Chapter 11 Cost Management (2025 Detailed Analysis Edition)

Introduction

• Cost management will be less difficult than schedule management (because basically cost management only involves the concept of earned value analysis or earned value management)

• Will involve some calculation questions

• In addition to calculation questions in the morning, earned value analysis may also appear in case questions in the afternoon.

Chapter introduction

• The entire eleventh chapter is divided into six sections
  • The first part, 11.1, will introduce the basic concepts of cost management and the foundation of cost management.
  • The second part, 11.2, is about the four processes of project cost management, which will be briefly introduced. You will have a preliminary understanding of what each process does.
  • The third part, from 11.3 to 11.6, focuses on explaining the details of each process.

What is cost management?

• Project cost management includes ensuring that projects areCompleted within approved budgetThe various processes of planning, estimating, budgeting, financing, financing, management and control of costs to ensure that the project is completed within the approved budget.

Pay attention to two types of costs

• Focus on the cost of resources required to complete project activities. (The cost of the project itself)
• The impact of project decisions on usage costs, maintenance costs and support costs. (Project life cycle costs)

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• The cost of the project itself is generally rarely ignored.
• In addition to the costs of the project itself, there are also the costs of project decisions. Decisions include decisions made when the project is started. The maintenance costs and support costs of the entire product for final deliverability will also affect the cost of the project. These two The two costs are called later costs and project life cycle costs. In other words, life cycle costs not only include the cost of product development, but also include future operation, maintenance and support, so its life cycle costs will be more extensive. The project manager requires We should not only pay attention to the internal costs of the project, but also look forward and backward.

11.1 Management basics

The role and significance of project cost management

• Project cost management is mainly concerned with the cost of resources required to complete project activities, but the impact of project decisions on the use, maintenance and support costs of project products, services or results must also be considered, that is: life cycle costs.

• Lifecycle cost management is often used in conjunction with value engineering techniques to reduce costs, shorten time, improve the quality and performance of project deliverables, and optimize the decision-making process.

• In small projects, cost estimating and cost budgeting can be combined into one process and completed by one person in a shorter period of time.

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• The first concern will be wider.

  • Cost management means that in addition to caring about the cost of resources required for project activities, it must also consider the subsequent project life cycle costs (that is, early decisions) and the solid support that can be delivered in the later stages.

• The second mentioned that life cycle cost management is often combined with value engineering to optimize decision-making.

  • Value engineering is the scope and process. In fact, when it comes to value engineering, how to achieve functions at a lower cost (that is, optimizing the entire product), value engineering is used to reduce costs, shorten time, improve deliverable quality, etc.

• The third point is that when it comes to project management, it does not mean that the four cost management processes must be strictly done.

  • If it is a small or medium-sized project (for example, there are two processes, estimating costs and formulating budgets, these two processes can be done together, it is not strict).

Reasons why project costs are out of control (understand)

Don't memorize it, it can only appear in case questions. If you are writing a paper on cost management and have an impression of the small knowledge points, you can better write about the reasons for out-of-control costs. It is recommended that you have an impression of the title for the first time.

• （1) Insufficient understanding of engineering projects.

  • ① Insufficient understanding of the characteristics of information system engineering cost control, and uncertainty about the difficulty;
  • ② The scale of the engineering project is unreasonable. A large and comprehensive project often has a long construction period, the technical difficulty of project implementation is high, the investment of technical personnel cannot keep up with the needs of project construction, and the acceptance ability of various departments of the construction unit for information system engineering and Changes in concepts cannot keep up with the needs of information system construction;
  • ③ Engineering project design and implementation personnel lack cost awareness, resulting in project design not meeting cost control requirements;
  • ④ Lack of responsibility for the use of project costs, arbitrary spending, extravagance and waste, etc.

• （2） The organizational system is not sound.

  • ① The system is imperfect;
  • ② Responsibilities are not implemented, there is a lack of responsibility for cost control, and specific cost control personnel are not implemented at each stage and work package of the project;
  • ③ There is no clear division of investment among the project managers of the construction unit, resulting in ineffective leadership and supervision of investment control.

• （3） Methodological issues.

  • ① Lack of relevant reports and data processing methods required for project investment control
  • ② Lack of systematic cost control procedures and clear specific requirements, unclear requirements for cost control tasks at different stages of project progress, and lack of coherent control throughout the project progress;
  • ③ Lack of scientific, strict, clear and complete cost control methods and work systems;
  • ④ Lack of utilization of computer-aided investment control programs;
  • ⑤ Lack of dynamic comparative analysis of planned values ​​and actual values, and timely provision of various required status reports and experience summaries.

• （4) Technical constraints.

  • ① Since project cost estimation occurs in the early stages of project construction, the relevant information about the project is not well understood, and the project planning and design is not perfect enough to meet the needs of cost estimation;
  • ② The project cost estimation method adopted is inappropriate and inconsistent with the actual situation of the project or with the obtained project data;
  • ③ The data for project cost calculation is inaccurate or has missing items, resulting in low calculation cost;
  • ④ The designer failed to optimize the design plan, causing the project design plan to exceed the project cost target;
  • ⑤ The price increase of materials or equipment greatly exceeds the expected floating range;
  • ⑥ Changes in project planning and design cause an increase in related costs;
  • ⑦ The risks that may be encountered during project implementation are insufficiently estimated, resulting in a substantial increase in implementation costs.

• (5) Improper demand management.

  • Errors occurred in the project requirements analysis and the project scope changed frequently.

cost type

• Divide costs from two perspectives (for example: one cost can be variable cost or fixed cost, which is the same cost from another perspective, or it can be direct cost and indirect cost.)

type	describe
variable cost (Variable Cost)	Costs that change with production volume, workload, or time are variable costs. Such as: personnel wages, raw materials consumed, etc., also known as variable costs
fixed costs (Fixed Cost)	Non-repetitive that does not vary with production volume, workload, or time Costs such as equipment costs, venue rental fees, etc.
direct cost (Direct Cost)	Costs that are directly attributable to project work are direct costs. Such as: project team travel expenses, wages, materials and equipment usage fees used in the project, etc.
indirect costs (Indirect Cost)	A general overhead account or a cost shared among several projects. Such as: employee benefits, taxes, security fees, administrative department and financial department fees, etc.

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• variable cost: Generally speaking, from the perspective of the producer, it is believed that the more variable costs, the better, which means the higher the output. (Because there is market demand)

• fixed costs: Non-repetitive means that it is generally a one-time investment. From the production side, it is best to have as few fixed costs as possible.

  • For example: As a training institution, if we conduct open classes, we hope that the variable cost of the content will become higher and higher. That is, various materials, various printed materials, etc. distributed to each student. The more the better, which means more output, but I hope The less the cost of classrooms (including the cost of teaching equipment), the better. (Because it does not increase with the increase in output or the number of students, this is exactly the law for manufacturing companies)

• direct cost: It means that the money spent is clearly spent on the project and has nothing to do with other projects.

• indirect costs: Shared costs that do not belong to a separate project are an indirect cost for the project.

  • General management subjects (for example: the fund of a labor union in an enterprise or an organization, the entire enterprise must invest, as well as all employees, all projects, some shared conference rooms, shared security costs, shared by all employees, and The project has nothing to do with these benefits, etc. The financial department is shared, so financial expenses and tax expenses are all expenses that need to be shared and cannot be directly attributed to a certain project. A cost is either a direct cost of the project or an indirect cost of the project. .)

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• Controllable costs:From a project perspective, controllable costs refer to costs that are easily controllable by the project manager. Of the above four costs, one that is easy to control is the variable cost and the other is the direct cost. It is generally believed that these two types of costs are called Controllable costs.

opportunity cost

• The use of a certain amount of time or resources to produce or deliver a product or service, and the loss of the opportunity to use these resources to produce or deliver other best alternatives, is the opportunity cost. It generally refers to the loss of other options after making a certain choice. The biggest loss in choice.
• Opportunity cost refers to the highest value option among the options that are discarded when faced with a decision to choose one from multiple alternatives.

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• Opportunity Cost: Generally refers to everything that after making a certain decision, other options are lost at the same time, which is the biggest benefit given up. When a person makes a decision, only if you have the right to choose, can you say that you have a chance at this moment? Cost. (It can be seen as a set of choices. The choice set is: {apple 20 yuan, pear 30 yuan, banana 50 yuan}. If you want to eat apples this time, the opportunity cost is 50 yuan for bananas.)

• Example: Now there is 1 million to invest in a project. If there is only one project to do, which is to buy a house to make money, there is no opportunity cost. The opportunity cost is that the 1 million can have multiple investment channels. The first one buys a house, the second one Buy stocks, and the third one buys funds. In this case, Opportunity costs may occur. If you buy a house for 1 million, you can choose to earn 500,000 by buying a fund or 200,000 by buying stocks at the same time. Your opportunity cost of buying a house is 500,000, which is the maximum benefit among other options. The amount of money is your opportunity cost of buying a house

• Now there are three projects to choose from: project a, project b, and project c. Project a can earn 500,000 yuan, project b can earn 100,000 yuan, and project c can earn 700,000 yuan. Due to policy and other reasons, I finally chose project b. , what is the opportunity cost of choosing project b? What is the opportunity cost of choosing project c?

  • The opportunity cost of choosing project B is 700,000
  • The opportunity cost of choosing project c is 500,000

• Opportunity costs were first discussed by farmers in the United States. He was in great pain. Every spring he planted seeds, whether to plant carrots or apples. He had a choice and would incur opportunity costs. If he planted carrots, the opportunity cost would be the income from apples. He planted apples. , the opportunity cost is the benefit of the carrot.

