Project cost management

Planning, estimating, budgeting, financing, funding managing and controlling project costs.

  1. Plan cost management
  2. Estimate costs
  3. Determine budget
  4. Control costs

The PDCA for Project cost management

Project cost management

Emerging trends 

  • Expansion of Earned Value Management
    • Traditionally Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)
    • New :  Schedule Variance (SV) = Earned Schedule (ES) – Actual Time (AT)
    • Schedule Performance Index (SPI) = ES/AT
    • This indicates the efficiency with which work is completed
    • Rolling wave planning for Agile projects
    • Ability to negotiate on the scope for projects where cost is strictly controlled

Cost management plan 

  • How the project costs will be planned, structured and controlled?
  • Cost management processes used
  • Cost management tools&techniques  used
  • Units of measure
  • Level of precision
  • Level of accuracy
  • Organizational procedure
  • Control thresholds
  • Rules of performance measurement
    • Rule of credit
      • 0-100
      • 50-50
      • % complete
      • Milestone related credits
  • Reporting formats

Accuracy of estimates 

  • Initiation phase -> Rough order of magnitude estimate (ROM) ( -25% to +75%)
  • Planning phase -> Definitive estimates (-5% to +10%)

Scope baseline 

  • Project scope statement 
  • Work breakdown structure (WBS)
  • WBS dictionary

Tools & Techniques for Cost estimation 

  • Expert judgment – Expertise of the estimator
  • Analogous estimation – Comparing with a past similar activity
  • Parametric estimation – Average / application of statistical methods over multiple similar incidents
  • Bottom up estimation – Estimating at the activity level, then rolling up to the work package level and then to the project level
  • Three point estimate 
    • Most likely (cM)
    • Optimistic (cO)
    • Pessimistic (cP)
  • Triangular distribution  cE = (cO+cM+cP) / 3
  • Beta distribution cE = (cO+4cM+cP)/6

Cost of Quality (COQ) = Price of conformance (POC) + Price of non conformance (PONC)

Price of conformance (POC)  is the total cost of activities performed to prevent problems from happening (Process definition, training, checklists etc). Price of non conformance (PONC) is the money lost due to rework, penalties paid etc.

Funding limit reconciliation 

  • When the foundation is completed, we can assume that 20% of the project work is completed. The funds allocated for the foundation work of the project should not be more than 20% of the overall project funding

Financing of projects refers to acquiring funding for the project

Cost baseline – Approved version of the time-phased budget of the project

Cost baseline + Management reserves = Project budget 

 

Earned Value Analysis (EVA)

  • Planned value (PV) = Budgeted Cost of Work Scheduled  (BCWS)
  • Earned value (EV) = Budgeted Cost of Work Performed (BCWP)
  • Actual cost (AC) = Actual cost Cost of Work Performed (ACWP)
    • Cost Variance (CV) = EV – AC
    • Cost Performance Index (CPI) = EV / AC
    • Schedule Variance (SV) = EV – PV
    • Schedule Performance Index (SPI) = EV/AC
    • Variance at Completion (VAC) = Budget at Completion (BAC) – Estimate at Completion (EAC)
    • Estimate at Completion = AC + (BAC – EV)
    • Estimate at Completion = AC + (BAC – EV)/CPI (if the nature of work remains same and the conditions remain the same)
    • EAC forecast considering both SPI and CPI
      • EAC = AC + (BAC – EV) / (CPI x SPI)
    • Reserve analysis is performed to monitor the status of contingency and management reserves
  • To Complete Performance Index (TCPI) = (BAC-EV) / (BAC-AC)
  • It is the measure of CPI to be achieved to complete the project within the budget

 

Project schedule management

Nothing good happens accidentally. Everything good has to be planned and nurtured. So is schedule development and maintenance. As everything else in project management, project schedule have to be planned, developed and nurtured and undergoes the Plan-Do-Check-Act cycle.

