PMP Exam Prep – Project Cost Management

Project Cost Management

Processes:

  • Plan Cost Management
  • Estimate Costs
  • Determine Budget
  • Control Costs

Plan Cost Management

  • Established policies Procedures, and documentation for planning, managing, expending, and controlling project costs

Key Inputs

  • Project management Plan
  • Schedule Baseline
  • Project Charter

Tools and Techniques

  • Expert Judgement
  • Analytical Techniques
  • Planning Meetings

Key Outputs

  • Cost Management Plan

Estimate Costs

  • The process of developing an approximation of monetary resources needed to complete project activities. A

The accuracy of the estimates gets better the further into the project you are.

  • Accuracy ranges
    • Initiation Phase
      • -25% to +75%
    • Planning  Phase
      • -10% to +25%
    • User Testing Phase
      • -5% to +10%

Key Inputs

  • Cost Management Plan
  • Human Resource Plan
  • Scope Baseline
  • Project Schedule
  • Risk Register

Tools and Techniques

  • Expert Judgement
  • Analogous Estimating
  • Parametric Estimating
  • Three-point Estimating
  • Bottom-up Estimating
  • Reserve Analysis
  • Vendor Bid Analysis

Key Outputs

  • Activity Cost Estimates
    • Quantitative assessments of the probable costs required to complete the project work.
  • Basis of Estimates
    • additional necessary details that support the cost estimate

Determine Budget

  • The process of aggregating the estimated costs of individual activities of work packages to establish an authorized cost baseline.

Key Inputs

  • Activity Cost Estimating
  • Basis of Estimates
  • Scope Baseline
  • Project Schedule
  • Resource Calendar
  • Risk Register

Tools and Techniques

  • Cost Aggregation
  • Reserve Analysis

Control Costs

  • The process of monitoring the status of the project to update the project budget, and managing changes to the cost baseline.

Key inputs

  • Cost Management Plan
  • Work Performance Data

Tools and Techniques

  • Earned Value Managment (EVM)
  • Schedule Performance Index
  • Cost Performance Index
  • To-Complete Performance Index (TCPI)

Key Measurements

  • Planned Value (PV)
    • The Value of the work that was planned to be completed by a date
  • Budget At Completion (BAC)
    • Total PV for the Project
  • Earned Value (EV)
    • The value of work that was completed as of a date
  • Actual Cost
    • Actual cost incurred for accomplishing the work performed as of a date
  • Scheduled Variance (SV)
    • Earned Value (EV) – Planned Value (PV)
    • SV=EV-PV
  • Cost Variance (CV)
    • CV=EV-AC
  • Schedule Performance Index (SPI)
    • SPI=EV/PV
    • Ratio >1 indicates the project is performing better than planned
  • Cost Performance Index (CPI)
    • CPI=EV/AC
    • Ratio >1 indicates that is more value earned by spending money than planned.
  • Return on Investment (ROI)
    • ROI=Net profit/Investment

Key Outputs

  • Work Performance Measurements
  • Costs Forecasts
  • Change Requests
"Material in this blog post are based on the text, Project Management Institute, A Guide to the Project
Management Body of Knowledge (PEMBOK Guide), Fifth Edition, Project Management, Institute, Inc 2013"

"The definitions in this blog post are taken from the Glossarey of the Project Management Institue,
A Guide to the Project Management Body of Knowledge, (PMBOK Guide) - Fifthe Edition,
Project Management Institue, Inc. 2013"

"PMI, PMP, PMBOK are registered marks of the Project Management Institue, Inc"