Project Management

Waterfall Processes
Process Group
Knowledge Area
Initiating Planning Executing Monitoring & Controlling Closing
4.5. Monitor & Control
4.3.Direct & Manage Project 4.7. Close
4. Project Integration 4.1. Develop project 4.2. Develop project management Project Work
Work Project or
Management charter plan 4.6. Perform Integrated
4.4.Manage Project Knowledge Phase
Change Control
5.1. Plan Scope Management
5.Project Scope 5.2. Collect Requirements 5.5. Validate Scope
Management 5.3. Define Scope 5.6. Control Scope
5.4. Create WBS

6.1. Plan Schedule Management.

6.2. Define Activities
6. Project schedule
6.3. Sequence Activities 6.6. Control Schedule
Management
6.4. Estimate Activity Durations
6.5. Develop Schedule

7.1. Plan Cost management

7.Project Cost
7.2. Estimate Costs 7.4. Control Costs
Management
7.3. Determine Budget
8. Project Quality
8.1. Plan Quality management 8.2. Manage Quality 8.3. Control Quality
Management
9.3. Acquire Resources
9. Project Resource 9.1. Plan Resource Management
9.4. Develop team 9.6. Control Resources
Management 9.2. Estimate Activity Resources
9.5. Manage team
10. Project
10.1. Plan Communications 10.3. Monitor
Communication 10.2. Manage Communications
Management Communications
Management
11.1. Plan Risk Management
11.2. Identify Risks
11.3. Perform Qualitative Risk
11. Project Risk 11.6. Implement Risk
Analysis 11.7. Monitor Risks
Management Responses
11.4. Perform Quantitative Risk
Analysis
11.5. Plan Risk Responses
12. Project Procurement
12.1. Plan Procurement Management. 12.2. Conduct Procurements 12.3. Control Procurements
Management
13. Project Stakeholder 13.1. Identify 13.3. Manage Stakeholder 13.4. Monitor Stakeholder
13.2. Plan Stakeholder Engagement
Management Stakeholders Engagement Engagement

2 24 10 12 1
 Cost Estimation vs. Pricing
Cost estimating:
Assessing how much it
will cost the
organization to provide Cost
the product or service

Price
Pricing: Assessing
Profit how much the
organization will
charge for the product
or service
 Gantt Chart
COST JAN FEB MAR APR

Work Plan-Gantt Chart

Planned Value (PV)
 Example (1)
Our Project is producing 10 chairs in 10 days cost is $10 for each

How much Budget At Compilation BAC = ???

BAC = $100

Today is day 4 How much is the PV ?

Planned Value (PV) = $10 x 4 chairs = $40

At day 4 I earned only 3 chairs how much is EV ?

Earned Value (EV) = $10 x 3 chairs = $30

Actual Cost (AC) = $45

Schedule Variance SV = EV – PV = 30 – 40 = -$10

Cost Variance CV = EV – AC = 30 – 45 = -$15

Schedule Performance Index SPI =EV / PV =30 / 40 = 0.75

Cost Performance Index CPI = EV / AC = 30 / 45 = 0.666

 Work Plan Status

COST JAN FEB MAR APR MAY JUN

PV and EV
PV , EV and AC
PV, EV and AC
 Variance
Cost Variance (CV) Schedule Variance (SV)

CV = EV – AC SV = EV – PV
= $24,000 - $29,000 = $24,000 - $32,000
= - $5,000 = - $8,000

The project has cost $5,000 more to The project has delivered $8,000
deliver the work done so far than less work at this point in time than
was planned. This project is over was planned. This project is behind
budget. schedule. This is a great way to
depict ahead or behind on schedule,
even though it is in monetary terms!
 Performance Index
Cost Performance Index (CPI) Schedule Performance Index (SPI)

CPI = EV / AC SPI = EV / PV
= $24,000 / $29,000 = $24,000 / $32,000
= 0.83 = 0.75

The project is spending money faster The project is delivering work slower
than planned. Only 83% of work is than planned. The work is being
being delivered for the amount of done at 75% of the expected rate.
money being spent.
Example
Wall Construction