Project Schedule Management

 

Plan schedule management 

  • Scheduling method – Critical path method, Critical chain method
  • Scheduling tool – MS Project, Primavera, XL sheet, Google sheet, Sticky notes
  • Project information – Scope, environmental factors, organizational process assets, acceptance criteria, work breakdown structure, Requirements trace ability matrix.
  • Schedule model – Network diagrams (phase wise / module wise)
  • Activity list 
  • Bar chart
  • Network diagram – Activity on Arrow (AOA), Activity on Node (AON)
  • Iterative scheduling with backlog – Based on agile approaches and rolling wave planning. The milestone level schedule is prepared for the end to end project and detailed look ahead plans are prepared for the current work.
  • On demand scheduling – Used in Kanban system based on theory of constraints and pull based scheduling concepts from lean manufacturing in order to reduce work in progress piling up.
  • Development approach – The product development approach (Iterative, Waterfall, Hybrid) will help in designing the schedule.
  • Schedule management plan 
    • Types of schedules
      • High level
      • Low level
      • Optimistic schedule (based on optimistic values)
      • Pessimistic schedule (based on pessimistic values)
      • Most likely schedule (based on most likely values)
    • Rule of credit (rules for performance measurement  %complete, 0-100, 50-50 etc)
    • Statusing the schedule – Who will update, revise, frequency
    • Reviews – Constructibility , performance
    • Reporting formats

Define activities 

  • Scope baseline
  • Decomposition
  • Rolling wave planning
  • Activity list
  • Activity attributes
  • Milestone list
  • Schedule baseline
  • Cost baseline

Sequence activities 

  • Precedence diagramming method
  • Dependency determination and integration
    • Mandatory
    • Discretionary
    • External
    • Internal
  • Leads and lags
  • Project management information system (PMIS)
  • Project schedule network diagrams
  • Activity attributes

Estimate activity durations 

  • Law of diminishing returns
  • Number of resources
  • Advances in technology
  • Motivation of staff
  • Work breakdown structure (WBS)
  • Resource breakdown structure (RBS)
  • Resource calendars
  • Resource requirements
  • Analogous estimation
  • Parametric estimation
  • Three point estimation
  • Bottom up estimation
  • Duration estimates

Develop schedule 

  • Risk register
  • Schedule network analysis
  • Resource optimization
    • Resource leveling
    • Resource smoothing
  • Data analysis
    • What-if scenario analysis
    • Simulation
  • Leads and lags
  • Schedule compression
    • Crashing
    • Fast tracking
  • Agile release planning
  • Schedule baseline
  • Project schedule
    • Bar charts / Gantt charts
    • Milestone charts
    • Project schedule network diagrams
  • Schedule data
  • Project calendars

Control schedule 

  • Work performance data
  • Data analysis
    • Earned value analysis
    • Iteration burn down chart
    • Performance reviews
    • Trend analysis
    • Variance analysis
    • What-if scenario analysis
  • Critical path method
  • Resource optimization
  • Work performance information
  • Schedule forecasts

 

 

Project scope management

It is easy to understand ‘Project scope management’ if we analyse it though the Plan-Do-Check-Act (PDCA) framework.

Plan – Scope management has to be planned -> Plan scope management

Do – Collect and define scope -> Collect requirements -> Define scope -> Create WBS

Check Scope – > Validate scope

Act – Control scope

Data dictionary for ‘Project scope management’

