-Project Cost Management-
Project Cost Management includes the processes required to ensure that the
project is completed within the approved budget. Figure 7-1 provides an overview
of the following major processes:
7.1 Resource Planning—determining what resources (people, equipment, materials)
and what quantities of each should be used to perform project activities.
7.2 Cost Estimating—developing an approximation (estimate) of the costs of the
resources needed to complete project activities.
7.3 Cost Budgeting—allocating the overall cost estimate to individual work activities.
7.4 Cost Control—controlling changes to the project budget.
These processes interact with each other and with the processes in the other
knowledge areas as well. Each process may involve effort from one or more individuals
or groups of individuals, based on the needs of the project. Each process
generally occurs at least once in every project phase.
Although the processes are presented here as discrete elements with welldefined
interfaces, in practice they may overlap and interact in ways not detailed
here. Process interactions are discussed in detail in Chapter 3.
Project cost management is primarily concerned with the cost of the resources
needed to complete project activities. However, project cost management should
also consider the effect of project decisions on the cost of using the project’s
product. For example, limiting the number of design reviews may reduce the cost
of the project at the expense of an increase in the customer’s operating costs. This
broader view of project cost management is often called life-cycle costing. Lifecycle
costing together with Value Engineering techniques are used to reduce cost
and time, improve quality and performance, and optimize the decision-making.
In many application areas, predicting and analyzing the prospective financial
performance of the project’s product is done outside the project. In others (e.g.,
capital facilities projects), project cost management also includes this work.
When such predictions and analyses are included, project cost management will
include additional processes and numerous general management techniques such
as return on investment, discounted cash flow, payback analysis, and others.
Project cost management should consider the information needs of the project
stakeholders—different stakeholders may measure project costs in different ways
and at different times. For example, the cost of a procurement item may be measured
when committed, ordered, delivered, incurred, or recorded for accounting
purposes.
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| Figure 7-1. Project cost management overview |
system (discussed in Section 9.3.2.3), controllable and uncontrollable costs
should be estimated and budgeted separately to ensure that rewards reflect
actual performance.
On some projects, especially smaller ones, resource planning, cost estimating,
and cost budgeting are so tightly linked that they are viewed as a single process
(e.g., they may be performed by a single individual over a relatively short period
of time). They are presented here as distinct processes because the tools and
techniques for each are different. The ability to influence cost is greatest at the
early stages of the project, and this is why early scope definition is critical, as well
as thorough requirements identification and execution of a sound plan.
7.1 RESOURCE PLANNING
Resource planning involves determining what physical resources (people, equipment,
materials) and what quantities of each should be used and when they
would be needed to perform project activities. It must be closely coordinated
with cost estimating (described in Section 7.2). For example:
A construction project team will need to be familiar with local building codes.
Such knowledge is often readily available from local sellers. However, if the
local labor pool lacks experience with unusual or specialized construction
techniques, the additional cost for a consultant might be the most effective
way to secure knowledge of the local building codes.
An automotive design team should be familiar with the latest in automated
assembly techniques. The requisite knowledge might be obtained by hiring a
consultant, by sending a designer to a seminar on robotics, or by including
someone from manufacturing as a member of the team.
7.1.1 Inputs to Resource Planning
.1 Work breakdown structure. The work breakdown structure (WBS, described in
Section 5.3.3.1) identifies the project deliverables and processes that will need
resources, and thus is the primary input to resource planning. Any relevant outputs
from other planning processes should be provided through the WBS to
ensure proper control.
.2 Historical information. Historical information regarding what types of resources
were required for similar work on previous projects should be used if available.
.3 Scope statement. The scope statement (described in Section 5.2.3.1) contains
the project justification and the project objectives, both of which should be considered
explicitly during resource planning.
.4 Resource pool description. Knowledge of what resources (people, equipment, material)
are potentially available is necessary for resource planning. The amount of
detail and the level of specificity of the resource pool description will vary. For
example, during the early phases of an engineering design project, the pool may
include “junior and senior engineers” in large numbers. During later phases of the
same project, however, the pool may be limited to those individuals who are knowledgeable
about the project as a result of having worked on the earlier phases.
.5 Organizational policies. The policies of the performing organization regarding
staffing and the rental or purchase of supplies and equipment must be considered
during resource planning.
.6 Activity duration estimates. Time durations (described in Section 6.3.3.1).
7.1.2 Tools and Techniques for Resource Planning
.1 Expert judgment. Expert judgment will often be required to assess the inputs to
this process. Such expertise may be provided by any group or individual with specialized
knowledge or training, and is available from many sources including:
- Other units within the performing organization.