Time = 1 week per wall

Cost = $ 1,000 per wall,

materials and labor

Total Schedule = 4 weeks

Total Cost = $ 4,000

Working days 5 days per week

starting on Sunday and finish
on Thursday by 5 PM

Assume production is linear

 5 pm Wednesday, Week 2

How much work should

have been completed -
PV?
PLANNED
Wall 1 100% = $ 1,000
Wall 2 80% = $ 800
Wall 3 0% = 0
Wall 4 0% = 0
PV = $ 1,800
 5 pm Wednesday, Week 2

10 % What is the budgeted

value of actual work -
EV?
EARNED
Wall 1 100% = $ 1,000
Wall 2 50% = $ 500
Wall 3 10% = $ 100
Wall 4 0% = 0
50 % Total = $ 1,600
5 pm Wednesday, Week 2

Total Cost to date –

AC = $ 2,250
5 pm Wednesday, Week 2
Earned Value
PV $1,800
EV $1,600
AC $2,250

Schedule Variance = EV - PV
= $1,600 - $1,800
= - $200
Cost Variance = EV - AC
= $1,600 - $2,250
= - $650
5 pm Wednesday, Week 2
Performance Indices
PV $1,800
EV $1,600
AC $2,250

SPI = EV / PV
= $1,600 / $1,800
= .9
CPI = EV / AC
= $1,600 / $2,250
= .7
 Case 1 1

Chart Title

2,000
1,800
1,600
1,400
1,200
Axis Title

1,000
800
600
400
200
-
PV EV AC
Series1 1,860 1,860 1,860

This is the ideal situation, where

everything goes according to plan.
 Case 2 2-A

1,950

1,900

1,850

1,800

1,750

1,700

1,650

1,900 1,700
1,600
PV AC

In this Case, without Earned Value measurements, it

appears we’re in good shape. Expenditures are less
than planned.
Spending Variance = - $ 200
 2-B
Case 2 (cont.)
2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200
1,900 1,500 1,700
-
PV EV AC

This is the worst kind of scenario, where all performance indicators are
negative.

SV = - $ 400; SPI = 0.79

CV = - $ 200; CPI = 0.88
 Estimate at Completion Analysis
Estimate At Completion (EAC) - The current projected final cost of the project.

Calculated from the following

Based on the current spending formula, where BAC is the
efficiency (the CPI). projected budget at
completion:
 Estimate at Completion Analysis
Estimate To Complete (ETC) - The amount of money needed to
complete the project.

Based on the current spending Calculated using the

efficiency of the project. formula below:
EVM Performance Measures
1. You are a project manager working on a project that requires 100
widgets to be built in five weeks, with an overall budget of US $10,000.
You have just begun week three. To date you have spent US $2,000
with 40 widgets successfully built. What does the cost variance tell
you in this circumstance?

A. The project is proceeding at 100% of the expected rate

B. The project is $2000 under budget

C. The project is on budget

D. The project is getting $0.4 of work for every dollar spent

2- You are a project manager for a small construction project. Your
project was budgeted for US $72,000 over a six-week period. As of
today, you've spent US $22,000 of your budget to complete work that
you originally expected would cost US $24,000. According to your
schedule, you should have spent US $21,000 by this point. Based on
these circumstances, your project could be BEST described as:

A. Over budget

B. On budget

C. Under budget

D. Not having enough information provided

3- A cost Performance Index (CPI) of 0.89 means:

A. At this time, we expect the total project to cost 89% more than
planned.

B. When the project is completed, we will have spent 89% more

than planned.

C. The project is only progressing at 89% of that planned.

D. The project is only getting 89 cents out of every dollar invested.

4- A Schedule Performance Index (SPI) of 0.76 means:

A. We are over budget.

B. We are a head of schedule.

C. We are only progressing at 76% of the rate originally planned.

D. We are only progressing at 24% of the rate originally planned.

 Cost Management
Plan Cost Management (1)
Estimate Costs (2)
Control Costs
Determine Budget (3)

Monitor
Initiation Planning Executing Closing
&Control

Cost Management Plan (1) Cost Forecasts

Cost Estimates (2)

Basis of Estimates

Cost Baseline (3)

Project Funding Requirements
 Key Concepts for Project Cost Management
 Concerned with the cost of the resources needed to complete project
activities.

