change Control •Performance Measurement
Manage Procurements
Manage Disbursements
Performance Measurement Reports
Re-Plan
Analysis/ Corrective Action
Lessons-Learned
doc_942705494.pdf