Bahasa Inggris Chapter 7 "A Guide to the project management body of knowledge"

Chapter 7
Project Cost  Management

Project  Cost  Management includes  the  processes required to ensure that  the project  is completed within the approved budget. Figure 7-1 provides an overview of the following  major processes:
7.1. Resource Planning—determining what resources (people, equipment, mate- rials) and what quantities of each should be used to perform project activities.
7.2 . Cost Estimating—developing an approximation (estimate) of the costs of the resources needed to complete project activities.
7.3. Cost Budgeting—allocating the overall cost estimate to individual work activities.
7.4Cost Control—controlling changes to the project budget. These processes interact with each other  and with the processes in the other knowledge areas as well. Each process may involve effort from one or more indi- viduals or groups  of individuals, based  on the needs  of the project. Each process generally occurs  at least  once in every project phase.
Although  the processes are presented here  as discrete  elements with  well- defined  interfaces, in practice  they may overlap  and interact in ways not detailed here. Process interactions are discussed in detail  in Chapter 3.
Project cost management is primarily concerned with the cost of the resources needed to complete project activities. However, project cost management should also consider the effect  of project  decisions  on the cost of using  the project’s product. For example, limiting the number of design reviews may reduce  the cost of the project  at the expense of an increase in the customer’s  operating costs. This broader view of project  cost management is often called life-cycle costing. Life- cycle costing  together with Value Engineering techniques are used to reduce cost and  time,  improve quality  and  performance, and  optimize the decision-making.
In many  application areas, predicting and  analyzing the prospective financial performance of the project’s product is done  outside the project. In others (e.g., capital  facilities  projects), project  cost  management also  includes  this  work. When such predictions and  analyses are included, project cost management will include  additional processes and numerous general management techniques such as return on investment, discounted cash flow, payback  analysis, and  others.
Project cost management should  consider the information needs  of the project stakeholders—different stakeholders may measure project  costs in different ways and at different times.  For example, the cost of a procurement item may be mea- sured  when  committed, ordered, delivered, incurred, or recorded for accounting
purposes.

When  project  costs  are  used  as a component of a reward and  recognition system  (discussed in Section  9.3.2.3), controllable and  uncontrollable costs should  be estimated and  budgeted separately to ensure that  rewards reflect actual performance.

On some projects, especially  smaller  ones, resource planning, cost estimating, and  cost budgeting are so tightly  linked  that  they are viewed  as a single process (e.g.,  they may be performed by a single individual over a relatively short  period of time).  They are presented here  as distinct  processes because  the tools  and techniques for each are different. The ability to influence cost is greatest at the early stages of the project, and this is why early scope definition is critical,  as well as thorough requirements identification and  execution of a sound plan.

                                                                                                                                        

7.1   RESOURCE  PLANNING

Resource planning involves determining what  physical  resources (people, equip- ment,  materials) and  what  quantities of each  should  be used  and  when  they would  be needed to perform  project  activities. It must  be closely coordinated with cost estimating (described in Section  7.2).  For example:

■    A construction project  team will need to be familiar  with local building  codes.

Such knowledge is often readily  available from local sellers.  However, if the local  labor  pool  lacks  experience with  unusual or specialized construction techniques, the additional cost for a consultant might  be the most  effective way to secure  knowledge of the local building codes.

■    An automotive design  team should  be familiar  with the latest  in automated

assembly techniques. The requisite knowledge might  be obtained by hiring  a consultant, by sending  a designer to a seminar on robotics, or by including someone from manufacturing as a member of the team.

7.1.1    Inputs  to Resource Planning

.1   Work breakdown structure.  The work breakdown structure (WBS, described in Section  5.3.3.1) identifies the project  deliverables and processes that  will need resources, and  thus  is the primary input  to resource planning. Any relevant out- puts  from  other  planning processes should  be provided through the  WBS to ensure proper control.

.2   Historical information.  Historical information regarding what  types of resources

were  required for similar  work on previous projects should be used  if available.