- Consultants.
- Professional and technical associations.
- Industry groups.
.2 Alternatives identification. Alternatives identification is discussed in Section 5.2.2.3.
.3 Project management software. Project management software has the capability to
help organize resource pools. Depending upon the sophistication of the software,
resource availabilities and rates can be defined, as well as resource calendars.
7.1.3 Outputs from Resource Planning
.1 Resource requirements. The output of the resource planning process is a description
of what types of resources are required and in what quantities for each element at
the lowest level of the WBS. Resource requirements for higher levels within the
WBS can be calculated based on the lower-level values. These resources will be
obtained either through staff acquisition (described in Section 9.2) or procurement
(described in Chapter 12).
7.2 COST ESTIMATING
Cost estimating involves developing an approximation (estimate) of the costs of
the resources needed to complete project activities. In approximating cost, the
estimator considers the causes of variation of the final estimate for purposes of
better managing the project.
When a project is performed under contract, care should be taken to distinguish
cost estimating from pricing. Cost estimating involves developing an assessment of
the likely quantitative result—how much will it cost the performing organization
to provide the product or service involved? Pricing is a business decision—how
much will the performing organization charge for the product or service—that uses
the cost estimate as but one consideration of many.
Cost estimating includes identifying and considering various costing alternatives.
For example, in most application areas, additional work during a design
phase is widely held to have the potential for reducing the cost of the production
phase. The cost-estimating process must consider whether the cost of the additional
design work will be offset by the expected savings.
7.2.1 Inputs to Cost Estimating
.1 Work breakdown structure. The WBS is described in Section 5.3.3.1. It is used to organize
the cost estimates and to ensure that all identified work has been estimated.
.2 Resource requirements. Resource requirements are described in Section 7.1.3.1.
.3 Resource rates. The individual or group preparing the estimates must know the
unit rates (e.g., staff cost per hour, bulk material cost per cubic yard) for each
resource to calculate project costs. If actual rates are not known, the rates themselves
may have to be estimated.
.4 Activity duration estimates. Activity duration estimates (described in Section 6.3.3.1)
will affect cost estimates on any project where the project budget includes an
allowance for the cost of financing (i.e., interest charges).
.5 Estimating publications. Commercially available data on cost estimating.
.6 Historical information. Information on the cost of many categories of resources is
often available from one or more of the following sources:
- Project files—one or more of the organizations involved in the project may maintain records of previous project results that are detailed enough to aid in developing cost estimates. In some application areas, individual team members may maintain such records.
- Commercial cost-estimating databases—historical information is often available commercially.
- Project team knowledge—the individual members of the project team may remember previous actuals or estimates. While such recollections may be useful, they are generally far less reliable than documented results.
.7 Chart of accounts. A chart of accounts describes the coding structure used by the
performing organization to report financial information in its general ledger.
Project cost estimates must be assigned to the correct accounting category.
.8 Risks. The project team considers information on risks (see Section 11.2.3.1)
when producing cost estimates, since risks (either threats or opportunities) can
have a significant impact on cost. The project team considers the extent to which
the effect of risk is included in the cost estimates for each activity.
7.2.2 Tools and Techniques for Cost Estimating
.1 Analogous estimating. Analogous estimating, also called top-down estimating,
means using the actual cost of a previous, similar project as the basis for estimating
the cost of the current project. It is frequently used to estimate total
project costs when there is a limited amount of detailed information about the
project (e.g., in the early phases). Analogous estimating is a form of expert judgment
(described in Section 7.1.2.1).
Analogous estimating is generally less costly than other techniques, but it is
also generally less accurate. It is most reliable when a) the previous projects are
similar in fact and not just in appearance, and b) the individuals or groups
preparing the estimates have the needed expertise.
.2 Parametric modeling. Parametric modeling involves using project characteristics
(parameters) in a mathematical model to predict project costs. Models may be
simple (residential home construction will cost a certain amount per square foot
of living space) or complex (one model of software development costs uses thirteen
separate adjustment factors, each of which has five to seven points on it).
Both the cost and accuracy of parametric models vary widely. They are most
likely to be reliable when a) the historical information used to develop the model
was accurate, b) the parameters used in the model are readily quantifiable, and
c) the model is scalable (i.e., it works as well for a very large project as for a very
small one).
.3 Bottom-up estimating. This technique involves estimating the cost of individual
activities or work packages, then summarizing or rolling up the individual estimates
to get a project total.
