Project management
Lecture 7
A cost estimate is a prediction of the likely cost of the resources that will be required to complete all of the work of the project
High level formulas are good for selecting a project but not for managing one.
First step on budgeting: cost estimate is allocated to packages
Second Step: budget of every package is distributed over the duration of the work project
TBC: Total Budgeted Cost
Analogous estimate: uses previous projects to predict the cost
Parametric estimate: model is built using parameters to predict costs
CBC: Cumulative budgeted cost: amount that was budgeted to accomplish the work till this point in time
CAC: Cumulative actual cost
Earned Value: value of work actually performed
Earned Value Formula= TBC x Percentage of Work completed
CPI : Cost Performance Index = CEV/CAC
CPI should be greater than 1.
CV: Cost Variance = CEV-CAC should be >0
Cost forecasting:
Forecasted Cost at Completion: FCAC = TBC/CPI
FCAC = CAC + (TBC-CEV) {Re-estimate of work to be performed}
Cost Control Methods: 1. Analyze cost performance regularly 2. Identify CV early 3. Analyze cost performance to see which work packages need corrective action.
Cost Reduction Methods: reduce the scope, increase productivity, substitute expensive materials, assign a person with greater expertise
Key to manage cashflow is to make sure cash comes in faster than it goes out
Estimations should include work to be done and not only the work that have been done
Errors in estimating costs: underestimate work time, rework of project, underestimate increase in scope, making corrections in excess of contingency, changing design strategy,
Critical Success Factors: costs must be based on estimated activity resources, person responsible for activity should estimate the costs for that activity, Cost estimates should be reasonable and realistic. important to monitor actual costs and work performance, system should be established to collect data on costs actually
A cost estimate is a prediction of the likely cost of the resources that will be required to complete all of the work of the project
High level formulas are good for selecting a project but not for managing one.
First step on budgeting: cost estimate is allocated to packages
Second Step: budget of every package is distributed over the duration of the work project
TBC: Total Budgeted Cost
Analogous estimate: uses previous projects to predict the cost
Parametric estimate: model is built using parameters to predict costs
CBC: Cumulative budgeted cost: amount that was budgeted to accomplish the work till this point in time
CAC: Cumulative actual cost
Earned Value: value of work actually performed
Earned Value Formula= TBC x Percentage of Work completed
CPI : Cost Performance Index = CEV/CAC
CPI should be greater than 1.
CV: Cost Variance = CEV-CAC should be >0
Cost forecasting:
Forecasted Cost at Completion: FCAC = TBC/CPI
FCAC = CAC + (TBC-CEV) {Re-estimate of work to be performed}
Cost Control Methods: 1. Analyze cost performance regularly 2. Identify CV early 3. Analyze cost performance to see which work packages need corrective action.
Cost Reduction Methods: reduce the scope, increase productivity, substitute expensive materials, assign a person with greater expertise
Key to manage cashflow is to make sure cash comes in faster than it goes out
Estimations should include work to be done and not only the work that have been done
Errors in estimating costs: underestimate work time, rework of project, underestimate increase in scope, making corrections in excess of contingency, changing design strategy,
Critical Success Factors: costs must be based on estimated activity resources, person responsible for activity should estimate the costs for that activity, Cost estimates should be reasonable and realistic. important to monitor actual costs and work performance, system should be established to collect data on costs actually