  • Project scope – The work performed to deliver the product, service or result
  • Product scope – The features and functions that characterize the product
  • Project life cycle – The series or phases that a project passes through from it’s inception to completion
  • Development approach – Waterfall, agile, hybrid
  • Project charter
  • Project management plan
  • Enterprise environmental factors
  • Organizational process assets
  • Expert judgment
  • Data analysis – Alternatives analysis
  • Meetings
  • Scope management plan
    • Process for preparing the scope statement
    • Process for decomposing the scope statement into a work breakdown structure (WBS)
    • 8-80 rule
    • Work packages
    • WBS dictionary
    • Code of Accounts (CoA)
    • Control account
    • Rolling wave planning
    • Planning package
  • Requirements management plan – How requirements will be collected, analysed, prioritized, documented, approved, managed
  • Stakeholder engagement plan
  • Questionnaires and surveys
  • Benchmarking
  • Facilitation
    • Joint application development (JAD)
    • Quality function deployment (QFD)
    • User stories
  • Document analysis
  • Affinity diagrams
  • Mind mapping
  • Nominal group technique – Enhances brainstorming with a voting mechanism to rank the observations / ideas
  • Observation / conversation
  • Trace ability matrix
  • Project documents
  • Business documents
  • Agreements
  • Data gathering
  • Decision making
  • Data representation
  • Interpersonal and team skills
  • Context diagrams
  • Prototypes
    • Storyboarding is a prototyping technique showing sequence or navigation through a series of images or illustrations
  • Requirements traceability matrix
  • Interpersonal and team skills
  • Product analysis
    • Product breakdown
    • Requirements analysis
    • Systems analysis
    • Systems engineering
    • Value analysis
    • Value engineering
  • Project scope statement
    • Project scope description (progressively elaborated)
    • Project deliverables
    • Acceptance criteria
    • Project exclusions
  • Project documents updates
  • Decomposition
  • Scope baseline
  • Verified deliverables
  • Work performance data
  • Inspection
  • Decision making
  • Accepted deliverables

If there is any concept which is not clear, post it as a comment and I will answer your question.

Project integration management

One of the key roles of the project manager is to perform project integration throughout the project.

  • IPD – Integrated Project Delivery is the emerging trend in project management
  • It’s emphasis is on collaborative teams working together from the contracting phase till the project completion
  • Project teams comprises of teams of different disciplines and they develop their plans (subsidiary plans)  like;
    • Engineering -> Engineering plan
    • Construction -> Construction plan
    • Quality -> Quality management plan
    • Procurement -> Procurement management plan
    • Risk management -> Risk management plan
    • Resourcing – > Resource management plan
    • Communications -> Communications management plan
    • Owner / Architect / Business analysts – Requirements / Scope management plan
  • These efforts can be further distributed among Owners, Architects, Contractors, Sub-contractors and Suppliers
  • Project integration management comprises of integrating the efforts of all these different disciplines towards the accomplishment of project goals of Time, Cost and Scope throughout the project management life cycle of;
    • Initiation
      • Develop project charter
    • Planning 
      • Develop project management plan
    • Execution
      • Direct and manage project work
      • Manage project knowledge
    • Monitoring & Controlling 
      • Monitor and control project work
      • Perform integrated change control
    • Closing 
      • Close project / phase

