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Project Cost Management

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Jerry Chong

on 6 April 2015

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Transcript of Project Cost Management

Project Cost Management
It's all about the $$$!!
Basic Principles of Cost Management
Cash Flow Analysis =
Basic Principles of Cost Management
Cost Estimating
Types of Cost Estimates
Cost Estimation Tools & Techniques
Computerized Tools
Tools, such as spreadsheets and PM software
Cost Control
Monitoring cost
Earned Value Management (EVM)
Project performance measurement technique that integrates data of;
Cost Budgeting
Goal is to produce a
Cost Baseline
Chapter Summary
Cost Estimating
Cost Budgeting
Sunk Cost = Cost/Amount incurred in the past
Profit =
Life Cycle Costing =
(Development + Support Costs)
Estimated Annual Costs and Benefits
What Went Wrong???
Morale of the story =
Prevention is Better than Correction
(easily measured)
(difficult to measure)
Improved customer service/response
Lower operational cost
Reduced inventory cost
Operational cost
Salary & wages
Purchase of hardware/software
Lower risks
Customer disappointment
Drop in employee morale
Other supporting costs
Supporting infrastructure
Facilitates strategic planning
Meeting deadlines
Automated processes
***WARNING - When deciding what projects to invest in or continue, do not include sunk costs!
allow for future situations that are unpredictable
Learning Curve Theory
– Economies of Scale
are dollars included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict
allow for future situations that may be partially planned for
known unknowns
unknown unknowns
rate of turnover
supplier goes bankrupt
medical leave/absence
environmental factors
materials cost
Rough Order of Magnitude - ROM
Very early in a project or even before a project is officially started
ROM estimate of $100,000 could range between $50,000 to $200,000 of Actual Cost
- ballpark estimate, a guesstimate, a swag, or a broad gauge
Analogous or Top-Down Estimates
Use the actual cost of a previous, similar project
Bottom-up Estimates
Estimating individual work items or activities
Parametric Modeling
Mathematical model using project characteristics (parameters)
time-phased budget
that project managers use to measure and monitor cost performance
project stakeholders
of authorized changes to the project that will affect costs
Ensuring that only
appropriate project changes
are included in a revised cost baseline
Rate of Performance (RP)
Ratio of
actual work
completed to the percentage of
work planned
Cost Control
Monitoring & Controlling
EVM Terms
Planned Value (PV)
- Approved total cost estimate planned to be spent
Actual Cost (AC)
- Total of direct and indirect costs incurred in accomplishing work
Earned Value (EV)
- Estimate of the value of the physical work actually completed
Total Cost of Ownership
Revenue - Expense
Cost Variance (CV)
- Difference between the estimated cost and actual cost (CV = EV - AC)
Schedule Performance Index (SPI)
- It is the ratio of earned value to planned value (SPI = EV/PV)
Cost Performance Index (CPI)
- It is the ratio of earned value to actual cost (CPI = EV/AC)
Schedule Variance (SV)
- Difference between the scheduled completion and actual completion (SV = EV - PV)
Full transcript