 Consider the effect of project decisions on the subsequent recurring cost of

using, maintaining, and supporting the product, service, or result of the
project.

 Recognizing that different stakeholders measure project costs in different

ways and at different times.

 May address additional processes and numerous general financial

management techniques such as return on investment, discounted cash
flow, and investment payback analysis.
 Trends and Emerging Practices in Cost Management
Include the expansion of earned value management (EVM) to include the concept of earned
schedule (ES).
* Schedule Variance (time)= Earned Schedule – Actual Time
=( ES - AT = SV )
* Schedule Performance Index (index) = Earned Schedule / Actual Time
=( ES / AT = SPI )
* Independent Time Estimate at Compete (time) =
= Planned Duration / Schedule Performance Index (time)
$ IEAC = ( PD / SPI )
Time Now

7Months gone by,

PV
but the project only
has “ Earned
schedule” to
EV Month 5
Which SV?
$ behind or 2
months behind
schedule?
1 2 3 4 5 6 7 8 9 10
 Tailoring Considerations
Does the organization have a formal knowledge management and
Knowledge management financial database repository that a project manager is required to
use and that is readily accessible?

Estimating and budgeting Does the organization have existing formal or informal cost
estimating and budgeting-related policies, procedures, and
guidelines?

Earned value management Does the organization use earned value management in managing
projects?

Does the organization use agile methodologies in managing projects?

Use of agile approach How does this impact cost estimating?

Does the organization have formal or informal audit and governance

Governance policies, procedures, and guidelines?
 Plan Cost Management
Plan Cost Management (1)
Estimate Costs (2)
Determine Budget (3) Control Costs

Monitor
Initiation Planning Executing Closing
&Control

• The process that establishes the policies, procedures, and documentation

for planning, managing, expending, and controlling project costs.
• The key benefit of this process is that it provides guidance and direction
on how the project costs will be managed throughout the project.
 Plan Cost Management

INPUTS
INPUTS T&T OUTPUTS

1. Project charter 1. Expert Judgment 1. Cost management Plan

2. Project manage. Plan 2. Data analysis
T&T
• Schedule manage. Plan
OUTPUTS
• Alternative Analysis
• Risk manage. Plan 3. Meetings
3. Enterprise environmental
factors (EEF)
4. Organizational process
assets (OPA)
Plan Cost Management: Data Flow Diagram
 Inputs
• Enterprise Environmental • Organisational Process
Factors
Assets
– Culture and Structure
– Financial control
– Market conditions
procedures
– Currency exchange rates
– Historical information
– Published commercial
information – prices – Finance databases

– Project Management – Existing cost estimation and

information system* budgeting policies
 Cost Management Plan

- Description of strategic funding choices,

- Procedure to account for fluctuations in
Additional details
currency exchange rates, and
- Procedure for project cost recording
 Types of Estimates
Rough Order Of Magnitude (ROM): The estimate which is given in initiation/beginning
stages of the project.

Definitive: As the project progresses, the estimates are narrowed to something more
accurate.
 Estimate Costs
Plan Cost Management (1)
Estimate Costs (2)
Determine Budget (3) Control Costs

Monitor
Initiation Planning Executing Closing
&Control

• Estimating Cost is the process of developing an approximation of the monetary

resources needed to complete project activities.

• Cost estimates are a prediction that is based on the information known at a given

point in time.