• Note: Opportunity cost is the highest value of the options you give up.

sunk cost

• Refers to costs that have occurred as a result of past decisions and cannot be changed by any decisions now or in the future. Sunk cost is a historical cost, which is an uncontrollable cost for existing decisions. It will greatly affect people's behavior and decision-making. When making investment decisions, we should try to eliminate the interference of sunk costs.

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• Sunk Cost: It is a historical cost, and rational investors should not consider sunk costs.
  • Sunk cost is money wasted, all kinds of money spent in the past, such as buying health products, buying funds, etc., the money is spent and can never be recovered, and in the past, I spent 1 million to buy a fund, and it was completely lost. , don’t consider 1 million for future investment in the future, this is called sunk cost.
  • Don't cry over spilled milk. It's useless to cry because your milk has already been spilled on the ground. The sunk cost is the spilled milk.

Development trends and emerging practices

Through the extension of Earned Value Management (EVM), the concept of Earned Progress (ES) is introduced

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• It is really rarely used in a production environment. The focus is on earned value management. Earned value management generally means calculating EVM in terms of money. The new trend is that in addition to cost or money, the new trend is the introduction of earned progress (earned progress). How much progress has been gained is like money).
• Earned value: Earn value in hand.

How to calculate schedule variance?

Traditional calculation method:

Latest calculation method:

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• The latest calculation method -> Progress deviation -> For example, in the previous stage of the project, if you worked for 45 days in 30 days, the earned progress was 45, but it actually took 30 days. 45-35 is the progress deviation. In other words, the progress is ahead of schedule for 15 days.

Through earned progress and actual time, the project duration can be estimated and the project completion date can be predicted.

11.2 Project Cost Management Process

Process overview

• The project cost management process includes:

  • planning cost management: Determine how to estimate, budget, manage, monitor and control project costs
  • Estimate cost: An approximate estimate of the monetary resources required to complete project activities
  • Make a budget: Aggregate the estimated costs of all individual activities or work packages to establish an approved cost baseline
  • Control costs: Monitor project status to update project costs and manage changes to the cost baseline

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Four processes of cost management

• The planning cost management process is the same as the planning schedule and the planning scope. It is only used to produce a very virtual guideline cost management plan. The cost management plan will guide the last three processes (it will guide cost estimation, budget formulation, control cost (these three processes), cost management plan (planning cost management) is not important, in the guidance of cost management plan Next, start estimating costs. Estimating costs actually means estimating the cost of each activity. After estimating the cost of each activity, summarize the costs of all activities (such as emergency reserves must be considered). After the summary, the budget of the entire project is formed. Making a budget is the process of finally forming a budget. After the budget is actually approved, it becomes a budget. In this benchmark, the three processes (planning cost management, estimating costs, and formulating budgets) are in the planning process, and the cost control process is only in the monitoring process group. Controlling costs means monitoring the entire life cycle. Because there are costs in the project The benchmark has determined the cost baseline. When the project is executed, monitor the actual costs every week or month. If it is more or less than the cost baseline, if the gap is particularly large, make changes. However, in the entire project management system, earned value analysis or earned value management technology is put into the cost control process, so this process is the entire An important fulcrum in this book, earned value analysis, is related to cost, but it is also related to scope and schedule.

project cost management process

Factors to consider when cutting (not important)

The cost management knowledge area is the same as all knowledge areas. It is not necessary to use all processes. In other words, the ITTO of each process should not be so strict. It can be tailored according to the characteristics of the project, that is, tailoring the cost management sub-field. When cutting, you need to consider the following factors.

• Knowledge Management: Does the organization have an easy-to-use, formal knowledge management system and financial database that project managers are required to use? (Whether the existing knowledge in the enterprise's knowledge base/organization is related to finance or various kinds of knowledge.)
• Estimating and Budgeting: Does the organization have formal or informal policies, procedures, and guidelines related to cost estimating and budgeting? (When estimating and budgeting, are there any relevant policies/guidelines that the company already has?)
• Earned value management: Does the organization use earned value management to manage projects? (Whether the organization has adopted earned value management or earned value analysis techniques in past projects, if not, it doesn’t matter. This is also a kind of tailoring.)
• Use of agile methods: Does the organization use agile or adaptive methods to manage projects? What impact does this have on cost estimates? (If you are using an agile project, you must manage it according to the specific agile method (there are many agile methods or frameworks, and different frameworks have different granularity in cost management.).)
• Governance: Does the organization have formal or informal audit and governance policies, procedures and guidelines? (From the perspective of business management or corporate governance, are there any guidelines for the entire earned value management or the entire cost management?)

Factors to consider in an agile or adaptive environment (understand)

More projects exhibit the following characteristics: high variability, incomplete scope, and frequent changes (One characteristic of agile projects is that projects whose scope is not completely clear adopt agile methods, so it can be expected that the requirements or scope will change frequently.)

Suitable approach

• Quickly generate high-level forecasts of project labor costs using lightweight estimating methods, making it easy to adjust forecasts as changes occur.(In agile projects, a better approach is to use lightweight estimation. That is, don’t spend so much manpower and material resources estimating every activity detail. It is easy to change. It is better to use a lighter weight and rough estimation method. , quickly form estimates and have a high-level forecast so that adjustments can be made easily when changes occur in the future.)

Disadvantages of a strict budget

• Scope and schedule changes need to be made more frequently to stay within cost constraints (If you adopt a strict budget in an agile project, you should be aware that defects will occur, because the scope will be changed frequently in the future. Once the scope is changed, the schedule will also have to be changed. The scope and schedule will inevitably affect the cost. If a strict budget method is adopted, The cost must be revised immediately, which means the management cost is extremely high.)

11.3 Planning cost management

Course objectives

• Understand the meaning and role of the planning cost management process
• Understand the analytical techniques used in the planning cost management process
• Understand the meaning and content of cost management plan

planning cost management

definition

• Determine how to estimate, budget, manage, monitor and control project costs

effect

• Provide guidance and direction on how to manage project costs throughout the project

opportunity

• Conduct only once or only at predefined points in the project

Cost management work should be planned early in the project planning stage and the basic framework of each cost management process should be established to ensure the effectiveness and coordination of each process.(Not only planning costs, the key word for any planning is early stage. Cost management work should be planned early in the project planning stage, because the cost planning and cost management process provides a framework and foundation for the other three processes of cost management. As a guide, only by forming a cost management plan first can we make cost estimates, cost budgets, etc. earlier, so try to do it in advance.)

Data flow diagram

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1.Input

Project Charter

• The project charter specifies pre-approved financial resources from which detailed project costs can be determined. The project approval requirements stipulated in the project charter also have an impact on project cost management.(The project charter contains a general budget about costs. That is, the sponsor or leader is going to invest 3 million for you. That is written in the project charter. However, there is no estimate or budget yet. The estimated budget may be more than 3 million, or more than 3 million. 3 million is less, but as a general framework, the 3 million mentioned is in the project charter. There is really something called pre-approved financial resources in the project charter, which is this 3 million.)

project management plan

• If you already have a progress management plan or risk management plan, you can also refer to it. It must be subject to the constraints of business environmental factors and organizational process assets.

• Project management plan components include:

  • Schedule management plan: determines the criteria and activities for preparing, monitoring and controlling the project schedule, and also provides the processes and control methods that affect cost estimation and management
  • Risk management plan: Provides methods for identifying, analyzing and monitoring risks, as well as processes and controls that affect cost estimation and management

business environment factors

• Can influence the planning cost management processbusiness environment factorsinclude:

  • Organizational culture and structure that can influence cost management
  • market conditions
  • currency exchange rate
  • Published business information
  • project management information system
  • Productivity differences across regions

organizational process assets

• Can influence the planning cost management processorganizational process assetsinclude:

  • Financial control procedures (e.g. periodic reporting, required review of fees and payments, accounting coding and standard contract clauses, etc.)
  • Knowledge base of historical information and lessons learned
  • financial database
  • Existing formal and informal policies, procedures and guidelines related to cost estimating and budgeting

2. Tools and techniques

expert judgment

• Expert judgment should be exercised on the following topics:

  • Similar projects in the past
  • Information from industries, disciplines and application areas
  • Cost estimates and budgets
  • Earned value management

data analysis

• It is mainly an alternative analysis technique, which can include reviewing strategic methods of financing, such as self-financing, equity investment, loan investment, etc., and can also include consideration of methods of obtaining project resources (such as making, purchasing, renting or leasing)

Meeting

• The project team may hold planning meetings to develop a cost management plan. Attendees may include the project manager, project sponsor, selected project team members, selected stakeholders, project cost owner, and other necessary personnel

3.Output

Cost Management Plan (Key Points)

• cost management planIs the component of the project management plan that describes how project costs will be planned, scheduled, and controlled. The cost management process and its tools and techniques should be documented in the cost management plan.(Tools and techniques for the other three processes of cost management in the future should be documented here, with selection made by the cost management plan.)

• The cost management plan stipulates:

  • unit of measurement (The unit of measurement is yen or US dollar.)

  • Accuracy

  • Accuracy

  • Organization Program Link (At which level is WBS managed?)

  • control threshold

  • Performance Measurement Rules (EVM Technology/Progress Performance Measurement Indicators)

    • Define control accounts used for performance measurement in the WBS
    • Determine the EVM technology to be used (such as weighted milestone method, fixed formula method, percentage of completion method, etc.)
    • Specifies the tracking method, and the EVM formula used to calculate the project estimate at completion (EAC)

  • Report format (How will future cost status be reported and with what frequency?)