3   Scope statement.  The scope statement (described in Section  5.2.3.1) contains the project justification and  the project objectives, both  of which  should be con- sidered explicitly  during resource planning.

.4   Resource pool description. Knowledge  of what resources (people, equipment, mate- rial)  are potentially available is necessary for resource planning. The amount of detail  and  the level of specificity  of the resource pool  description will vary.  For example, during  the early phases  of an engineering design  project, the pool may include  “junior and senior engineers” in large numbers. During later phases  of the same project, however, the pool may be limited to those individuals who are knowl- edgeable about  the project  as a result  of having worked  on the earlier  phases.

.5   Organizational policies.  The policies  of the performing organization regarding staffing and the rental  or purchase of supplies  and equipment must be considered during resource planning.

.6   Activity duration estimates.  Time durations (described in Section  6.3.3.1).

7.1.2    Tools and Techniques for Resource Planning

.1   Expert judgment. Expert  judgment will often be required to assess the inputs  to this process.  Such expertise may be provided by any group or individual with spe- cialized  knowledge or training, and  is available from many  sources  including:

■    Other  units  within the performing organization.

■    Consultants.

■    Professional and  technical associations.

■    Industry groups.

.2   Alternatives identification.  Alternatives identification is discussed in Section 5.2.2.3.

.3   Project management software.  Project management software has the capability to help organize resource pools. Depending upon the sophistication of the software, resource availabilities and rates can be defined, as well as resource calendars.

7.1.3    Outputs  from Resource Planning

.1   Resource requirements.  The output of the resource planning process is a description of what types of resources are required and in what quantities for each element at the lowest  level of the WBS. Resource  requirements for higher  levels within  the WBS can be calculated based  on the lower-level values.  These resources will be obtained either  through staff acquisition (described in Section 9.2) or procurement (described in Chapter 12).

7.2   COST ESTIMATING

Cost estimating involves  developing an approximation (estimate) of the costs of the resources needed to complete project  activities. In approximating cost, the estimator considers the causes  of variation of the final estimate for purposes of better managing the project.

When a project  is performed under  contract, care should be taken to distinguish cost estimating from pricing.  Cost estimating involves developing an assessment of the likely quantitative result—how much will it cost the performing organization to provide the  product or service  involved? Pricing  is a business decision—how much will the performing organization charge  for the product or service—that uses

the cost estimate as but one consideration of many.

Cost estimating includes identifying and  considering various  costing  alterna- tives. For example, in most application areas,  additional work during  a design phase is widely held to have the potential for reducing the cost of the production phase.  The cost-estimating process  must  consider whether the cost of the addi- tional  design  work will be offset by the expected savings.

I7.2.1    Inputs  to Cost  Estimating

.1   Work breakdown structure. The WBS is described in Section 5.3.3.1. It is used to orga- nize the cost estimates and to ensure that all identified work has been estimated.

.2   Resource requirements.  Resource requirements are described in Section  7.1.3.1.

.3   Resource rates.  The individual or group  preparing the estimates must  know the unit  rates  (e.g.,  staff cost per hour,  bulk material cost per cubic yard)  for each resource to calculate project costs. If actual rates  are not known, the rates  them- selves may have to be estimated.

.4   Activity duration estimates. Activity duration estimates (described in Section 6.3.3.1) will affect  cost  estimates on any project  where  the  project  budget  includes  an allowance for the cost of financing (i.e., interest charges).

.5   Estimating publications.  Commercially available data  on cost estimating.

.6   Historical information. Information on the cost of many  categories of resources is often  available from one or more  of the following sources:

■    Project  files—one  or more  of the organizations involved  in the project  may

maintain records of previous project results that  are detailed enough to aid in developing cost estimates. In some application areas,  individual team mem- bers may maintain such records.

■    Commercial cost-estimating databases—historical information is often avail-

able commercially.

■    Project  team  knowledge—the individual members of the project  team  may remember previous actuals  or estimates. While  such  recollections may  be useful,  they are generally far less reliable than  documented results.