• Estimates on all resources labours, materials, equipment, facilities, contingency

 Estimate Costs

INPUTS
INPUTS T&T OUTPUTS

1. Project manage. Plan 1. Expert Judgment

• Cost manage. Plan 2. Analogous estimating 1. Cost estimates
• Quality manage. Plan T &estimating
3. Parametric T 2. BasisOUTPUTS
of estimates
• Scope baseline 4. bottom-up estimating 3. Project documents updates
2. Project documents 5. Three-point estimating • Assumption log
• Lessons learned register • Lessons learned register
6. Data analysis • Risk register
• Project schedule • Alternative analysis
• Resource requirements • Reserve analysis
• Risk register • Cost of quality
3. Enterprise environmental 7. Project management
factors (EEF) information system
4. Organizational process 8. Decision making
assets (OPA) • Voting
Estimate Costs: Data Flow Diagram
 Cost Estimation (T & T)

Analogous Parametric Bottom Up

• House B will cost the

• House A is very similar to • As per latest market prices,
following:
house B. it costs around $2000 to
• $60,000 for foundation
• House a cost $300,000 build 1m2.
• $70,000 for building, isolation
• House B will cost $300,000. • House B is 100m2
& roof
• House B will cost 100*2,000
• $25,000 for heating/cooling
= $200,000
system
• TTL = $155,000
Higher

Most Likely
Weighted Average =
Probability of
Occurrence

Optimistic + 4 X Most Likely + Pessimistic

Lower Optimistic Pessimistic

Less Possible Cost More

Triangular distribution. cE = (cO + cM + cP) / 3

Beta distribution. cE = (cO + 4cM + cP) / 6
 Reserve Analysis

• Contingency reserves are estimated

costs to be used at the discretion of the
project manager to deal with
anticipated, but not certain, events.

• These events are “known unknowns”

and are part of the project scope and
cost baselines.
 Determine Budget
Plan Cost Management (1)
Estimate Costs (2)
Determine Budget (3) Control Costs

Monitor
Initiation Planning Executing Closing
&Control

• Determine Budget is the process of aggregating the estimated costs of individual

activities or work packages to establish an authorized cost baseline.
• The cost baseline includes all authorized budgets but excludes management reserves.

• Sums, Rolled up into work package

• Funding Limit Reconciliations

 Determine Budget

INPUTS
INPUTS T&T OUTPUTS

1. Project manage. Plan 1. Expert Judgment

• Cost manage. Plan 2. Cost aggregation 1. Cost baseline
• Resource manage. plan T&T
3. Data analysis 2. Project funding
OUTPUTS
• Scope baseline • Reserve analysis requirements
2. Project documents 4. Historical info. review 3. Project documents
• Basis of estimates 5. Funding limit updates
• Cost estimate • Cost estimates
• Project schedule
reconciliation
6. Financing • Project schedule
• Risk register • Risk register
3. Business documents
• Business case
• Benefits manage. Plan
4. Agreements
5. EEF
6. OPA
Determine Budget: Data Flow Diagram
 T&T: Reserve Analysis
• Establish the management reserves for the
project.
• Management reserves are an amount of the project
budget withheld for management control purposes
and are reserved for unforeseen work that is within
scope of the project.

• Management reserves are intended to address the

unknown unknowns that can affect a project.

• The management reserve is not included in the cost

baseline but is part of the overall project budget and
funding requirements.
 T&T
• Cost • Historical  Funding Limit  Financing:
Aggregation Information Reconciliation: There are different

In WBS, the cost

Review Like Resource sources of funds and

estimates are Reviewing historical Leveling, the required acquiring of these

aggregated by information can help project funds must not funds in known as

work packages. in developing exceed the financing.

parametric and organization’s ability
analogous estimating. to provide cash flow
on a monthly or
quarterly basis. The
schedule may need to
be lengthened to meet
funding constraints.
Output: Cost Baseline
 Output: Project Funding Requirements
– The periodic funds needed from the organization to
cover the baseline expenditures plus any reserves not
included in the baseline.

– Derived from the cost baseline and contains periodic

funding requirements
– Total funds includes cost baseline plus management
reserve.
– Source of funding may be included
 Control Costs
Plan Cost Management (1)
Estimate Costs (2)
Determine Budget (3) Control Costs

Monitor
Initiation Planning Executing Closing
&Control

• Lots of calculations
• Control Costs is the process of monitoring the status of the project to
update the project budget and manage changes to the cost baseline.
• Any increase to the authorized budget can only be approved through the
perform integrated change control process.
• Monitor the expenditure with regard to the value of work completed
 Control Costs

