My Basic Knowledge: COST Knowledge Area by Process Group (PMP) Lesson 4

	Inputs	Tools & Techniques	Outputs
18	Estimate Costs: The process of developing an approximation of the monetary resources needed to complete project activities. It is performed after Define Scope, Create WBS, Define Activities, Estimate Activity Resources, and Estimate Activity Durations. # Cost of quality: Cost that is incurred to achieve required quality # Stranded/Sunk Costs: costs uncured that cannot be reversed irrespective to future events # Value Engineering/ Analysis: Doing the same work for less. E.g. outsourcing # Marginal analysis: Spend time on improvement if it improves revenues or productivity. # Order of Magnitude Estimate: Rough Order of Magnitude (ROM): -50% to +50% (at Initiation) as the project moves, estimates should become more accurate, Conceptual Est: -30% to + 50%, Preliminary Est: -20% to +30%, Definitive Est: -15% to +20%, Control Est: -10% to +15% (for Activities with relatively few unknowns).
PLANNING	1. Scope Baseline	1. Expert Judgment	1. Activity Cost Estimates
	2. Project Schedule	2. Analogous Estimating (Gross Value Estmting apprch)	2. Basis of Estimates
	3. Human Resource Plan	3. Parametric Estimating (Uses Statistical relationship)	3. Project Document Updates
	4. Risk Register	4. Bottom-up Estimating
	5. Enterprise Environmental Factors	5. Three-Point Estimates
	6. Organizational Process Assets	6. Reserve Analysis
		7. Cost of Quality
		8. Vendor Bid Analysis
		9. Project Management Estimating Software
19	Determine Budget (Cost Performance Baseline): The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. Budget, is time-phased (WHAT costs will be incurred and WHEN they will be incurred). The Cost Baseline describes a detailed budget that shows costs and timelines for each work package or activity. It is performed after Define Activities, Estimate Activity Resources, Estimate Activity Durations, Develop Schedule and Estimate Costs. # Larger projects may be divided into multiple Cost Baselines.
PLANNING	1. Activity Cost Estimates	1. Cost Aggregation	1. Cost Performance Baseline (S - curve)
	2. Basis of Estimates	2. Reserve Analysis	2. Project Funding Requirements (Dotted Steps)
	3. Scope Baseline	3. Expert Judgment	(Expenditures, Liabilities, and Reserves)
	4. Project Schedule	4. Historical Relationships	3. Project Document Updates
	5. Resource Calendars	5. Funding Limit Reconciliation
	6. Contracts
	7. Organizational Process Assets
20	Control Costs: The process of monitoring the status of the project to update the project budget and managing changes to the cost baseline. -Cumulative CPI: The rate at which the project performance is meeting cost expectations from the beginning up to a point in time. Also used to forecast project’s cost at completion. CPIC (CPI Cumulative)= EVC (EV Cumulative)/ ACC (AC Cumulative) = Which calculates the project's performance up to a point in time. -To-Complete Performance Index (TCPI): performance needed in order to achieve earned value targets (either financial or schedule). Two forms, TCPIC and TCPIS. # TCPI (Based on BAC) = Work Remaining i.e, (BAC-EV) / Remaining Funds i.e., (BAC-AC) (lower than 1 is good) # TCPI (Based on EAC) = Work Remaining i.e, (BAC-EV) / Remaining Funds i.e., (EAC-AC) (lower than 1 is good) # TCPI calculation is based on a specified management goal. If the cumulative CPI falls below the baseline plan, all future work of the project will beed to immediately be performed in the range of the TCPI (BAC) to stay within the authorized BAC. Once management acknowledges that the BAC is no longer attainable, the PM will prepare a new EAC for the work, and one approved the project will work to the new EAC value and it supersedes the BAC. # The EVM method works well in conjunction with manual forecasts of the required EAC costs. The most common EAC forecasting approach is a MANUAL, BOTTOM-UP SUMMATION by the PM and Project Team. # Project Manager monitor EV, both incrementally to determine CURRENT STATUS and cumulatively to determine long-term PERFORMANCE TRENDS.
M & C	1. Project Management Plan	1. Earned Value Management (Variances and Trends)	1. Work Performance Measurements
	2. Project Funding Requirements	2. Forecasting (EAC and ETC)	2. Budget Forecasts
	3. Work Performance Information	3. To-complete Performance Index (TCPI)	3. Change Requests
	4. Organizational Process Assets	4. Performance Reviews	4. Project Management Plan Updates
		5. Variance Analysis	5. Organizational Process Assets Upd
		6. Project Management Software	6. Project Document Updates

# Project Cost Baseline = Project Estimates + (Cost) Contingency Reserves; # Project Cost Budget = Project Cost Baseline + Management Reserves
# PV: Planned Value / Budgeted Cost of Work Scheduled (BCWS) = BAC X Planned % Completed
# EV: Earned Value / Budgeted Cost of Work Performed (BCWP) = BAC X Actual % Completed
# AC: Actual Cost / Actual Cost of Work Performed (ACWP) = SUM of the Costs for a given period of time.
# Life Cycle Costing includes Acquisition, Operation, Maintenance, and Disposal Costs.
# The Cost Management Processes and their associated tools and techniques are usually selected during the project life cycle definition, and are documented in the Cost Management Plan (which has been produced by Develop Project Mgmt Plan Process). For example, the Cost Mgmt Plan can establish the following: 1. Level of Accurary (Rounding of the data), 2. Units of Measurement (Staff Hours, Staff Days, Weeks, or Lump Sum), 3. Organizational Procedures Links (The WBS component used for the Project Cost Accounting is called the Control Account (CA). Each Control Account is assigned a unique code or account number that links directly to the performing organization's Accounting System), 4. Contol Thresholds (Thresholds are typically expressed as percentage deviations from the baseline plan), 5. Rules of Performance Measurement (EVM rules of performance measurement are set), 5. Reporting Formats (Formats and frequency of various cost reports are defined), and 6. Process Descriptions (description of each of the three cost mgmt processes are documented).
# The Scope Statement provides the Product Description, Acceptance Criteria, Key Deliverables, Project Boundaries, Assumptions, and Constraints about the Project.
# Project Cost Control includes: 1) Influencing the factors that create changes to the authorized cost baseline, 2) Ensuring that all change requests are acted on in a timely manner, 3) Managing the actual changes when and ass they occur, 4) Ensuring that cost expenditures do not exceed the authorized funding, by period and in total for the project, 5) Monitoring cost performance to isolate and understand variances from the approved cost baseline, 6) Monitoring work performance against funds expended, 7) Preventing unapproved changes from being influded in the reported cost or resource usage, 8) Informing appropriate stakeholders of all approved changes and associated cost, and 9) Acting to bring expected cost overruns within acceptable limits.