Guide
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Project Cost
Management
Process
Estimate
Costs
Control Costs
Determine
Budget
Cost
approximation
based on
certain
assumptions
Determine
budget
baseline by
aggregation
Update,
monitor and
manage
changes to the
budget baseline
Initiating Planning Executing Monitoring &
Controlling
Closing
Project Cost
Management
Process
Estimate
Costs
Control
Costs
Determine
Budget
Ref: PMBOK
Guide
Process of estimating cost of resources needed to complete the
project
Various costing alternatives are considered e.g. make vs buy vs
lease, resources sharing
Accuracy of estimates improves as project progresses
Estimate Cost
1/3
Rough Order of Magnitude
Definitive
This type of estimating has a 10% to +15% accuracy
rate. This type of estimate is also known as a bottom
up estimate.
This is a ballpark estimate e.g.
range of a particular estimate is +/-50% to +/- 100%
Accuracy of Estimates
Initiating
Planning
Tools & Techniques
Scope Baseline
Project Schedule
Human Resource Plan
Risk Register
Enterprise Environmental
Factors
Organizational Process
Assets
Expert Judgment
Analogous Estimating
Parametric Estimating
Bottom-up Estimating
Three-point Estimates
Project Management
Estimating Software
Reserve Analysis
Cost of Quality
Vendor Bid analysis
Activity Cost Estimates
Basis of Estimates
Project Document
Updates
Input
Output
Estimate Costs
Cost prediction based on certain information
Ref: PMBOK
Guide
Earned Value Analysis
Method of performance measurement
Usually Actual vs Planed where it maybe on
time but not on budget
But EVA integrates cost, schedule and scope
Used to forecast future performance and
projection completion dates
Earned Value, Planed Value and Actual
Costs
Planned Value
(PV)
Actual Costs
(AC)
Earned value
EV
Data Date
Cumulative
Values
Time
Budget at
Completion
(BAC)
Project Management in the dark
RM
Time
It tells you how much youve spent and
compares it to the budget.
Does it give an accurate picture of
where you are on the project?
NO! It doesnt tell you if
1. Youre ahead or behind schedule
2. Youre over or under budget
3. Youve spent money on the right thing
4. Youre getting value for money
5. Your problems are over or have just begun
What is missing?
Knowing how much has been accomplished
Project Cost Management
RM
Time
Accomplishment is (Planned) work that
has been carried out successfully.
The budgeted cost of that work quantifies
the accomplishment.
This is called Earned Value (EV)
Project Cost Management
Earned Value
Budgeted Cost for the Work Performed
(BCWP) or EV
What is the estimated value of the work already done?
Planned Value (PV)
Budgeted Cost for the Work Scheduled
(BCWS) or PV
What is the estimated value of the work to be done to date at a given point
Actual Cost of Work Performed
(ACWP) or AC
This is the actual cost incurred ( we spent to do the
Budgeted cost for the work performed (BCWP) )
Budget At Completion (BAC)
This is the BCWS for the whole project. Theoretically
this is a baseline number, so it should remain static or fixed for the
duration of the project
Estimate At Completion (EAC)
The key with the EAC is to compare your
budget to your actual
Estimate To Completion (ETC)
ETC, is what you expect to spend from this point
forward to the end of the project
Earned Value Management
Original
Plan
Actual
Plan
Today
PV
BAC
AC ETC
EAC
VAC
To Complete Performance Index
(TCPI)
Project performance which must be achieved on all remaining
work in order to meet the financial goal set by management.
TCPI = Work remaining / Funds remaining
TCPI= Total Budget Earned Value
BAC Actual Costs
TCPI= BAC EV
BAC AC
To Complete Performance Index
(TCPI)
Status Date
$10,000
BAC
PV=$4,000
AC=$3,800
EV=$3,600
Cost
Time
TCPI=(BAC)/(BAC-AC)
TCPI=(10,000-3600) / (10,000-3,800)
TCPI=6,400/6,200
TCPI=1.03
Earned Value Management
Acronym Term Interpretation
PV (BCWS) Planned Value What is the estimated value of the work
planned to be done?
EV (BCWP) Earned Value What is the estimated value of the work
actually accomplished?
AC (ACWP) Actual Cost What is the actual cost incurred?
BAC Budget at
completion
How much did we budget for the total
project?
EAC Estimate at
completion
What do we currently expect the total
project to cost?
ETC Estimate to
completion
From this point on, how much more do we
expect it to cost to finish the project?
VAC Variance at
completion
How much over or under budget do we
expect to be at the end of the project?
Earned Value Management
Name Formula Interpretation
Cost Variance (CV) EV AC Negative is over budget. Positive is
under budget.