  • Other details

    • Description of strategic financing options
    • Procedures for dealing with exchange rate fluctuations
    • Procedure for recording project costs

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Precision and accuracy resolution

• Precision is not accuracy, accuracy is not accuracy.
• Accuracy: Accuracy means whether it is accurate to two or three decimal places when estimating costs or accounting in the future. This is called accuracy.
• AccuracyIt means that when estimating, compared with the real value, the accuracy of the estimated value is plus or minus 30%, or plus or minus 5%. This is accuracy.
• It is possible that the estimate is very accurate, and the estimate is to three or four decimal places, but it is far from the real value. The 10 million project is off by several million, which is inaccurate.
• The hope is that the estimation or financial management is both precise and accurate.

Control critical value (key point)

• The schedule management plan has control thresholds, and the cost management plan also has control thresholds, which must be determined in advance. This is the control threshold for determining cost deviations based on the risk that the organization in the enterprise can bear, which is the process of future project execution. Among them, monthly cost overruns were discovered 500,000. If the cost overrun is 500,000, should we take corrective measures? First, let’s look at the cost control threshold. If the monthly cost deviation from the control threshold is plus or minus 600,000, it doesn’t matter. If the deviation is only 500,000, don’t take any corrective measures. Measures have been taken, but the critical point for taking measures has not yet been reached.

performance measurement rules

• When conducting earned value management in the future, how to determine what formula to use at each level of WBS and how to calculate its EV, AC, etc. There will be many indicators how to calculate and what are the calculation rules. This is called Performance measurement rules.

Core knowledge organization

• Planned cost management provides guidance on how to manage costs throughout the projectGuides and Directions

• The cost management plan is an integral part of the project management plan and describes how project cost management will be carried out

• The cost management plan should stipulate the unit of measurement, precision, accuracy, etc. in the project, and also specify the cost-relatedcontrol threshold system(The critical value is the basis for whether to take corrective measures.)

• The planning meeting to determine the cost management plan may require the participation of stakeholders from all aspects.(This plan is not decided by the project manager, but is a sub-plan approved by all stakeholders.)

11.4 Estimating costs

• Estimating cost is a task or process with very small details or granularity. Estimating cost actually requiresEstimate the cost of each activity, because there are various tools and techniques for estimating the progress of activity progress, so it should be very simple and easy to learn, provided that you have a solid foundation in the cost management knowledge field.

Course objectives

• Memorize the definition of estimated cost and understand what is included in the estimate
• Understand what the precision level of an estimate means
• Understand the meaning and usage of bottom-up estimation
• Memorize what supporting information for the estimate includes
• Be familiar with the inputs, tools and techniques, and outputs of the process

Estimate cost

definition

• Provide an approximate estimate of the cost of resources required to complete the project work

effect

• Determine the funding required for the project

opportunity

• carried out throughout the project (Estimation is within the project life cycle. As new information continues to emerge, estimates can be made continuously)

When estimating costs, you need to identify and analyze alternative cost options that can be used to start and complete the project; you need to weigh alternative cost options and consider risks, such as comparing homemade costs with outsourced costs. Purchase costs versus leasing costs and multiple resource sharing options. , to optimize project costs.

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• In fact, the granularity of future estimates is relatively large, and work packages have not yet been broken down into activities. Work packages can also be divided, and estimates can also be made. Generally speaking, when estimating, the plan must be determined first (for example, when it comes to self-made outsourcing analysis) , a knowledge point in procurement management, such as: for a certain task activity or work package, should the team actually complete the work package (usually a small software or tool-like software, or should it be developed by internal team members themselves) , or outsourcing needs to be weighed. Outsource the project That is to hand it over directly to another software company and let it help you develop it, or the third option is to outsource five programmers and have external programmers help them develop. These three options need to be weighed, because the cost estimate can mainly be based on the cost You can also weigh it from the perspective of confidentiality, etc. After weighing it, you finally have to make a choice. For example: the cost of self-development is too high and requires 100,000, but if it is outsourced, another software company only requires 30,000 and other options. , this matter may be something to consider when estimating costs.

Data flow diagram

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enter

• One is to estimate the cost: to estimate from the smallest granularity, it means to estimate the cost of which activity, so it is the cost of each activity. Each activity must be known. Estimating the cost is actually a very important part. It requires the consumption of resources. The most important thing is The reference is resource demand (in resource management, there is a process of estimating activity resources, which is to estimate which categories and how many resources are needed for each activity. This is called resource demand)
• The second reference risk (risk register): Risk is progress. As mentioned before, reserves can be reserved after considering risks, mainly considering contingency reserves. If there is a prior progress plan, you can also refer to the progress plan.

output

• It is the final estimation result for each cost, which is called cost estimate. Cost is very important. Stakeholders want to know why it is estimated in this way. By the way, a second file is generated called the estimation basis.

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• The field of quality management knowledge will be expanded in detail. What is quality cost? What are the two categories of quality cost? Quality cost is very important, which is COQ.

All costs should be considered

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• As a project manager, lead everyone to estimate costs. Don’t make any omissions. When estimating costs, you must not only consider all labor, but also materials, equipment, facilities, and whether some use other services and need to pay or share costs. There are also some Special costs (including inflation subsidies (actually setting aside some reserves for future inflation risks in advance), financing costs (because in today's era, in many cases including borrowing, costs must be considered), contingency costs (don't forget to consider risks) , such as emergency reserves)).

Tip: Cost estimates can be presented at the activity level or in aggregate form.(Generally speaking, the exam is considered to be dealing with large and medium-sized projects. If possible, estimates must be made at the activity level. If it has not been broken down into activities, or other project management frameworks do not break down activities, it can be estimated at a high level. Make an estimate.)

1. Enter

project management plan

• Project management plan components include:

  • Cost Management Plan: Describes the estimating methods that can be used and the accuracy and precision required for cost estimates

  • Quality Management Plan: Describes the activities and resources required by the project management team to achieve a set of project quality objectives

  • Scope baseline: includes project scope statement, WBS and WBS dictionary

project files

• Lessons Learned Register: Lessons learned early in the project related to developing cost estimates can be applied to later stages of the project to improve the accuracy and precision of cost estimates

• Project schedule: includes the type, quantity, and length of time the team and physical resources will be available for the project

• Resource Requirements: Identifies the types and quantities of resources required for each work package or activity

• Risk Register: Contains details of individual project risks that have been identified and prioritized, and the actions taken to address those risks

business environment factors

• Business environmental factors that can affect the cost estimating process include:

  • market conditions. What products, services and results can be obtained from the market, from whom and on what terms
  • Published Business Information. Resource cost rates and related information can often be obtained from commercial databases, which dynamically track cost data for human resources with corresponding skills and also provide standard cost data for materials and equipment.
  • Exchange rates and inflation rates. For large-scale projects spanning multiple years and involving multiple currencies, exchange rate fluctuations and inflation need to be understood and factored into the estimating cost process

organizational process assets

• Organizational process assets that can influence the estimating cost process include: cost estimating policies cost estimating templates historical information and lessons learned knowledge base

2. Tools and techniques

expert judgment

• Input should be sought from an individual or group with expertise or training in:
  • Similar projects in the past
  • Information from industries, disciplines and application areas
  • cost estimating method

analogy estimation

• Cost analogies are estimated using parameter values ​​or attributes from similar past projects. Project parameter values ​​and attributes include (but are not limited to) scope, cost, budget, duration, and size metrics (e.g., dimensions, weight)

parameter estimation

• Parametric estimation refers to the use of statistical relationships between historical data and other variables (such as square feet in building construction) to estimate the cost of project work. The accuracy of parameter estimation depends on the maturity of the parametric model and the quality of the underlying data. reliability. Can be for the entire project or a specific part of the project

Bottom-up estimation

• Start by developing the most specific, granular cost estimates for individual work packages or activities, and then roll up or “roll” these detailed costs up to higher levels for subsequent reporting and tracking. The accuracy of a bottom-up estimate, and the cost itself required, often depends on the size or other attributes of the individual activity or work package.(It is more accurate to first fully decompose the work package into activities, estimate the activity costs, and then summarize the activity costs step by step. This is called bottom-up estimation.)

three point estimate

The three-point estimate for estimating progress is exactly the same as for schedule management, except that it estimates cost at three points.

• Three-point estimating improves the accuracy of single-point cost estimates by accounting for uncertainty and risk in the estimate

• Technique derived from Program Review Technique (PERT), which uses three estimates to define approximate intervals for activity duration

Most likely cost (Cm)

• The resulting activity cost is a more realistic estimate of the work required and associated costs.