The cost and accuracy of bottom-up estimating is driven by the size and complexity
of the individual activity or work package: smaller activities increase both
cost and accuracy of the estimating process. The project management team must
weigh the additional accuracy against the additional cost.
.4 Computerized tools. Computerized tools, such as project management software
spreadsheets and simulation/statistical tools, are widely used to assist with cost
estimating. Such products can simplify the use of the tools described earlier and
thereby facilitate rapid consideration of many costing alternatives.
.5 Other cost estimating methods. For example, vendor bid analysis.
7.2.3 Outputs from Cost Estimating
.1 Cost estimates. Cost estimates are quantitative assessments of the likely costs of
the resources required to complete project activities. They may be presented in
summary or in detail.
Costs must be estimated for all resources that will be charged to the project.
This includes, but is not limited to, labor, materials, supplies, and special categories
such as an inflation allowance or cost reserve.
Cost estimates are generally expressed in units of currency (dollars, euros,
yen, etc.) to facilitate comparisons both within and across projects. In some cases,
the estimator may use units of measure to estimate cost, such as staff hours or
staff days, along with their cost estimates to facilitate appropriate management
control. Cost estimating generally includes considering appropriate risk response
planning, such as contingency plans.
Cost estimates may benefit from being refined during the course of the project
to reflect the additional detail available. In some application areas, there are
guidelines for when such refinements should be made and what degree of accuracy
is expected. For example, The Association for the Advancement of Cost Engineering
(AACE) International has identified a progression of five types of
estimates of construction costs during engineering: order of magnitude, conceptual,
preliminary, definitive, and control.
.2 Supporting detail. Supporting detail for the cost estimates should include:
- A description of the scope of work estimated. This is often provided by a reference to the WBS.
- Documentation of the basis for the estimate; i.e., how it was developed.
- Documentation of any assumptions made.
- An indication of the range of possible results; for example, $10,000 ± $1,000 to indicate that the item is expected to cost between $9,000 and $11,000. The amount and type of additional details vary by application area. Retaining even rough notes may prove valuable by providing a better understanding of how the estimate was developed.
.3 Cost management plan. The cost management plan describes how cost variances
will be managed (e.g., different responses to major problems than to minor
ones). A cost management plan may be formal or informal, highly detailed or
broadly framed, based on the needs of the project stakeholders. It is a subsidiary
element of the project plan (discussed in Section 4.1.3.1).
7.3 COST BUDGETING
Cost budgeting involves allocating the overall cost estimates to individual activities
or work packages to establish a cost baseline for measuring project performance.
Reality may dictate that estimates are done after budgetary approval is
provided, but estimates should be done prior to budget request wherever possible.
7.3.1 Inputs to Cost Budgeting
.1 Cost estimates. Cost estimates are described in Section 7.2.3.1.
.2 Work breakdown structure. The WBS (described in Section 5.3.3.1) identifies the
project elements to which costs will be allocated.
.3 Project schedule. The project schedule (described in Section 6.4.3.1) includes
planned start and expected finish dates for the project components to which costs
will be allocated. This information is needed to assign costs to the time period
when the cost will be incurred.
.4 Risk management plan. The risk management plan is discussed in Section 11.1.3.
In addition to this, the risk management plan often includes cost contingency,
which can be determined on the basis of the expected accuracy of the estimate.
7.3.2 Tools and Techniques for Cost Budgeting
.1 Cost budgeting tools and techniques. The tools and techniques described in Section
7.2.2 for developing project cost estimates are used to develop budgets for
activities or work packages as well.
7.3.3 Outputs from Cost Budgeting
.1 Cost baseline. The cost baseline is a time-phased budget that will be used to
measure and monitor cost performance on the project. It is developed by summing
estimated costs by period and is usually displayed in the form of an S-curve,
as illustrated in Figure 7-2.
Many projects, especially larger ones, may have multiple cost baselines to
measure different aspects of cost performance. For example, a spending plan or
cash-flow forecast is a cost baseline for measuring disbursements.
7.4 COST CONTROL
Cost control is concerned with a) influencing the factors that create changes to
the cost baseline to ensure that changes are agreed upon, b) determining that the
cost baseline has changed, and c) managing the actual changes when and as they
occur. Cost control includes:
- Monitoring cost performance to detect and understand variances from plan.
- Ensuring that all appropriate changes are recorded accurately in the cost baseline.
- Preventing incorrect, inappropriate, or unauthorized changes from being included in the cost baseline.
- Informing appropriate stakeholders of authorized changes.
- Acting to bring expected costs within acceptable limits.
