In addition to establishing a baseline schedule for a project, it is also necessary to develop a baseline budget. Estimates must be made of the costs for each specific activity. The project budget is determined by aggregating the estimated costs for all the activities. The budget must then be spread over the expected time span of the project to create a time-phased baseline budget that is used to analyze cost performance of the project. Once the project starts, it is important to monitor actual costs and earned value of the work performed. At regular intervals during the project, the following cost-related parameters should be monitored: Show
Comparisons must be made among these three parameters to evaluate whether the project is being accomplished within budget and whether the earned value of the work performed is in line with the actual cost expended. If at any time during the project it is determined that the project is overrunning the budget or the value of the work performed is not keeping up with the actual cost expended, corrective action must be taken immediately. Once project costs get out of control, it will be very difficult to complete the project within budget. As you will see in this chapter, the key to effective cost control is to analyze cost performance on a timely and regular basis. Early identification of cost variances allows corrective action to be taken before the situation gets worse. Based on the actual cost expended and the earned value of the work performed, you will learn how to regularly forecast whether the entire project will be completed within budget. Based upon this chapter, you will become familiar with:
Learning OutcomesAfter studying this chapter, the you should be able to:
Project Management Knowledge Areas from PMBOK® Guide
Vignette A: Dynamic Consequences of Cost, Schedule, and PerformanceDoD is the source of project management techniques and is plagued by cost overruns. A project by the US Army was analyzed using earned value techniques. The assessment led to a reduction in the scope of the project to limit the losses and have a positive outcome for the funding spent.
Earned value methods are a valuable asset in the tool set of a project manager. Using the cost estimates at completion in comparison to schedule, costs, and performance are good strategies to determine if a project should continue or be terminated. One of the most difficult decisions by a project manager is to terminate a project or limit its scope. The U.S. Army project managers made this difficult decision based on analysis of the costs, schedule, performance, and earned value. Vignette B: Power Transmission Project Cost ManagementCanada has aging power transmission lines that are inadequate to meet the needs of the country. New lines are needed. Two project teams from western Canada provide lessons learned to new project teams to help avoid cost and schedule overruns and the problems that plagued their power transmission line projects.
The total project cost is often estimated during the initiating phase of the project or when the project charter or a proposal is prepared
A. Aggregate Total Budgeted Cost
B. Develop Cumulative Budgeted Cost
A. Actual Cost
B. Committed Costs
C. Compare Actual Cost to Budgeted Cost
A. Cost Performance Index
B. Cost Variance
A. An IS Example: Internet Applications Development for ABC Office Designs (Continued)
When the CPI goes below 1.0 or gradually gets smaller corrective action?When the CPI goes below 1.0 or gradually gets smaller, corrective action should not be taken, the project is performing well. The key to effective cost control is waiting to address negative cost variances and cost inefficiencies after they are identified. It is important to manage the cash flow on a project.
When taking action to correct projects with a negative cost variance you should?When evaluating work packages that have a negative cost variance, focus on taking corrective actions to reduce the costs of two types of activities: Activities that will be performed in the near term. If you put off corrective actions until some point in the distant future, the negative cost variance may deteriorate.
Is the amount that was actually spent to accomplish the work that was scheduled to be performed up to that point in time?CAC: cumulative actual cost = the amount that was actually spent to accomplish the work that was scheduled to be performed up to that point in time. 7.
When evaluating work packages that have a negative cost variance you should focus on taking corrective actions to reduce the costs of quizlet?Terms in this set (20) When evaluating work packages that have a negative cost variance, you should focus on taking corrective actions to reduce the costs of: activities that have a small cost estimate.
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