Optimistic cost (Co)

• Cost based on the best case scenario for the activity

Most Pessimistic Cost (Cp)

• Cost based on the worst-case scenario for the activity

data analysis

Alternatives analysis

• Alternatives analysis is a technique for evaluating identified alternatives to decide which option to choose or which method to use to perform project work. For example, evaluating the impact of buying and manufacturing deliverables on cost, schedule, resources, and quality respectively

Reserve analysis

• To account for cost uncertainty, contingency reserves can be included in cost estimates. A contingency reserve is a portion of the budget included in the cost baseline to address identified risks; as project information becomes clearer, the contingency reserve can be used, reduced, or eliminated

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• Reserve analysis: The progress management knowledge area conducts reserve analysis when estimating the progress of each activity. (For example, it originally took 30 days (30 working days) to complete the activity, but due to the risk, an extra 15 days was left, which is reserve analysis.) The costs are exactly the same. , for example, it was estimated that the original cost of an activity would be 100,000, but after considering risks, an extra 20,000 was reserved on top of the 100,000. The extra 20,000 was left after a cost reserve analysis. 20,000 yuan can reasonably deal with unknown risks, so there is a reserve of 20,000 yuan. If you think that 50,000 yuan can reasonably deal with risks, and unknown risks are risks that have already been exposed ten times, then keep 50,000 yuan. In the end, keep 50,000 yuan. 20,000 and 50,000 are obtained through reserve analysis. The current process is to estimate costs. When estimating costs, we mainly consider contingency reserves. In other words, we mainly consider which known risks will affect activities.Extra money set aside for known risks is called a contingency reserve, is a cost activation.

quality cost

• When estimating, various assumptions about quality costs may be used, including the evaluation of the following situations: whether to increase investment to meet requirements, or bear the costs caused by non-compliance with requirements; whether to seek short-term cost reduction, or to bear the cost of product Consequences of frequent problems later in the life cycle

Project Management Information System (PMIS)

• Project management information systems can include spreadsheets, simulation software, and statistical analysis tools that can be used to assist in cost estimating. These tools simplify the use of certain cost estimating techniques and allow people to quickly consider multiple cost estimating options.

decision making

• Decision-making techniques suitable for the cost estimation process include (but are not limited to) voting. Voting is the process of evaluating multiple future courses of action to achieve a desired outcome. These techniques can engage team members, improve estimate accuracy, and increase accountability for estimate results

3.Output

cost estimate

• Cost estimates include what may be needed to complete the project workcost, respond to identified riskscontingency reserve. The cost estimate should cover the cost of all resources used by the project. In addition to conventional resources, it also includes financing costs (including interest), inflation subsidies, etc.

Formally (how to present it)

• Cost estimates can be summarized or detailed

content

• Cost estimates should cover all resources used by the project

About indirect costs

• Indirect costs can be charged at the activity level or higher if they are also included in the project estimate

Basis for estimation (understanding)

• The amount and type of supporting information required for a cost estimate will vary by application area. Regardless of its level of detail, supporting documentation should clearly and completely describe how the cost estimate was derived.

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• A description of the estimate interval: The final estimation result, whether it is the previous estimated progress or the current estimated cost, is not necessarily an exact value. (For example: the estimated activity cost can be 100,000, but it can also be 100,000 plus or minus 20,000. interval, etc., if this is the method. You need to explain which interval the estimated result is in, or why the cost falls into the interval.)
• A description of the confidence level in the final estimate: From a statistical point of view, it is the probability of the project being completed within 1 million yuan (for example, 82.9%), and the probability of being completed within 1.5 million yuan (for example, 99.7%). Write these things down It is in the estimation basis that you have received. But in fact, it is impossible to be so detailed in the exam, so don’t read the entire estimation basis in detail during the second review.

Project file updates

• Project files that can be updated during this process include:

  • Assumption log: During the cost estimating process, new assumptions may be made, new constraints may be identified, or existing assumptions or constraints may be re-examined and modified. Assume that the log should be updated accordingly based on this new information
  • Lessons Learned Register: Techniques for effectively and efficiently estimating costs that need to be updated in the Lessons Learned Register
  • Risk Register: The risk register may need to be updated as risk responses are selected and agreed during the cost estimation process

Core knowledge organization

• Estimating costs is the process of making an approximate estimate of the cost of resources required to complete project work
• The purpose of estimating costs is to determine what is needed to complete the project workfunds
• During the project life cycle, the accuracy of project estimates will gradually improve as the project progresses.(Replenish:
  In the early stages of the project, in fact, the knowledge points were discovered in the entire learning system. From the first chapter, which is about informationization, to the seventh chapter, bidding, and cost management, you will find many knowledge points, and many chapters appear together. It must be considered in project management. (For example: when establishing a project, at different stages of the project, the project must be estimated during the feasibility study stage. The accuracy of the estimate can be plus or minus 30%, which is more accurate than the feasibility study stage. In the early proposal stage, only 30% of the work is done OK (that is, the leader passes a rough estimate through the approval department). You can definitely reject or agree to the project, and wait until a detailed feasibility study is conducted later. If it is very detailed, the project will be approved immediately, or it will be written into the project charter. It may be the accuracy of the estimate, which may require plus or minus 10%. If the cost is estimated now, a budget or project baseline will be formulated immediately. This is a cost baseline under the guidance of the project manager. The cost baseline may require an accuracy of 5%.)In different periods of the project, its accuracy is different..)
• When developing a cost estimate, consideration should be given to what will be charged to the projectAll resources
• Bottom-up estimating is a method of estimating work components that can be used on a projectMid and late planninguse(Only by understanding the details of each activity can we estimate the activity and do it from the bottom up.)
• Reserves set aside can be divided intocontingency reserveandmanagement reserve, this process focuses on the former (When estimating activity costs, the main focus is on contingency reserves. Then you have to start setting aside management reserves (that is, setting aside money for unknown risks) during the cost estimation stage. This is also possible, but generally this process pays more attention to Set aside emergency reserves.)
• As project information becomes clearer, it canDraw down, reduce or eliminate contingency reserves(When the project is already in the process of being implemented, the contingency reserve can also be used to reduce or cancel.)
• Activity cost estimates are the estimates needed to complete the project workQuantitative estimates of all costs(Even if there can be an interval, it must be expressed in terms of quantity.)

11.5 Develop a budget

• The entire budgeting process is to summarize activity costs into a cost baseline.

Course objectives

• Memorize the implications of the budgeting process
• Understand the difference between contingency reserves and management reserves
• Understand the process of cost aggregation
• Understand the relationship between cost baseline, expenditures and funding requirements
• Memorize the inputs, tools and techniques, and outputs of this process

Make a budget

definition

• Summarize the estimated costs of all individual activities or work packages to establish an approved cost baseline.(Generally, the summary is started from the activity cost, and then the cost baseline is formed and approved by key stakeholders.)

effect

• Establish a cost baseline against which project performance can be monitored and controlled.(Cost baselines are used to monitor cost performance in the future.)

opportunity

• Carry out only once or only at predefined points in the project.(Because cost baseline is a planning process, it can be performed once, or it can be changed at any time during the project.)

Data flow diagram

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• References when making a budgetEstimate costEstimates of costs resulting from the process,Estimate basis, to considerIdentify risksThe process will generate a risk register. To consider risks is to reserve emergency or management reserves for the project, focusing on management reserves.
• The most important output iscost basis(It forms or summarizes the cost baseline of the project, and directs the funding requirements to the organization where it is located. The funding requirements are not continuous, and the funding requirements are generally gradient (such as how much money is needed each month or the project needs each quarter). How much money to invest)

ITTO

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• There is one aspect of schedule management called resource balancing. Resource balancing means that resources are limited, so the schedule plan is modified. The same is true for funds. If funds are restricted, the schedule must be modified to make the investment of funds more reasonable. The full name isFunding Limit Balance.
• FinancingJust borrow money.

1.Input

project management plan

• Project management plan components include:

  • Cost Management Plan: Describes how project costs will be incorporated into the project budget
  • Resource Management Plan: Provides information about rates for labor and other resources, travel cost estimates, and other foreseeable costs that must be considered when estimating the overall project budget
  • Scope Baseline: Includes details of the project scope statement WBS and WBS dictionary, which can be used for cost estimating and management

project files

• Basis of estimate: Include basic assumptions in the basis of estimate. For example, whether indirect costs or other costs should be included in the project budget.
• Cost estimate: After summarizing the cost estimate of each activity in each work package, the cost estimate of each work package is obtained.
• Project Schedule: Includes planned start and completion dates for project activities, milestones, work packages, and control accounts
• Risk register: The risk register should be reviewed to determine how risk response costs are aggregated. Updates to the risk register are included in project document updates

feasibility study document

• Feasibility study documents that can be used as input to this process include:

  • Feasibility Study Report: Key factors for project success include financial success factors
  • Project evaluation report: outlines the target benefits of the project, such as calculation of net present value, time limit for realizing benefits, and measurement indicators related to benefits

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• Feasibility study document: It may be due to the difference in environment between China and the West. In the PMBook guide, it is not called a feasibility study document. It is called a business document, including a business case and a revenue management plan. The official tutorial has changed it to The entire document is called a feasibility study document, which includes a feasibility study report (the PM guide is called a business case). The two official reports are called project evaluation reports (the PM guide is called revenue management plan or translated into benefit management plan). The content is similar. It is determined that the project may bring an overall benefit of 10 million to the organization (how to estimate and how to achieve it). If this 10 million is the income in the first month, the income in the first half of the year, the income in the first year, etc.

protocol

• When developing a budget, consider the cost of products, services or results to be or have been procured and applicable agreement information

business environment factors

• Business environmental factors that can affect the cost estimation process include (but are not limited to) exchange rates. For large-scale projects spanning multiple years and involving multiple currencies, exchange rate fluctuations need to be understood and incorporated into the budgeting process

organizational process assets

• Organizational process assets that impact the budgeting process include:
  • Existing formal and informal policy procedures and guidelines related to cost budgeting
  • Knowledge base of historical information and lessons learned
  • cost estimating tool
  • reporting method

2. Tools and techniques

expert judgment

• seeking expert opiniontheme.(Get some expert resources on the financial aspects of budgeting.)

  • Similar projects in the past
  • Information from industries, disciplines and application areas
  • financial principles
  • Funding needs and sources

data analysis

Reserve analysis

• management reserveIt is a project budget specially set aside for the purpose of management control to deal with any changes in the project scope.unforeseen work, the purpose is to deal with "unknown-unknown" risks that will affect the project.