Data dictionary for Project Integration Management 

  • Business case – Investment, Return on investment (ROI), Payback period
  • Benefits management plan – How the benefits from the project will be measured and compared against the benefits forecast made initially to justify the project.
  • Agreements – Signed between the owner , contractor, sub-contractor, Architect
  • Enterprise environmental factors ;
    • Government / industry standards
    • Legal requirements
    • Market conditions
    • Culture, politics
    • Organizational types
      • Functional
      • Matrix
        • Weak matrix
        • Strong matrix
        • Balanced matrix
      • Projectized
      • Composite
  • Organizational process assets 
    • Standards, policies, guidelines
    • Quality management systems
    • Portfolio, program, project governance framework
    • Historical data
    • Re-usable components
  • Expert judgment – Judgment by experts in the specific field
  • Brainstorming – Idea generation technique used in groups. Governed by a moderator. People are encouraged to come out with their ideas. At the time of idea generation, there is no validation of the ideas.
  • Focus groups – Task force to address any specific problem
  • Conflict management – To eliminate conflicts across stakeholders to arrive at decisions related to the project
  • Facilitation – Ability to effectively guide
  • Meeting management – Agenda, timeliness, action items, meeting norms, minutes of the meeting, follow up
  • Project charter 
    • Document owned and approved the project sponsor / management representative
    • Prepared during initiation phase
    • Authorizes the project manager
    • Contains;
      • Project purpose
      • Measurable project objectives
      • High level scope
      • High level risks
      • Milestone schedule
      • Key stakeholder list, their roles and responsibilities
      • Project approval criteria
      • Project exit criteria
      • Assigned project manager, roles and responsibilities
        • Authorizes the project manager
        • Provides authority to the project manager
      • Name and authority of the approving authority of the charter
  • Assumption log – Log of assumptions made while starting the project like
    • Manpower availability
    • Climatic conditions
    • Raw material availability and cost
    • Transportation facilities
  • Checklists 
    • Contract review checklists
    • Requirements review checklist
    • Design review checklist
  • Interviews
  • Project management plan 
    • Not the schedule. Schedule is only part of the plan
    • Explains how the project will be executed, monitored and controlled
    • Has the consolidation of the subsidiary plans
      • Scope management plan
      • Requirements management plan
      • Schedule management plan
      • Cost management plan
      • Quality management plan
      • Resource management plan
      • Communications management plan
      • Risk management plan
      • Procurement management plan
      • Stakeholder engagement plan
      • Change management plan
      • Configuration management plan
      • Scope baseline
      • Schedule baseline
      • Cost baseline
      • Performance measurement baseline (time based budgets)
      • Project life cycle description
      • Development approach
  • Baselines (Basis for project tracking)
    • Scope baseline
    • Schedule baseline
    • Cost baseline
  • Change log – Log for maintaining the change requests
  • Lessons learned register – Register for maintaining the lessons learned during the project
  • Milestone list – Project road map with dates. High level summary of the schedule for the use of senior stakeholders.
  • Project communications – Internal, external, upward, downward, lateral, written, verbal, technology
  • Project schedule – Teams plan for meeting the objectives of the projects. Contains activity sequences with start and end dates.
  • Requirements trace ability matrix – Mapping of requirements to design, design to final product
  • Risk register – Register of risks.
  • Risk report – Qualitative, Quantitative, Risk trends
  • Approved change requests 
  • Project management information system (PMIS) – Time accounting, defects accounting, accident logs, trends
  • Work performance data – Planned Vs actuals
  • Issue log
  • Change requests
    • Corrective actions
    • Preventive actions
    • Defect repair
    • Updates
  • Project management plan updates 
  • Project documents updates 
    • Activity list
    • Assumption log
    • Lessons learned register
    • Requirements documentation
    • Risk register
    • Stakeholder register
  • Stakeholder register 
  • Project team assignments 
  • Resource breakdown structure – Once the work break down structure is defined, the resources required to develop the work packages are developed which is known as the resource breakdown structure and contains manpower, material, equipment
  • Source selection criteria
  • Knowledge management – Knowledge management tools 
    • Networking
    • Communities
    • Meetings
    • Job rotation
    • Discussion forums
    • Seminars, conferences , workshops
    • Story telling , experience sharing
  • Information management 
    • Lessons learned register
    • Project management information systems
  • Active listening – Intense listening to understand the other person’s point of view
  • Facilitation– Guide a group to successful decision
  • Leadership
  • Networking 
  • Political awareness 
  • Basis of estimates – How the various estimates were derived. Assumptions.
  • Cost forecasts 
  • Quality reports 
  • Risk report 
  • Schedule forecasts 
  • Work performance information 
  • Alternatives analysis 
  • Cost benefit analysis 
  • Earned value analysis 
  • Root cause analysis – RCA, Ishikawa diagrams, Fish bone diagrams, Pareto analysis, Control charts
  • Trend analysis 
  • Variance analysis – Planned Vs actuals for schedule, cost, scope, quality etc
  • Cost forecasts – EAC = AC+(BAC-EV)/CPI
  • Schedule forecasts – When will the project get over, based on the current trends
  • Change management plan 
  • Configuration management plan – Version controlling
  • Scope baseline 
  • Schedule baseline 
  • Cost baseline 
  • Change control tools 
  • Voting 
  • Autocratic decision making – Unilateral decision making by the leader
  • Multi-criteria decision analysis – Weights against different parameters and then scoring against them to arrive at professional decisions like recruitment, procurement etc

 

If any of the concepts are not clear, post your questions as comments to this post and I will answer them.

 

Light in the darkness