INPUTS
INPUTS T&T OUTPUTS

1. Project manage. Plan 1. Work performance info.

• Cost manage. Plan 1. Expert Judgment 2. Cost forecasts
• Cost baseline 2. Data analysis 3. Change requests
• Performance measurement • Earned T & Tmanagement
value OUTPUTS
4. Project Management Plan
baseline • Variance analysis
• Trend analysis updates
2. Project documents • Cost manage. Plan
• Reserve analysis
•Lessons learned register • Cost baseline
3. To-complete performance
3. Project funding • Performance measurement
index (TCPI)
requirements baseline
4. Project management info. 5. Project documents updates
4. Work performance data
System • Assumption log
5. OPA
• Basis of estimates
• Cost estimates
• Lessons learned register
• Risk register
Control Costs: Data Flow Diagram
Project Management Plan Project Documents
1. Scope management plan 1. Activity attributes 18. Quality control measurements
2. Requirements management plan 2. Activity list 19. Quality Matrices
3. Schedule management plan 3. Assumption log 20. Quality report
4. Cost management plan 4. Basis of estimates 21. Requirements documentation
5. Quality management plan 5. Change log 22. Requirements traceability matrix
6. Resource management plan 6. Cost estimates 23. Resource assignments
7. Communication management plan 7. Cost forecasts 24. Recourse breakdown structure
8. Risk management plan 8. Duration estimates 25. Resource calendars
9. Procurement management plan 9. Issue log 26. Resource requirements
10. Stakeholder engagement plan 10. Lessons learned register 27. Risk register
11. Change management plan 11. Milestone list 28. Risk report
12. Configuration management plan 12. Physical resource assignments 29. Schedule data
13. Scope baseline 13. Project Calendar 30. Schedule forecasts
14. Schedule baseline 14. Project communications 31. Stakeholder register
15. Cost baseline 15. Project schedule 32.Team Charter
16. Performance measurement baseline 16. Project schedule network diagram 33.Team resource assignments
17. Project life cycle description 17. Project scope statement
18.Development approach
QUESTIONS
Q1-One common way to compute estimate at completion
(EAC) is to take the budget at completion (BAC) and:

A. Divide by SPI.

B. Multiply by SPI.

C. Multiply by CPI.

D. Divide by CPI.
Q2- Estimate at completion (EAC) is a periodic evaluation of:

A. The cost of work completed.

B. The value of work performed.

C. The anticipated total cost at project completion.

D. What it will cost to finish the job.

Q3- If earned value (EV) = 350, actual cost (AC) = 400,
planned value (PV) = 325, what is cost variance (CV) ?

A. 50

B. -75

C. 400

D. -50
Q4-Which of the following is NOT needed in
order to come up with a project estimate?

A. A WBS

B. A network diagram

C. Risks

D. A change control system

Q5- Which of the following is an example of a
parametric estimate?

A. Dollars per module

B. Learning bend

C. Bottom-up

D. CPM
Q6- Project costs are estimated for all project activities and are
aggregated to establish a cost baseline. Which of the following
statements about the cost baseline is not true?

A. The project cost performance is measured against the cost baseline

B. The cost baseline is an output of the determine budget process

C. The cost baseline includes all authorized budgets including management

reserves

D. The cost baseline is in the form of an 'S' curve

7- Which of the following statements is correct regarding
the Cost Baseline?

A. When plotted on a graph, the Cost Baseline takes the shape of a ladder.

B. It is an authorized time-phased project budget.

C. It is used to measure a project's performance in terms of cost, scope

and schedule.

D. It is used to calculate the actual costs of a project.

Q8- Earned value analysis is an example of:

A. Performance reporting.

B. Planning control.

C. Ishikawa diagrams.

D. Integrating the project components into a whole.

Q9-The difference between the cost baseline and
the project budget can be BEST described as:

A. The Contingency reserve.

B. The Management reserve.

C. The project cost estimate.

D. The cost account

Q10- Your earned value management analysis indicates
that your project is falling behind its baseline schedule.
You know this because the cumulative EV is much:

A. Higher than the cumulative AC.

B. Higher than the cumulative PV.

C. Lower than the cumulative PV.

D. Lower than the cumulative CPI.