15 cost presentation start(2).pdf
TRANSCRIPT
Cost Management
Copyright Course
Technology 1999 2
Types of Cost Estimates
Type of Estimate When Done Why Done How Accurate
Rough Order of
Magnitude (ROM)
Very early in the
project life cycle,
often 3–5 years
before project
completion
Provides rough
ballpark of cost for
selection decisions
–25%, +75%
Budgetary Early, 1–2 years out Puts dollars in the
budget plans
–10%, +25%
Definitive Later in the project, <
1 year out
Provides details for
purchases, estimate
actual costs
–5%, +10%
Budget Cost Categories
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
Project Cost Components
Undistributed budget (UB) applies to contractually authorized efforts
not yet allocated to WBS elements. The UB consists of a budget for
authorized changes for which there has not been adequate time to
plan the change at the control account level. Undistributed budget
is an element of the Performance Measurement Baseline, but it is not
time-phased.
Direct Costs – Costs applicable to, and identified specifically with,
the program contract Statement of Work.
Examples of Direct Costs: Labor, Travel, Material, Subcontractor
Charges
Indirect Costs – Charges that cannot be consistently or
economically identified against a specific contract. These are
typically calculated by applying rates and factors to the cost base.
A Control Account is an assigned WBS Level used to monitor the
cost and schedule performance of a significant element of the work.
Work Packages (WP) contain a discrete segment of work below the
Control Account level and provide detailed planning for
accomplishing the work within a Control Account.
Planning Packages include efforts that will eventually be identified as
separate work packages within the control account. They represent
far term efforts that cannot be defined in detail at the start of the
control account.
Key Terms
ACME Housing Corporation
1
House Building
Project
1.1
Concrete
1.1.1
Pour Foundation
1.1.1.1
Install Patio
1.1.1.2
Stairway
1.1.1.3
Framing
1.1.2
Frame Exterior
Walls
1.1.2.1
Frame Interior
Walls
1.1.2.2
Install Roofing
Trusses
1.1.2.3
Plumbing
1.1.3
Install Water
Lines
1.1.3.1
Install Gas Lines
1.1.3.2
Install B/K
Fixtures
1.1.3.3
Electrical
1.1.4
Install Wiring
1.1.4.1
Install Outlets/
Switches
1.1.4.2
Install Fixtures
1.1.4.3
Interior
1.1.5
Install Drywall
1.1.5.1
Install Carpets
1.1.5.2
Install Painting
1.1.5.3
Roofing
1.1.6
Install Felt
1.1.6.1
Install Shingles
1.1.6.2
Install Vents
1.1.6.3
Control Account
Levels
Work Package Level
CA
Definition
Reserve Pools
Task Estimating
Scope change
Risk Event
Direct Project Plan
Cost Baseline
Total $165,467 $38,269 $73,412 $49,130 $4,656
Copyright Course
Technology 1999 11
Cost Control
• Project cost control includes – monitoring cost performance
– ensuring that only appropriate project changes are included in a revised cost baseline
– informing project stakeholders of authorized changes to the project that will affect costs
• Earned Value analysis is an important tool for cost control
Labor and material resources are allocated to work packages, which
generates a planned cost for that work package
Total direct project cost is the sum total of all allocated work and
planning packages
Cost management is focused on defined Control Accounts where
actual costs are matched against planned values
Various reserves are defined to handle project dynamics (i,e., risk,
undefined items, possibly future scope changes)
Some budget items may be held in a undistributed account outside of
the project manager’s prerogative to allocate.
Control Account budget allocation may be explicitly managed by a
formal work authorization system. This is designed to control the order of
project execution.
Cost Management Fundamentals
Cost Adjustments
Project Baseline
Contingency Reserves
Basic Cost Management Process
Work Packages
Cost Management
• Cost Estimating – developing an approximation of the costs of the resources needed to complete project activities.
• Cost Budgeting – aggregating the estimated costs of individual activities or work packages to establish a cost baseline.
• Cost Control – influencing the factors that create cost variances and controlling changes to the project budget.
Resource Types
• Humans—Work resources
• Inanimate items—Material resources
• Fixed fee—Setup charges
Cost Types
• Direct—created specifically for the project
• Indirect—overhead items
• Variable—related to allocation levels
• Fixed—usually a one time charge
• Level of effort—allocation based on work that
doesn’t have a volume attribute (i.e., project
management, tech support, etc.)
Cost Estimating
• An important output of project cost
management is a cost estimate
• It is also important to develop a cost
management plan that describes how cost
variances will be managed on the project
• There are several types of cost estimates and
tools and techniques to help create them
Cost Budgeting
• Cost budgeting involves estimating resource
and material allocations to individual WBS
components
• Costs are aggregated upward through the WBS
structure to generate total project cost.
• Sequencing of work units in the Time
Management process allows a time phased
budget to be created.
Budget Components
Work Resources—Project team members
Material Resources
3rd Party Vendor Costs
Other Cost Resources—Travel, Setup, etc.
Computing HR Cost in MSP
Cost = Duration X Resources Allocated
Cost Control
Tracking a dynamic variable
Cost Control is the acid test of
project performance
Project Deviations
• Task overruns--variances
• Approved scope changes
• Risk events occur
• Other unknown events occur
WBS Presentation
Budget Components
• Direct project plan—MS Project
• Reserve pools—task, scope, risk
• Enterprise overhead
• Profit (as required)
Vocabulary
• Cost management plan—defines how to create budget and manage cost
• Cost baseline—time phased budget used to monitor cost performance
• Cost control—influencing factors that create changes to the baseline.
• Cost tracking—using Earned Value parameters
• Value Analysis–finding less costly way to do the same job
1. What are the primary methods for cost estimating
2. What is the most accurate method for cost estimating?
3. Why is this method not used for project initiation?
4. What is the most “valuable” cost and schedule analysis
tool?
5. What is ROM?
6. If a roofer estimates the cost of replacing your roof simply
by measuring its size, he is likely using what method?
7. What is a Contingency Reserve used for?
8. What is a Management Reserve used for?
Concept and Vocabulary Questions