• Key considerations in the budget development processmanagement reserve

(Memorize) Management reserves are not included in the cost baseline but are part of the overall project budget and funding requirements and require senior management approval for use.

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• Contingency reserve (for example, if you summarize the cost of the project, the final summary of all activity packages is 900,000 yuan. This is not the cost baseline. 900,000 yuan takes into account known risks and leaves another 100,000 yuan, which is the contingency reserve. 900,000 yuan plus 100,000 is equal to 1 million, and this 1 million iscost basis, request the leaders of the company or organization to leave an additional 50,000 yuan in order to deal with unknown risks. Leave an extra 50,000 yuan.Unpredictable costs,50,000 is to deal with unknown risks, so 50,000 ismanagement reserve, from the enterprise perspective, 1.05 million is reserved, but only 1 million is the baseline, and the project manager can use it freely.

Why is management reserve called management reserve?

• Although 50,000 yuan has been reserved for the management reserve, it is likely that from the beginning to the end of the project, if there is no unexpected situation, there will be no need to spend it and it will be returned to the company, and the performance will not be considered. However, if during the project, a once-in-a-century encounter occurs There are strong winds during outdoor construction. This extreme situation is not considered for 1 million yuan. You can apply for management with 50,000 yuan. When using the reserve, it must be approved by the leader (most of the time, the leader needs to go through the change process CCB approval.) or the manager, so 50,000 is a management reserve. After the management reserve is approved, it can be included in the project baseline. Once an accident occurs , incorporating the project benchmark, the project benchmark may increase from 1 million to 1.05 million.

Contingency Reserve Vs Management Reserve

	contingency reserve	management reserve
Belonging process	Estimate cost	Make a budget
What types of events are used to respond to	anticipated but uncertain events, That is, "known unknown events"	Unplanned but possible Project scope and cost changes, i.e. "unknown location events"
Is it a cost basis?	Belongs to cost basis (Belongs to project scope) (Project cost baseline = contingency reserve + estimated project activity costs)	It does not belong to the cost baseline, but belongs to the total project budget (Total Project Budget = Management Reserve + Cost Baseline)
Project manager processing permissions	Free to use	Must be approved before use

cost summary

• The activity cost estimates are first summarized into the work packages in the WBS, and then the work packages are summarized into the higher levels of the WBS (such as: control accounts), and finally the total cost of the entire project is obtained. (When formulating a budget, a summary method that needs to be used is cost summary. Generally speaking, for example, if a project has been estimated to the activity level, it is summarized upward from the activity, to the work package, and then to the control account.)

Graph analysis

• The bottom of the figure is a summary of activities and estimated costs. This is the first control account, then the second control account, and finally the two control accounts are summarized to form the total cost of the entire project.

Historical information review (need to memorize)

• Reviewing historical information can help with parameter or analog estimation. Historical information may include various project characteristics (parameters) thatUsed to build mathematical models to predict total project costs.(Historical information review is actually used for two other tools. For example, if you want to use parameter estimation or analogy estimation, these estimation methods need to consider some historical parameters or data. Considering historical data tools and techniques, they are all called reviewing historical information. .Not only auditing, but also prediction using mathematical means.)

can be very simple

• The total cost of building a house depends on the construction cost per unit area, multiplied by the total area

Maybe it's complicated

• There are multiple variables in the cost model of software development projects, and each variable is affected by multiple factors.

How to make estimates more reliable?

• The historical information used to build the model is accurate
• Parameters in the model are easy to quantify
• The model can be adjusted so that it is applicable to large projects, small projects and various project phases.(The adaptability of the model should be strong)

Funding Limit Balance

• Funding expenditures should be balanced against any restrictions on project funding, which isFunding Limit Balance

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• Fund limit balancing is also called fund balancing. For example, according to the first version of the schedule, there is a schedule, and the cost of each task or activity is estimated with the team members, and the costs are also available, and the costs are combined according to the schedule, and finally You can definitely calculate the balance of funds.
• For example: the project mentioned to the financial department or the leader that this is the first one-year project. It will require hundreds of thousands in the first quarter, 500,000 in the second quarter, 200,000 in the third quarter, and 300,000 in the fourth quarter. , the overall one-year project requires 1 million. If there are some companies, it may not matter. , since the project needs it, the entire organization has decided to invest 1 million. It is enough to invest funds in four quarters. However, some companies, especially those with strict internal control requirements (for example, the stock exchange requires quarterly and annual reports to be disclosed every quarter) , when disclosing the quarterly report, talk about the overall situation of the entire enterprise On the plate, how much money is expected to be invested in the first quarter, how much revenue is expected, how much will be expected in the second quarter, etc. The company as a whole should reach a balance of overall funds). When a balance is reached, the outside world will not say how the company has such poor control. In order to ensure that the entire company A balance of capital flow often gives a restriction, It’s okay to give 1 million, but it’s best if the expenditures in each quarter are balanced, so as not to disrupt the overall capital flow. As a project manager, it is required to achieve each goal on the basis of the original capital requirements. The quarterly demand is about 250,000. On the surface, it is to balance the funds. In essence, it is through modification.schedulerealized.

Illustration

• Picture on the left: If only 200,000 yuan was spent in the first quarter, the subsequent work was moved to the first quarter. In the first quarter, either the money was spent or too much was spent. After the final adjustment of the schedule, the level of demand for funds was reached. , that is, the whole picture is adjusted from the left picture to the right picture, and the technical use of funds is restricted and balanced.

Funding limit balancing is accomplished primarily by adjusting the work schedule, which can be accomplished by adding mandatory dates to the project schedule.(For example, some work must be completed in the first quarter, which is a mandatory date. If we balance economic constraints, it may affect the total construction period of the entire project. Just like resource balancing, it may lead to delays in the total construction period.)

Financing

• From a project perspective,Financingrefers toProject funding. Long-term infrastructure, industrial and public services projects often seek external financing

Conclusion: If a project uses external funding, the funding entity may impose certain requirements that must be met.(If the project uses external funds (financing), others will not lend you money for nothing. The entities that contribute the money (that is, the dads who give you money) may put forward some requirements that must be met. This is true in all walks of life. , except for Internet companies, those who borrow money have to give 49% of their profits, or even 51% in some cases, to the lender.)

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• Now is the Internet era, and many projects have funding gaps, or many projects are empty-handed. Before 2002 (when the epidemic just started), before 2021 or earlier, during the heyday of the Internet, There are many entrepreneurial teams that are really empty-handed. They have a small idea, organize three or five people, and they can start. It is normal to raise tens of millions of rounds of financing, including A round, B round, and C round, but it is no longer possible. After the epidemic, especially from 2022 to now 2024, it will become more and more difficult to raise funds, because investors are very difficult. Be cautious, and the Internet has now begun to reach its trough. Even with the support or blessing of AI technology, AI technology itself is relatively rampant, and it is not It is very unlikely that AI will generate as much income as a good idea in the short term. It is difficult to invest. I want to do a project myself, but what should I do if I don’t have the money? I have no choice but to bite the bullet. If angel investment is no longer possible, go to banks or other sources. Borrowing debt, then this technology is called financing. From a project perspective, financing is to obtain funds for the project. (Why does the country issue national debt now? That is One is to promote consumption and stimulate consumption.) The other is what to invest. In the long term, infrastructure, industry and public service projects require a lot of funds, which can be through the issuance of national bonds, corporate bonds, or bank borrowings. , all belong to financing, and financing mainly refers to external funds, which is called financing. Applying to business leaders is not called financing, but is called application fees.

• Example of conclusion: When actors in the film industry sign a gambling agreement with a production company, it is a financing agreement. If the movie they borrow money to make does not reach the box office, they will suffer heavy losses.

3.Output

cost basis

• cost basisis an approved project budget allocated by time period,Does not include any management reserves, only throughFormal change control proceduresTalent changes are used as a basis for comparison with actual results. (There is a cost baseline first, and the second step is to approve the key concepts. At least every month, preferably every week, or even every day, there should be an amount of money that should be invested. It cannot be said that a one-year project is only 3 million. , a cost baseline is not good. If you want to change the cost baseline, you must go through the overall change control process. The cost baseline is used for future monitoring to compare cost performance.)

cost basis diagram

Illustration

• 1. Activity cost estimation: A1, A2, and A3 refer to activities (that is, the project has been broken down into activities at the lowest granularity). The project manager leads the team members, mainly the team members to estimate that the first activity A1 requires an investment of 25 yuan, and the second activity activities etc.
• 2. Work package estimation: After estimating the cost of each activity, start aggregation, and the activities are summarized up to the work package level. The first four activities (A1, A2, A3, A4) belong to the first work package, and the cost estimate of the first work package is 100 yuan,
• 3. Control account estimation:If there are any, the further work packages must be summarized into the control account, and the first control account costs 850 yuan.
• 4. Cost basis:Multiple control accounts roll up to the overall project cost baseline.
  • The cost baseline should include contingency reserves, but why is there no contingency reserve in the picture?
    • The contingency reserve can actually be at the activity level (that is, the estimated 25 yuan already includes the contingency reserve), or at the work package level (the work package has already considered known risks, leaving a contingency reserve, even 100 yuan already includes the contingency) Reserve, so it is not specifically written out.)

