Project Cost Management

(Level of difficulty: 4 / 10)

 

Try to understand and memorize the formulas! Not do worry too much about cost calculation and EVM. Understand the concept well, the questions are rather easy.

  

Project Cost Management Processes	Process Group
Cost Estimating	Planning
Cost Budgeting	Planning
Cost Control	Monitoring and Controlling

 Cost Estimating

	Estimates the costs of the resources required to complete project activities
	Types of Cost Variable Costs Fixed Costs Direct Costs Indirect Costs

Cost Budgeting

	Cost budgeting is the process of assigning a cost to an individual work package. To goal is to establish a cost baseline.
	A Project Cost baseline  show what is expected to be spent on the project.

 

Cost Control

	Influences the factors that cause Cost variances
	Control the changes to the Project Budget

 

 

Formulas:

CV = EV - AC

SV = EV - PV

CPI = EV / AC

SPI = EV / PV

(EV Comes first in the above formulas)

EAC = BAC / CPI  (no variance)

EAC = AC + ETC (assumptions were fundamentally flawed)

EAC = AC + (BAC - EV)   (variances are atypical and similar variances will not occur)

EAC = [AC + (BAC - EV) /CPI ]  (variances are typical and will change)

VAC = BAC - EAC

 

CV = EV -AC
CV = +ve	Cost Underrun
CV = -ve	Cost Overrun
CPI = EV / AC
CPI > 1	Cost is greater than budgeted
CPI < 1	Cost is less than budgeted

 

SV = EV - PV
SV = +ve	Project is on schedule
SV = -ve	Project is behind schedule
SPI = EV / PV
SPI > 1	Ahead of schedule
SPI < 1	Behind schedule

 

Accounting Concept	Description	Notes
Present Value (PV) Future Value (FV) r = interest rate n = number of time period	The today value of future cash flow.   PV = FV/(1 + r) /n	The higher the  PV, the better
Net Present Value (NPV)	The present value of cash inflow less the present value of cash outflow	Negative NPV is unfavourable; NPV is higher the better.
Internal Rate of Return (IRR)	The interest rate that makes the NPV of cash flow equal zero.	The higher the IRR, the better.
Payback period	The number of time periods required until cash inflows equal costs.	The lower the payback period, the better.
Benefit Cost Ration (BCR)	A ratio describing the relationship between the cost and benefits of a proposed project.	BCR less than 1 is unfavourable; BCR is higher the better.
Opportunity Cost	The difference in benefit received between a chosen project and a rejected project.

Note: NPV is greater the better. IRR is greater the better.