.7   Chart of accounts. A chart  of accounts describes the coding structure used by the performing organization to  report financial information in  its  general ledger. Project cost estimates must be assigned to the correct  accounting category.

.8   Risks.   The project  team  considers information on risks (see  Section  11.2.3.1) when  producing cost estimates, since risks (either threats or opportunities) can have a significant impact  on cost. The project  team considers the extent to which the effect of risk is included in the cost estimates for each activity.

7.2.2    Tools and Techniques for Cost  Estimating

.1   Analogous estimating.  Analogous estimating, also called  top-down  estimating, means  using the actual  cost of a previous, similar  project  as the basis for esti- mating  the  cost  of the  current project. It is frequently used  to estimate total project  costs when  there  is a limited  amount of detailed information about  the project (e.g.,  in the early phases). Analogous estimating is a form of expert judg- ment  (described in Section  7.1.2.1).

Analogous estimating is generally less costly than  other  techniques, but it is also generally less accurate. It is most reliable when  a) the previous projects are similar  in fact  and  not  just  in appearance, and  b)  the  individuals or groups preparing the estimates have the needed expertise.

.2   Parametric modeling. Parametric modeling involves  using project characteristics (parameters) in a mathematical model  to predict  project  costs. Models may be simple (residential home  construction will cost a certain amount per square foot of living space) or complex  (one  model  of software development costs uses thir- teen  separate adjustment factors,  each  of which  has five to seven  points  on it).

Both the cost and accuracy  of parametric models  vary widely.  They are most likely to be reliable  when a) the historical information used to develop  the model was accurate, b) the parameters used  in the model  are readily  quantifiable, and c) the model  is scalable  (i.e., it works as well for a very large project  as for a very small one).

.3   Bottom-up estimating. This technique involves  estimating the cost of individual activities  or work packages, then summarizing or rolling up the individual esti- mates to get a project total.

The cost and accuracy of bottom-up estimating is driven  by the size and com- plexity of the individual activity or work package: smaller  activities  increase both cost and accuracy  of the estimating process.  The project  management team must weigh  the additional accuracy against the additional cost.

.4   Computerized tools.  Computerized tools, such as project  management software spreadsheets and  simulation/statistical tools,  are widely  used  to assist with  cost estimating. Such products can simplify the use of the tools described earlier and thereby facilitate rapid  consideration of many  costing  alternatives.

.5   Other cost estimating methods.  For example, vendor bid analysis.

7.2.3    Outputs  from Cost  Estimating

.1   Cost estimates. Cost estimates are quantitative assessments of the likely costs of the resources required to complete project  activities. They may be presented in summary or in detail.

Costs must  be estimated for all resources that  will be charged to the project. This includes, but is not limited  to, labor,  materials, supplies, and special  cate- gories  such as an inflation allowance or cost reserve.

Cost estimates are generally expressed in units  of currency  (dollars, euros, yen, etc.) to facilitate comparisons both within and across projects. In some cases, the estimator may use units  of measure to estimate cost, such as staff hours  or staff days,  along  with  their  cost estimates to facilitate appropriate management control. Cost estimating generally includes  considering appropriate risk response planning, such as contingency plans.

Cost estimates may benefit  from being refined  during  the course of the project to reflect  the additional detail  available. In some  application areas,  there  are guidelines for when  such refinements should be made and  what  degree of accu- racy is expected. For example, The Association  for the Advancement of Cost Engi- neering (AACE)  International  has  identified a  progression  of  five  types  of estimates of construction costs during engineering: order  of magnitude, concep- tual,  preliminary, definitive, and  control.

.2   Supporting detail.  Supporting detail  for the cost estimates should include:

■    A description of the scope of work estimated. This is often  provided by a ref- erence to the WBS.

■    Documentation of the basis for the estimate; i.e., how it was developed.

■    Documentation of any assumptions made.