Conclusion: Just look to the left and the basket you see now is the cost baseline. Whether it is a work package or an activity level, the contingency reserve has been taken into account. On the basis of the cost baseline, 1,250 is summarized and another 150 yuan is reserved for management. The reserve added up to one dollar is 1,400 yuan, which is the cost budget invested by the entire enterprise, soThe difference between the cost baseline and the project budget given to you by the organization is the management reserve

About the composition of the total project budget

Illustration

• Looking from right to left, the right side shows the contingency reserve when estimating activity costs.
• Summarize it into work packages, and you can also leave some emergency reserves for work packages.
• Aggregate to control account
• Summarize it to the cost baseline, and leave some management reserves on the basis of the cost baseline.
• Develop a budget for the entire project

Tip: When using management reserves, after obtaining approval, the appropriate amount of management reserves should be moved to the cost basis.(If the management reserve is actually used, it is spent on the project, so it must be added to the cost baseline.)

The final form of the cost baseline

• Look at the green line, which represents the cost baseline. The cost baseline is not a value, but a continuous line, which is the capital consumption according to the time period (what is the time period? Look at the green line, the entire project is a one-year project, in the How much money should be spent in a month or the first week, how much money should be spent in the second week, how much money should be spent in the third week, and how much money should be spent cumulatively every week or every month are all composed of line segments. So it is a time period),This continuous curve formed as a whole is called the cost basis.

Why is the cost baseline not a value but a line?

• Not only is the cost baseline, the scope schedule isAll benchmarks are for future monitoring, because the future project will be run and executed for a year. Within a year, it will need to be monitored every month or every week, or even every day. Every monitoring point must know how much the project should cost up to this moment. Only by comparing them two by two with how much money did you actually spend can you know at this moment Is the project cost-saving or value-for-money? I want to compare it at any time and know how much it should cost. The cost benchmark cannot be compared with 3 million yuan invested in the whole year. The cost benchmark must be based on intensity. This continuous curve is distributed over a small period of time.

• The cost baseline is the final accumulated value of the green line, and the accumulated value is called the completion budget.Note that it is not project budget. The real exam does not test the concept of project budget at all. It only tests the completion budget called BAC., it is the money within the benchmark, which can be used as a standard to evaluate your entry performance, so only the budget at completion (BAC) is considered.The project budget is obtained by adding the management reserve to the completion budget. These two calculation questions will not be tested and the project budget will not be tested..

The blue dotted line is the actual expenditure. After seeing the picture, the project should actually have been completed. The expenditures from front to back are available. If you want to evaluate the project, it will be how well it did in terms of cost. , how to make a summary?

• Although it exceeded the cost baseline and some management reserves were used in the end, it was still within the project budget. The control was very good at the beginning. Later in the project, an unexpected risk may have occurred in the 11th month. Suddenly, more money was spent and some were used. There are management reserves, but within the budget of the leader's project, the project is relatively normal, and some management reserves have been used.

Project funding requirements

• Based on the cost baseline, determine total funding requirements and periodic (such as quarterly or annual) funding requirements. Project funds are usually invested in increments and may be uneven, showing a ladder-like pattern

  • If there are management reserves, the total funding requirement is equal tocost basisaddmanagement reserve
  • In the funding requirement document, the source of funding may also be stated

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• Funding requirements are not a cost basis. If you give 3 million yuan directly, it is impossible for leaders, companies, or finance people to give it to you all at once. If you give 10,000 yuan a day, a total of 3 million yuan will not work anyway. Enterprises with average management costs cannot bear it.
• The periodic capital demand is how much money you invest every quarter, which is called capital demand.
• Non-equilibrium: It means that we may not necessarily invest 1 million in you every quarter.

Analytical diagram

• The red ladder-shaped dotted line is the capital demand, which is how much money the company or organization will invest in you every quarter.

Why should funding requirements cover management reserves?

• In terms of project budget, project execution is more secure.

Conclusion: After the entire project is executed, the project is a normally executed project from the perspective of the enterprise, and the capital requirements or budget invested are sufficient.

Project file updates

• Project files that can be updated during this process include:
  • Cost Estimate: Update the cost estimate to record any additional information
  • Project schedule: may record estimated costs for various activities
  • Risk Register: New risks identified during this process are recorded in the risk register and managed through the risk management process

Core knowledge organization

• Budgeting is the process of summarizing the estimated costs of all individual activities or work packages to create an approvedcost basisprocess
• emergencyreserveare caused by known-unknown risks listed in the risk register,In the hands of the project manager
• management reserveIt is prepared for unknown risks. If the project manager wants to use the management reserve, he must obtainApproval from senior management or project sponsor
• When formulating the budget, the activity costs are first summarized, and then summarized from the work packages to the higher level of the WBS, and finally the total cost of the entire project is obtained.
• cost basisis approved,Allocate by time periodproject budget, excluding management reserves
• Project funding requirements may be uneven and present a ladder shape

11.6 Control costs

Course objectives

• Understand the meaning and role of the cost control process
• Memorize the inputs, tools and techniques, and outputs of this process
• Master the basic concepts in earned value management
• Able to calculate various indicators based on the data provided by the project, such as: calculating ETC and EAC under different circumstances
• Understand the calculation method of TCPI, and clarify the meaning of these indicators.
• Learn some common rules for earning value estimates

Control costs

• control cost processEarned value analysisWhen technology is added to it, the four processes are a little bit more difficult, but they must be mastered.

definition

• Monitor project status (Mainly in terms of cost status) to update project costs and manage cost baseline changes

effect

• Maintain cost baselines throughout the project

opportunity

• carried out throughout the project

Key analysis

• Pay attention to the relationship between capital expenditures and the work corresponding to the money spent, and do not spend more.
• In fact, all sub-monitoring processes include control scope and control progress. All sub-monitoring processes must be combined with the implementation of the overall change control process. In other words, changes in any field must beOverall change control process.

Data flow diagram

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• The prerequisite for cost control is to control costs according to what. The budgeting process forms a cost benchmark that must be monitored.
• Get the actual cost of the cost from the work performance data, get how much it should have cost so far from the cost baseline, and compare the two (through deviation analysis/trend analysis/earned value analysis) ), record the results into work performance information. This is the main thing to control costs, so the most important output is work performance information (information about costs).
• Because almost all stakeholders pay special attention to the cost situation, they may want to know how much it will cost to complete the project according to the performance. The original BAC completion budget is 1 million, but the leader wants to know how much it will cost to proceed according to the current performance.
• cost forecast: It is to calculate a value in advance on how much it will cost to complete the project in the future.
• Cost forecasting methods or formulas are required to be mastered, and are almost certain to be taken in advanced exams.

ITTO

focus

• Focus on learning earned value analysis technology and the To-Complete Performance Index TCPI

Project cost control includes

1.Input

project management plan

• Project management plan components include:

  • Cost Management Plan: Describes how project costs will be managed and controlled
  • Cost Baseline: Compare the cost baseline with actual results to determine whether changes need to be made or corrective or preventive actions taken
  • Performance measurement baseline: When using earned value analysis, the performance measurement baseline is compared to actual results to determine whether changes are necessary to take corrective or preventive action.

project files

• Project documents that can serve as input to this process include the Lessons Learned Register. Lessons learned early in the project can be applied to later stages to improve cost control

Project funding requirements

• Project funding requirements include estimated expenditures and estimated debt

job performance data

• Work performance data contains data about project status, such as which costs have been approved to be incurred, invoiced, and paid

organizational process assets

• Organizational process assets that impact the control cost process include:
  • Existing formal and informal policies, procedures and guidelines related to cost control
  • cost control tools
  • Available monitoring and reporting methods

2. Tools and techniques

expert judgment

• Topics for Expert Opinion
  • Deviation analysis
  • Earned value analysis
  • predict
  • financial analysis

data analysis

• If the critical path in the progress knowledge area and the earned value management in the cost knowledge area are not clear, the possibility of passing the exam will be slim.

Earned Value Analysis (focus)

• Earned Value Analysis (EVA)technology, also known as Earned Value Management (EVM), toscope baseline, cost baselineandprogress baselineintegrated to formperformance measurement benchmarks, helps project management teams evaluate and measure project performance and progress by comparing actual schedule and cost performance to performance measurement baselines.(Earned value analysis integrates scope baseline, cost baseline and schedule baseline. The three benchmarks are considered together to form the overall performance measurement baseline of the project.)

• Monitor three key indicators at any time:

  • Planned Value (PV)
  • Earned Value (EV)
  • actual cost (AC)

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• We need to pay attention to three benchmarks. The previous requirement to memorize is the "3+1" benchmark. The three benchmarks are combined to form the performance measurement benchmark. There are four benchmarks in total, all of which can be reflected through earned value management. Earned value management can Know or pay attention to the progress of the project and how much it cost Well, earned value management is not only for the entire project, but also for each work package or control account. The advantage is that projects in almost all industries can be monitored using earned value management technology, which is used in the monitoring process. A technology that helps control the cost process.
• Earned value management can be considered a quantitative technology. A prerequisite for producing good results is to strictly control the project in advance by the unit doing the project or the person doing the project, and decompose each work package into activities. Everyone who wants to do work in the future must estimate the activities accurately. Risks must be considered and summarized into the benchmark of the entire project. It will cost 1 million to apply for the project from the leader, plus 50,000 yuan for management costs. No problem. According to the previous All the processes mentioned, in this case, use earned value when monitoring The management is very smooth. But now, almost all domestic enterprises, including state-owned enterprises and central enterprises, are required to use earned value management on the surface. But in fact, the final cost benchmark is not strictly estimated, but assigned. It is determined when the project is approved. The project will give you 50 RMB 50,000, the project team does not need to estimate and summarize, RMB 500,000 is prepared to develop 5 modules, each module is divided into RMB 50,000, the specific development and designer does not need to consider the cost, what work should be done within RMB 50,000, basic data If neither is accurate, there can be no talk of earned value management.
• There are two goals or objectives in studying now. One is that you must take the exam and follow a strict process. The other is that if you are qualified to change the status quo of the industry in the future. (Because the positions of learning project management are different, and you will gradually become It is a management position. In the future, we can know that these are the reality and ideal state. In the future, we can try, I cannot say that it is earth-shaking, try to change the status quo, at least the status quo of the entire enterprise, make the basic data more accurate, and make these more general management Use the tool.)

