Cost Management 7.3 Control Costs

1. Cost Management 7.1 Estimate costs

2. Cost Management 7.2 Determine Budget

3. Cost Management 7.3 Control Costs

Cost control is part of integrated change control. Effective cost control requires management of the approved cost performance baseline (often simply called the cost baseline or approved budget) and any changes to that baseline. Cost control includes the following:

·         Influencing the factors which create changes

·         Ensuring that change requests are acted on in a timely manner

·         Managing the change Process

·         Keeping costs within authorized funding

·         Detecting and understanding cost variances

·         Recording all changes

·         Preventing inappropriate changes

·         Informing stakeholders of changes

                               -    Bringing expected cost overruns within acceptable limits

Control Costs
Inputs	Tools	Inputs
1.       Project management Plan 2.       Project funding requirements 3.       Work performance information 4.       Organizational Process assets	1.       Earned value management 2.       Forecasting 3.       To-complete Performance index 4.       Performance reviews 5.       Variance analysis 6.       Project management software	1.       Work performance measurements 2.       Budget forecasts 3.       OPA updates 4.       Change requests 5.       Project management Plan updates 6.       Project document updates

Four Key inputs for Control Costs:

1.       Project Management Plan: Contains the following information used to control costs:

·         Cost performance baseline: The baseline (plan) is compared with actual results to determine if changes, preventive actions, or corrective actions are necessary.

·         Cost management plan: Describes how project costs are to be managed and controlled.

2.       Project Funding Requirements: Described previously in this site, Section 7.2.3.2.

3.       Work performance information: Includes the following status information:

·         Deliverable completed or partially completed

·         Costs authorized vs. costs incurred (plan vs. actual)

·         Estimates for completing the work (forecasts)

·         Percent physically complete for work in progress

4.       Organizational Process Assets: The following organizational process assets may affect cost control:

·         Formal and informal cost control procedures and guidelines

·         Cost control tools

·         Monitoring and reporting methods

Six Key Tools for Control Costs:

1.       Earned Value Management: Earned value is a method of performance measurement that provides current cost and schedule status at regular intervals. This site describes earned value as it relates to current status (Tool #2, forecasting, will address the forecasting portion of the technique). See course slides #98 through#120 for coverage of what you must know for the exam.

2.       Forecasting: Work performance information through each successive reporting period is used to predict future performance on the project, in this site and course slides referenced above.

3.       To-Complete Performance index: Calculates the cost performance (CPl) that must be maintained to achieve a performance goal. Usually the preference is to maintain the original budget (finish at the BAC) or in some cases performance may have deteriorated to the point that the current EAC becomes an acceptable goal. The course slides referenced above show examples.

4.       Performance Reviews: Regular meetings to review and assess cost performance information. One or more of the following techniques are normally employed:

·         Variance analysis: Planned versus actual performance in the areas of cost and schedule.

·         Trend analysis: Examining performance over time and projecting to the future to determine whether performance is improving, remaining the same, or deteriorating-

·         Earned value: A special technique that accomplishes both variance analysis as well as trend analysis (CPl, SPI).

5.       Variance Analysis: Variance analysis determines the magnitude of cost variances and then determines whether corrective or preventive actions are needed. In many organizations, acceptable thresholds are established to decide whether a variance is minor or major. The range of acceptable variance usually grows more narrow as a project nears completion.

6.       Project Management Software: Automates the analysis of data by tracking the values for PV, EV, and AC.

Six Key Outputs for Control Costs:

1.       Work Performance Measurements: This involves the actual documentation and communication of calculated measurements such as CV, SV, and CPR. This information is documented and communicated to appropriate stakeholders.

2.       Budget Forecasts: calculations such as EAC should be recorded and communicated to stakeholders.

3.       Organizational Process Assets Updates: organizational process Assets that may be updated as a result of cost control include:

·         Causes of variances

·         Corrective actions chosen and the reasons

·         Other lessons learned as a result of cost control

4.       Change Requests: Change requests may lead to changes in the budget (increase or decrease) and, as usual, change requests must be processed using integrated change control.

5.       Project Management plan updates: components of the project management plan that may be updated as a result of cost control include:

·         Cost performance baseline: The baseline (plan) is compared with actual results to determine if changes, preventive actions or corrective actions are necessary. In some cases, cost variances are so severe that the baseline must be extensively revised to produce a realistic budget.

·         Cost management plan: Describes how project costs are to be managed and controlled

6.       Project Document updates: Documents that may be updated include:

·         Cost estimates

·         Basic of estimates