Chapter 6
Cost Management
Ending the reliance on the budget variance
Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
Chapter overview
1.
2.
3.
4.
5.
Planning for cost management
Estimating project costs
Pulling the budget together
Controlling project costs
Crashing the schedule
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
2
Planning for cost management
It is the planning process that establishes the policies,
procedures and documentation for planning,
managing, expending and controlling project costs,
given different stakeholders  contribute different amounts of funding
 measure costs differently
 report costs in different ways
 control costs at different times
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
3
Estimating project costs
 Pre-determined
 Expert judgement
 Analogous
 Group decision making
 Unit rates
 Published commercial data
 Parametric
 Vendor bid
 Reserve
 3 point
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
4
Pulling the budget together
 Traditional
 Zero based
 Program
 Top down
 Bottom up
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
5
Controlling project costs
Option 1
 Traditional Budget
o Budget – Actual = Variance
o Reports a positive or negative value
Option 2
 Earned value analysis
o Planned value, Earned value, Actual cost
o Historical and predictive performance analysis
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
6
Crashing the schedule
Cost Slope =
Crash Cost – Normal Cost
Normal Duration – Crash Duration
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
7
Review questions
1. How would a cost management plan address the
challenges of managing project costs within the internal
financial procedures and accounting codes of the
organisation?
2. What are some of the challenges estimating project
(resource) costs, and how can these be overcome?
3. What benefits do budgeting processes bring to projects,
and what weaknesses to they possess?
4. What does traditional budgeting fail to report and control
in project management?
5. How does earned value management provide for both
schedule and cost performance reporting, analysis
and forecasting?
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
8
Group learning activities
 Discuss why a cost management plan is needed in addition
to existing organisational financial systems, processes and
controls
 Review the estimating techniques and identify learner
preference and rationale
 Flowchart the budget preparation and management
activities
 Critique a budget report looking for how it addresses
historical and forecast project performance
 Discuss where earned value management may not be
applicable (and why) in some projects
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
9
Assessment options
 Create a cost management plan that will be effective
in guiding and directing how project costs are dealt
with throughout the project
 Develop a template for a non-traditional budget that
captures more meaningful and relevant data
 Generate an earned value report (Excel or MS Project)
on a current report and assess both past and future
performance
 Short answer questions
 Multiple choice questions
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e
Tilde Publishing
10
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