Actual usage

• It is rarely used in China and some companies are forced to use it. The company's internal PMIS system (Project Management Information System) requires each project to determine the planned value PV, BAC completion budget, etc., but it is barely usable and the practicality is particularly poor.

Three key indicators

• In order to carry out earned value management, there is actually no need to invest much money. Once the one-year project starts to be implemented, monitoring can be done at any point in time. By calculating three values ​​at any point in time, you can understand the current status of the project and earn money. Value management needs to be very simple. Three indicators need to be measured. The first is planned value, and the second is the most important. Earned value (because it is based on the earned value of indicators), and the simplest indicator of actual cost (that is, how much money is actually spent now). As long as you know these three values ​​​​at any moment, you can use a simple calculation between these three values. The subtraction relationship can be used to measure whether the project progress is ahead of schedule, behind schedule, cost overrun, or terminated at this moment.

Earned value analysis example

• Decorating a house includes five tasks: designing, laying the floor, suspending the ceiling, installing doors and windows, and painting the walls. The total planned construction period is 10 days. The work plan is arranged as shown in Table 1. It is now the end of the seventh day. The progress of the project is as follows Shown in Table 2

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• The entire project work is divided into 5 items, that is, 5 activities or work packages. The activity duration is estimated in the planning stage in advance. Looking at Table 1, the estimated activity time for these five tasks is two days and three days for each activity, etc., assuming five Each activity is executed sequentially and lasts 10 days. The cost of each activity is estimated: 1,000 yuan for design, 5,000 yuan for paving, etc. After estimating the schedule cost, the first table formed, if Now that the project has been completed for 7 days, at the end of the seventh day, we need to report the work performance data. Table 2 shows the work performance data after 7 days, which is the five work contents. The actual progress is that the design is all completed, and the ceiling is 70% completed. The two activities have not been carried out. In terms of expenses and costs, there is also work performance data, that is, the design cost 1,100 yuan and the flooring cost 5,100 yuan. This is called work performance data.

If you have these two pieces of information (that is, Table 1 is the plan, Table 2 is the actual data), what is the progress and cost of the two projects?

• The problem can be solved very easily through earned value analysis technology. The cost and progress of the project can be reported by comparing the existing data with the plan and calculating three values.

Why learn earned value analysis?

• If all leaders involved in project management and all monitors understand earned value management and use technology for analysis, everyone will have a common language and can easily understand the status of the project.

Plan value PV

• Planned Value (PV, Planned Value): An approved budget allocated for planned work and prepared to complete an activity or component of a work breakdown structure (WBS), excluding management reserves. (An approved budget allocated for planned work, which consists of completing an activity, in other words,For each activity a PV can be assigned to the activityFor example, if you need 10,000 yuan to do an activity, the PV of the activity is 10,000 yuan. It can also be a higher level, a higher level in the work breakdown structure, work package decomposition PV, or you can use the control account to decompose and allocate PV to the control account. OK, the budget allocated to a certain job, activity or work package (approved budget) is called PV.
  In order to simplify calculations, management reserves will not be considered in earned value management in the future.)
• The sum of PV is sometimes called the Performance Measurement Baseline (PMB),The total PV of the project is also known as the budget at completion (BAC). (BAC is essentially the cumulative value of the cost baseline)

Graph analysis

• The hypothetical Gantt chart is the rough first quarter. The project is not expected to be implemented yet, but now it is just the end of the plan. It is expected to complete activity A in the first quarter, activity B in the second quarter, C in the third quarter, and activity C in the fourth quarter. In quarter D, team members estimated the cost of activity A to be 100,000, activity B to be 80,000, activity C to be 150,000, and activity D to be 70,000.

You can answer the question about PV before execution starts. What is the PV of the project in the first quarter?

• The PV of activity A needs to be completed in the first quarter, and the cost is estimated to be 100,000, which means the PV of activity A is 100,000, so the PV in the first quarter is 100,000.

What is the PV for the first three quarters?

• These workloads and three activities need to be completed in the first three quarters. Add the PV of these three activities together, 10+8+15=33, and the PV in the first three quarters is 33.

What is the PV of the entire project?

• When the four activities are added together, the total PV value is 400,000. The PV value of the entire project is 400,000. 400,000 is the completion budget of the entire project, which is BAC.

At a given point in time, the planned value PV represents the work that should have been completed at this time according to the plan.(A one-year project is now at the end of one month or two months. The PV at that point in time represents the progress or cost plan according to the work that should be completed by this moment, or the budget that should be spent. PV at time points is generally monitored, and almost all monitoring is based on time points.)

Earned Value Analysis Example: Calculating Planned Value (PV)

At the end of seven days, what was the PV of the first seven days?

• Analysis: PV refers to determined by planning. PV is the value in the plan, which is the estimated value. It has nothing to do with work performance data. It is only related to Table 1.

The PV of the first 7 days is: PV = 1000 + 5000 + 1000 = 7000 yuan

Earned Value (EV)

• Earned Value (EV) is a measurement of work completed and is an approved budget for work actually completed. (Earned value is the money that has been earned. The PV of the completed work is the PV value of the completed work, not the cost of the completed work.)
• The calculation of EV should correspond to PMB, and the resulting EV value should not be greater than the total PV budget of the corresponding module. That is to say,The total EV value of the project at any time must not be greater than the project’s completion budget BAC (The EV value of the project at any time, whether it is the first month, the second month, or the ninth month, the cumulative earned value earned by the EV value cannot be greater than the completion budget BAC of the project, because BAC is the cost basis. Accumulated value and earned value cannot exceed the accumulated value no matter how much you earn. Projects that exceed the accumulated value will spread, and those that spread cannot be recorded in BAC. If there is a point in time, calculate the total EV earned in the project The value is already equal to the total BAC, which is already equal to the completion budget. The only possibility is that the project has been completed.Only for completed projects, the EV earned is equal to the total PV, and the sum is equal to BAC.)

Project completion percentage = EV / BAC x 100%.(If EV equals BAC, the project is said to be completed. In other words, it is 100% complete only when all the activities to be done are completed.)

Gantt chart example

If activity A was not done in the first quarter, but activity B was completed. (Activity A was to be executed according to the plan, but the project manager led the team members to complete B.), what is the PV in the first quarter?

• PV always depends on the plan. As long as the plan remains unchanged, the PV in the first quarter will never change., that is, the PV in the first quarter is still 100,000.

What was the EV for the first quarter?

• EV is the PV of the completed activity. Which activity was completed in the first quarter? Activity B was completed. It belongs to the project scope, so the EV in the first quarter is 80,000 yuan.

What is the completion percentage for the first quarter?

• Percentage of completion: EV is 8 compared to the overall BAC (40), which is 20%, which is the percentage of completion.

Earned Value Analysis Example: Calculating Earned Value (EV)

The PV of the first 7 days is: PV = 1000 + 5000 + 1000 = 7000 yuan
          The EV of the first 7 days is: EV = 100% X 1000 + 100% X 5000 + 70% × 1000 = 6700 yuan
           EV = actual progress percentage X planned cost (complete percentage is 100%)

actual cost (AC)

• Actual cost (AC, Actual Cost) is the cost of performing an activity (In fact, it is an execution project, not an activity.) and the actual cost incurred is the total cost incurred to complete the work corresponding to EV.AC has no upper limit, any costs incurred to achieve EV must be taken into account.(The actual cost has nothing to do with the PV and EV mentioned earlier.)

• The calculation method of AC must be consistent with the calculation method of PV and EV (for example, both calculate only direct hours, both calculate only direct costs, or both calculate all costs including indirect costs) (not important)

• This picture shows that AC does not need to be calculated, and the question will be given directly.

Tip: The value of AC has nothing to do with PV or EV. It is the actual cost spent up to the specified date.

Earned Value Analysis Example: Calculating Actual Cost (AC)

The PV of the first 7 days is: PV = 1000 + 5000 + 1000 = 7000 yuan
          The EV of the first 7 days is: EV = 100% X 1000 + 100% X 5000 + 70% X 1000 = 6700 yuan

What is the actual cost for the first seven days?

The AC of the first 7 days is: AC = 1100 + 5100 + 900 = 7100 yuan

Deviation analysis

Deviation analysis

• Calculate the various deviations of the project up to this point through PV, EV, and AC, and further analyze the causes, impacts and corrective measures of the deviations

  • Progress Variance SV
  • cost variance CV
  • Schedule Performance Index SPI
  • cost performance indexCPI

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• Schedule deviation and schedule performance index reflect both schedule deviation.
• Cost deviation CV and cost performance index CPI reflect cost deviation.

Progress deviation SV

• Schedule Variance (SV, Schedule Variance)It is an indicator for measuring project schedule performance, expressed as the difference between earned value and planned value, indicating whether the project is lagging behind the baseline schedule.(Schedule deviation is the difference in schedule and is an indicator for measuring schedule performance.)