Schedule Variance (SV) EV - PV Negative is behind schedule.
Positive is ahead of schedule.
Cost Performance
Index (CPI)
EV
AC
We are getting R out of every R1
invested.
Schedule Performance
Index (SPI)
EV
PV
We are progressing at % of the
rate originally planned.
Estimate at
Completion (EAC)
BAC
CPI
As of now, how much do we expect
the total project to cost?
Estimate to Complete
(ETC)
EAC AC How much more will the project
cost?
Variance at Completion
(VAC)
BAC EAC How much over budget will we be
at the end of the project?
Scheduled Variance
Scheduled Variance (SV), is
Earned Value minus the Planned Value
Cost Variance
Cost Variance (CV), is the Budgeted Cost of Work
Performed (EV), minus the Actual Cost of Work Performed (AC)
Cost Performance Index
Schedule Performance Index
Performance Indicators
Performance Indicators
PROJECT MANAGEMENT QUESTION EVM PERFORMANCE MEASUREMENT
How are we doing time wise? Schedule Analysis & Forecasting
- Are we ahead or behind Schedule Variance (SV)
- How efficiently are we using time Schedule Performance Index SPI
- When are we likely to finish work Time Estimate at Completion (EACt)
How are we doing cost wise? Cost Analysis and Forecasting
- Are we under or over budget Cost Variance (CV)
- How efficiently are we using resources Cost Performance Index (CPI)
- How efficiently must we use the remaining
resources
To Complete Performance Index (TCPI)
- What is the project likely to cost Estimate At Completion (EAC)
- Will we be under or over budget Variance At Completion (VAC)
- What will be the remaining work cost Estimate To Complete (ETC)
Jan Feb Mar Apr May
Time Now
Unit 1
Unit 2
Unit 3
Unit 4
Planned
Value
Earned
Value
Actual
Cost
100
100
100
100
Total budgeted cost of all work?
Budgeted value of work planned to this point in time?
The budgeted value of work accomplished?
The actual cost of the work accomplished?
= ..
= ..
=
=
Budget at Completion (BAC)
Budgeted Cost of Work Scheduled (BCWS or PV)
Budgeted Cost of Work Performed (BCWP or EV)
Actual Cost of Work Performed (ACWP or AC)
100
0
0
0
175
0
0
0
Jan Feb Mar Apr May
Time Now
Unit 1
Unit 2
Unit 3
Unit 4
Planned
Value
Earned
Value
Actual
Cost
100
100
100
100
Total budgeted cost of all work?
Budgeted value of work planned to this point in time?
The budgeted value of work accomplished?
The actual cost of the work accomplished?
= 400
= 200
= 100
= 175
Budget at Completion (BAC)
Budgeted Cost of Work Scheduled (BCWS or PV)
Budgeted Cost of Work Performed (BCWP or EV)
Actual Cost of Work Performed (ACWP or AC)
100
0
0
0
175
0
0
0
Can Planned
vs.Actual tell us
anything?
(not much of value)
PV = 200
AC = 175
Jan Feb Mar Apr May
Time Now
175
100
100
100
Time Now
300
100
200
400
What is the value of
work behind/ahead
of schedule?
How much have we over/under
spent?
Is this realistic?
Time Now
300
100
200
400
PV = 200
EV = 100
AC = 175
Its the difference
between what you
accomplished and
what you planned to
accomplish
EV - PV 100 200
When Earned Value
is included, we can
get answers
Its the difference between
what you accomplished and
how much it cost you
EV - AC
100 175
At what rate are we
overspending?
Its the ratio of earning to
spending
EV / AC
100 / 175
Schedule Variance (SV)
= (100)
Cost Variance (CV) = (75)
Cost Performance
Index (CPI) = (0.57)
$100 worth of work is
behind schedule
Over spent by $75 for work-to-
date
For every dollar we spend, we
get 0.57 cents work done
Points to Remember
In EVA questions on calculations:
If EV is involved, then it always comes first in the formula
E.g. CV= EV-AC; CPI=EV/AC, etc
Negative is bad and positive is good
- means over budget,
+ means within or under budget
Types of Costs
Sunk Costs Expended costs
Variable Costs varies according to usage
Fixed Costs can be treated as a set-up cost
Direct Costs attributable to project cost
Indirect Costs cannot be directly attributable. Admin cost 10%
Contingency Reserve Costs
- Backup plan - known unknown risks
Management Reserve Costs
unknown unknown risks .Any unforseen
Control Costs Outputs.
Work Performance Measurements
Budget Forecasts
Organizational Process Updates
Change Requests
Project Management Plan Updates
Project Document Updates
Thank you