Cost control includes searching out the “whys” of both positive and negative
variances. It must be thoroughly integrated with the other control processes
(scope change control, schedule control, quality control, and others, as discussed
in Section 4.3). For example, inappropriate responses to cost variances can cause
quality or schedule problems, or produce an unacceptable level of risk later in the
project.
7.4.1 Inputs to Cost Control
.1 Cost baseline. The cost baseline is described in Section 7.3.3.1.
.2 Performance reports. Performance reports (discussed in Section 10.3.3.1) 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.
.3 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.
.4 Cost management plan. The cost management plan is described in Section 7.2.3.3.
7.4.2 Tools and Techniques for Cost Control
.1 Cost change control system. A cost change control system defines the procedures
by which the cost baseline may be changed. It includes the paperwork, tracking
systems, and approval levels necessary for authorizing changes. The cost change
control system should be integrated with the integrated change control system,
discussed in Section 4.3.
.2 Performance measurement. Performance measurement techniques, described in
Section 10.3.2, help to assess the magnitude of any variations that do occur. Earned
Value Management (EVM), described in Sections 7.4.2.3 and 10.3.2.4, is especially
useful for cost control. An important part of cost control is to determine what is
causing the variance and to decide if the variance requires corrective action.
.3 Earned value management (EVM). All EVM Control Account Plans (CAPs) must
continuously measure project performance by relating three independent variables:
1) The Planned Value, the physical work scheduled to be performed,
including the estimated value of this work (previously called the Budgeted Costs
for Work Scheduled [BCWS]), as compared against the 2) The Earned Value,
physical work actually accomplished, including the estimated value of this work
(previously called the Budgeted Costs for Work Performed [BCWP]), and to the
3) Actual Costs incurred to accomplish the Earned Value. The relationship of 2)
Earned Value less 1) Planned Value constitutes the Schedule Variance (SV). The
relationship of 2) Earned Value less 3) Actual Costs constitutes the Cost Variance
(CV) for the project. See also Section 10.3.2.4.
.4 Additional planning. Few projects run exactly according to plan. Prospective changes
may require new or revised cost estimates or analysis of alternative approaches.
.5 Computerized tools. Computerized tools, such as project management software
and spreadsheets, are often used to track planned costs versus actual costs, and
to forecast the effects of cost changes.
7.4.3 Outputs from Cost Control
.1 Revised cost estimates. Revised cost estimates are modifications to the cost
information used to manage the project. Appropriate stakeholders must be notified
as needed. Revised cost estimates may or may not require adjustments to
other aspects of the project plan.
.2 Budget updates. Budget updates are a special category of revised cost estimates.
Budget updates are changes to an approved cost baseline. These numbers are generally
revised only in response to scope changes. In some cases, cost variances
may be so severe that rebaselining is needed to provide a realistic measure of
performance.
.3 Corrective action. Corrective action is anything done to bring expected future
project performance in line with the project plan.
.4 Estimate at completion. An Estimate at Completion (EAC) is a forecast of most
likely total project costs based on project performance and risk quantification,
described in Section 11.4.3. The most common forecasting techniques are some
variation of:
- EAC = Actuals to date plus a new estimate for all remaining work. This approach is most often used when past performance shows that the original estimating assumptions were fundamentally flawed, or that they are no longer relevant to a change in conditions. Formula: EAC = AC + ETC.
- EAC = Actuals to date plus remaining budget (BAC – EV). This approach is most often used when current variances are seen as atypical and the project management team expectations are that similar variances will not occur in the future. Formula: EAC = AC + BAC – EV.
- EAC = Actuals to date plus the remaining project budget (BAC – EV) modified by a performance factor, often the cumulative cost performance index (CPI). This approach is most often used when current variances are seen as typical of future variances. Formula: EAC = (AC + (BAC – EV)/CPI)—this CPI is the cumulative CPI.
Each of these approaches may be the correct approach for any given project
and will provide the project management team with a signal if the EAC forecasts
go beyond acceptable tolerances.
.5 Project closeout. Processes and procedures should be developed for the closing or
canceling of projects. For example, the Statement of Position (SOP 98-1 issued by
the American Institute of Certified Public Accountants—AICPA) requires that all
the costs for a failed information technology project be written off in the quarter
that the project is canceled.
.6 Lessons learned. The causes of variances, the reasoning behind the corrective
action chosen, and other types of lessons learned from cost control should be
documented so that they become part of the historical database for both this
project and other projects of the performing organization (see Section 4.3.3.3).
Sumber :
Project Management Institute, “A Guide To The Project Management Body Of Knowledge”, Newton Square, USA, 1996.
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