■    An indication of the range of possible  results; for example, $10,000 ± $1,000 to indicate that  the item is expected to cost between $9,000 and  $11,000. The amount and type of additional details vary by application area. Retaining

even rough notes may prove valuable by providing a better  understanding of how the estimate was developed.

.3   Cost management plan.  The cost management plan describes how cost variances will be managed (e.g.,  different responses to major  problems than  to minor ones). A cost management plan may be formal  or informal, highly detailed or broadly framed, based  on the needs  of the project stakeholders. It is a subsidiary element of the project plan  (discussed in Section  4.1.3.1).

7.3   COST BUDGETING

Cost budgeting involves allocating the overall  cost estimates to individual activi- ties or work packages to establish a cost baseline for measuring project  perfor- mance. Reality may dictate  that  estimates are done  after  budgetary approval is provided, but estimates should  be done prior to budget request wherever possible.

7.3.1    Inputs  to Cost  Budgeting

.1   Cost estimates. Cost estimates are described in Section  7.2.3.1.

.2   Work breakdown structure.  The WBS (described in Section  5.3.3.1) identifies the project elements to which  costs will be allocated. 

.3   Project  schedule. The project  schedule (described in Section  6.4.3.1) includes planned start and expected finish dates for the project  components to which costs will be allocated. This information is needed to assign costs to the time period when  the cost will be incurred..4   Risk management plan.  The risk management plan is discussed in Section 11.1.3.

In addition to this, the risk management plan often includes  cost contingency, which can be determined on the basis of the expected accuracy of the estimate.

7.3.2    Tools and Techniques for Cost  Budgeting

.1   Cost budgeting tools and techniques. The tools and  techniques described in Sec- tion 7.2.2 for developing project  cost estimates are used to develop  budgets for activities or work packages as well.

7.3.3    Outputs  from Cost  Budgeting

.1   Cost baseline. The cost baseline is a time-phased budget that  will be used  to measure and monitor cost performance on the project. It is developed by sum- ming estimated costs by period  and is usually displayed in the form of an S-curve, as illustrated in Figure 7-2.

Many  projects, especially  larger  ones,  may have  multiple cost baselines to measure different aspects of cost performance. For example, a spending plan  or cash-flow  forecast is a cost baseline for measuring disbursements.

7.4  COST CONTROL

Cost control  is concerned with a) influencing the factors  that  create  changes to the cost baseline to ensure that changes are agreed  upon,  b) determining that the cost baseline has changed, and c) managing the actual  changes when and as they occur.  Cost control includes:

■    Monitoring cost performance to detect and  understand variances from plan.

■    Ensuring  that  all appropriate changes are  recorded accurately in the  cost baseline.

■    Preventing incorrect, inappropriate,  or  unauthorized  changes from  being

included in the cost baseline.

■    Informing appropriate stakeholders of authorized changes.

■    Acting to bring  expected costs within acceptable limits.

Cost control  includes  searching out the “whys” of both positive  and negative variances. It must  be thoroughly integrated with  the  other  control  processes (scope change  control, schedule control, quality control, and others, as discussed in Section 4.3).  For example, inappropriate responses to cost variances can cause quality or schedule problems, or produce an unacceptable level of risk later in the project.

7.4.1    Inputs  to Cost  Control

.1   Cost baseline. The cost baseline is described in Section  7.3.3.1.

.2   Performance reports.  Performance reports (discussed in Section 10.3.3.1) provide information on project  scope and cost performance, such as which budgets have been  met  and  which  have  not.  Performance reports may also alert  the project team to issues that  may cause problems in the future.

.3   Change  requests. Change  requests may occur in many forms—oral or written, direct  or indirect, externally or internally initiated, and  legally  mandated or optional. Changes may require increasing the budget or may allow decreasing it.

.4   Cost management plan.  The cost management plan is described in Section 7.2.3.3.

7.4.2    Tools and Techniques for Cost  Control

.1   Cost change control system. A cost change  control  system defines  the procedures by which  the cost baseline may be changed. It includes the paperwork, tracking systems, and approval levels necessary for authorizing changes. The cost change control  system should  be integrated with the integrated change  control  system, discussed in Section  4.3.

.2   Performance measurement. Performance measurement techniques, described in Section 10.3.2, help to assess the magnitude of any variations that do occur. Earned Value Management (EVM), described in Sections  7.4.2.3  and 10.3.2.4, is especially useful  for cost control. An important part  of cost control is to determine what  is causing  the variance and to decide  if the variance requires corrective action.

.3   Earned value management (EVM).  All EVM Control  Account  Plans (CAPs) must continuously measure project  performance by relating three  independent vari- ables:  1)  The  Planned Value,  the  physical  work  scheduled to be performed, including the estimated value of this work (previously called the Budgeted Costs for Work Scheduled [BCWS]),  as compared against the 2) The Earned  Value, physical  work actually accomplished, including the estimated value  of this work (previously called  the Budgeted Costs for Work Performed [BCWP]),  and  to the

3) Actual Costs incurred to accomplish the Earned Value. The relationship of 2) Earned Value less 1) Planned Value constitutes the Schedule Variance  (SV). The relationship of 2) Earned Value less 3) Actual Costs constitutes the Cost Variance (CV) for the project. See also Section  10.3.2.4.

.4   Additional planning. Few projects run exactly according to plan. Prospective changes may require new or revised cost estimates or analysis  of alternative approaches.

.5   Computerized tools.  Computerized tools, such as project  management software and  spreadsheets, are often  used  to track  planned costs versus  actual costs, and to forecast the effects of cost changes.

7.4.3    Outputs  from Cost  Control

.1   Revised  cost  estimates. Revised  cost  estimates are  modifications to the  cost information used  to manage the project. Appropriate stakeholders must  be noti- fied as needed. Revised cost estimates may or may not require adjustments to other aspects of the project plan.

.2   Budget  updates. Budget  updates are a special category  of revised  cost estimates.

Budget updates are changes to an approved cost baseline. These numbers are gen- erally revised  only in response to scope changes. In some cases, cost variances may be so severe  that  rebaselining is needed to provide  a realistic  measure of performance.

.3   Corrective action.  Corrective action  is anything done  to bring  expected future project performance in line with the project plan.

.4   Estimate at completion. An Estimate at Completion (EAC) is a forecast  of most likely total  project  costs based  on project  performance and risk quantification, described in Section  11.4.3. The most common forecasting techniques are some variation of:

■    EAC = Actuals  to date  plus  a  new  estimate for  all  remaining work.  This

approach is most often used when  past performance shows that  the original estimating assumptions were fundamentally flawed,  or that they are no longer relevant to a change in conditions. Formula: EAC = AC + ETC.

■    EAC = Actuals to date  plus remaining budget (BAC – EV). This approach is

most often used when  current variances are seen as atypical  and the project management team expectations are that similar variances will not occur in the future. Formula: EAC = AC + BAC – EV.

■    EAC = Actuals to date plus the remaining project  budget (BAC – EV) modified

by a performance factor,  often  the cumulative cost performance index  (CPI). This approach is most often used when  current variances are seen as typical of future variances. Formula: EAC = (AC + (BAC – EV)/CPI)—this CPI is the cumulative CPI.

Each of these  approaches may be the correct  approach for any given project and will provide the project management team  with a signal if the EAC forecasts go beyond acceptable tolerances.

.5   Project closeout. Processes  and procedures should  be developed for the closing or canceling of projects. For example, the Statement of Position (SOP 98-1 issued by the American Institute of Certified Public Accountants—AICPA) requires that  all the costs for a failed information technology project  be written off in the quarter that  the project  is canceled.

.6   Lessons learned.  The causes  of variances, the reasoning behind  the corrective action  chosen, and other  types  of lessons  learned from cost control  should  be documented so that  they  become  part  of the historical database for both  this

project and  other projects of the performing organization (see  Section  4.3.3.3).