• If SV is greater than 0, the progress is ahead of schedule. If SV is less than 0, the progress is behind.(The bigger the SV progress deviation is, the better. If it is greater than 0, the progress is ahead of schedule, and if it is less than 0, the progress is behind the schedule. (For example: SV equal to 50 means the progress is ahead of schedule, and SV equal to -5 means the progress is behind the schedule.))
• The most important thing overall is the EV value. In almost any case, as long as the EV is particularly large and the value earned is particularly large, it is a good project.
• The PV of the formula is from the perspective of progress, calculating how many days the progress is ahead of schedule, so SV greater than 0 means that the progress is ahead of schedule.

Tip: Schedule variance will eventually equal zero when the project is completed

topic

• At a certain point in the project, the SV was calculated to be equal to 100, and when the SV progress deviation was equal to 100, the sponsor decided to stop the project. What happened?

  • The only possibility is that the sponsor decides not to continue the project. Because SV is not equal to 0, the project is definitely not over. The final conclusion is that the project was terminated early. There is no other choice. The normal end must be equal to 0.
  • Other questions: SV is so good, but the progress has been advanced. Why did the sponsor terminate the project and leave it alone? It was the leader's decision. Although he worked hard and led the team members to advance the progress, the leader saw that the current project did not meet the requirements. The business value of the company has been improved. Although the performance is good, it is normal to not want projects.

Earned value analysis example: Calculate schedule deviation SV

known

The PV of the first 7 days is: PV = 1000 + 5000 + 1000 = 7000 yuan
   The EV of the first 7 days is: EV = 100% X 1000 + 100% × 5000 + 70% X 1000 = 6700 yuan
   The AC of the first 7 days is: AC = 1100 + 5100 + 900 = 7100 yuan

What is the project's schedule variance?

The SV of the first 7 days is: SV = EV - PV = 6700 - 7000 = -300 yuan

Conclusion: The project is now behind schedule.

Cost Variance CV

• Cost Variance (CV, Cost Variance) is the budget deficit or surplus at a given point in time, expressed as the difference between earned value and actual cost

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• The actual money earned minus the money spent is called CV.
• A cost deviation CV greater than 0 is good, a CV greater than 0 means cost savings, and a CV less than 0 means the cost is overvalued.

Tip: The cost variance at the end of the project is the difference between the budget at completion BAC and the actual total cost

Now that the project has ended and the normal project scope has been completed, can the final CV cost deviation be negative?

• Obviously, once the project scope is completed normally, the CV cost deviation can be 0, positive, or negative, there are no restrictions.

Earned Value Analysis Example: Calculating Cost Variance CV

Question: What is the cost variance?

known

The PV of the first 7 days is: PV = 1000 + 5000 + 1000 = 7000 yuan
      The EV of the first 7 days is: EV = 100% X 1000 + 100% X 5000 + 70% X 1000 = 6700 yuan
      The AC of the first 7 days is: AC = 1100 + 5100 + 900 = 7100 yuan
      The SV of the first 7 days is: SV = EV - PV = 6700 - 7000 = -300 yuan

result

The CV of the first 7 days is: CV = EV - AC = 6700 - 7100 = -400 yuan

Conclusion: Cost overrun - 400 yuan.(If you can calculate SV and CV during the project, and your leader also understands earned value management, so does the PMO, all stakeholders understand it, and so do customers. You only need to report it to others or write about the project in your status report (For example, cv is -400, S V is -300). When others see the report, they will know your progress or cost situation. Anyway, it is not optimistic, the progress is delayed, and the cost is too high. Communication is very convenient. Earned value management allows everyone to quickly understand the project status or Understand the meaning of a certain indicator.)

Why do we need to calculate the schedule performance index SPI or cost performance index CPI.

• After the project is reported to the leader, the cost deviation (for example, minus 400 yuan) will be reported to the leader. Whether the leader will be happy or unhappy depends on the scale of the entire project. If the entire project is a one-year project, and the company is prepared to invest 1 billion yuan, the result The first half of the year is over, and the reported CV is -400 yuan. Money, the leader is very happy, because the cost control is so good and precise, a project worth 100 million yuan is only 400 yuan short. But if it is a very small project, the leader is prepared to invest 1,000 yuan in total, but the project is half completed. The cost is already -400, which is unacceptable to the leader.Therefore, the absolute value of CV alone cannot show the scale of the project.Generally speaking, whether it is schedule deviation or cost deviation, we like to calculate a ratio, which is the percentage of overspending or the percentage of progress ahead of schedule. Therefore, we also need to calculate the schedule performance index SPI or cost performance index CPI.

Deviation Analysis: Schedule Performance Index (SPI)

• Schedule Performance Index (SPI, Schedule Performance Index)It is a measure of project schedule performance, expressed as the ratio of earned value to planned value, and indicates whether the project is lagging behind the baseline schedule. Sometimes used with the Cost Performance Index (CPI) to predict final completion estimates.

Tip: A separate analysis of performance on the critical path is required to determine whether the project is ahead of schedule or behind schedule

Why analyze performance on the critical path?

• There is a path that is the critical path, and there is also a non-critical path. Generally speaking, as long as the management cost is relatively high, it is generally only necessary to conduct SPI analysis on the critical path (because the non-critical path is a certain activity, and its SPI is smaller than 1. Some activities are delayed.) It has float, and the total float time will not affect the entire progress.The conclusion is that special attention should be paid to the SPI of key activities.

Earned Value Analysis Example: Calculating Schedule Performance Index (SPI)

known

The PV of the first 7 days is: PV = 1000 + 5000 + 1000 = 7000 yuan
      The EV of the first 7 days is: EV = 100% X 1000 + 100% × 5000 + 70% X 1000 = 6700 yuan
      The AC of the first 7 days is: AC = 1100 + 5100 + 900 = 7100 yuan
      The SV of the first 7 days is: SV = EV - PV = 6700 - 7000 = -300 yuan
      The CV of the first 7 days is: CV = EV - AC = 6700 - 7100 = -400 yuan

result

The SPI for the first 7 days is: SV = EV / PV = 6700 / 7000 = 96%

Conclusion: SV is less than 1, and the progress is now behind. It can be considered that only 96% of the expected progress has been completed.

Deviation Analysis: Cost Performance Index CPI

• Cost Performance Index (CPI, Cost Performance Index)It is an indicator to measure the cost efficiency of budgeted resources, expressed as the ratio of earned value to actual cost, and is used to assess the cost efficiency of completed work.(When looking at project costs, we generally look at CPI, which can reflect more information.)

How much worth of things are done per dollar (according to budgeted value)

• The total CPI is equal to 1.1. If it is greater than 1, it means that the project uses one dollar to complete a dollar-for-dollar job. If the project's CPI is equal to 0.8, it means that for every dollar spent, only 80 cents of work is completed.

Tip: CPI and CV reflect the same basic information, but one is a relative ratio and the other is an absolute quantity.

CPI and CV examples

• Report the cost deviation CV to the leader, which is -400, and report the CPI at the same time. If the CPI is 0.9995, the leader will be very happy, indicating that the control is very good. However, if the entire investment of a small project is only 1,000 yuan, then the CV is -400 yuan. , the result is that CPI is equal to 0.5, CPI is equal to 0.5, which means that every dollar is only earned back. 5 cents of income, so generally speaking, CV and CPI are combined and written in the status report.

Earned Value Analysis Example: Calculating Cost Performance Index (CPI)

known

The PV of the first 7 days is: PV = 1000 + 5000 + 1000 = 7000 yuan
        The EV of the first 7 days is: EV = 100% × 1000 + 100% × 5000 + 70% × 1000 = 6700 yuan
        The AC of the first 7 days is: AC = 1100 + 5100 + 900 = 7100 yuan
        The SV of the first 7 days is: SV = EV - PV = 6700 - 7000 = -300 yuan
        The CV of the first 7 days is: CV = EV - AC = 6700 - 7100 = -400 yuan
        The SPI for the first 7 days is: SPI = EV / PV = 6700 / 7000 = 96%

result

The CPI for the first 7 days is: CPI = EV / AC = 6700 / 7100 = 94%

summary

• The three measured values ​​used to calculate the current project status are PV, EV, and AC. Through the subtraction or division relationship between these three values, the corresponding status can be reported. This is calledDeviation analysis, In some cases, leaders or stakeholders want to know what will happen in the future under the premise of this deviation that has already occurred (for example, the current CPI is 0.8, how much will this project cost in the future), if you want to calculate how much the future project will cost Money is not bias analysis. It is one step deeper than bias analysis. It isbudgeting techniques.

trend analysis

• Trend analysis is designed to examine changes in project performance over time to determine whether performance is improving or deteriorating. Includes charting techniques as well asForecast estimate at completion EAC (Calculating the value of EAC is a trend analysis)technology.(Predicting certain indicators is called trend analysis)

Graph analysis

• The green one is the baseline, the blue one is the earned value, and the red one is the actual cost. Based on the existing three values, the red dotted line can be predicted. Based on the current performance, how much will the actual cost of the project be (that is, when it is completed, How much the actual cost will be is the estimate at completion (EAC). Calculating the estimate at completion EAC is a forecasting or trend analysis technique.

Estimate at Completion EAC

• The total expected cost required to complete a schedule activity, work breakdown structure component, or entire project. It may be calculated based on actual performance to date or may be estimated by the project team based on other factors.(EAC can be calculated for activities, or for the entire project. It can be calculated based on actual performance to date, or it can be estimated from the bottom up by team members, but they are generally tested in exams.How to use the formula to calculate EAV.)

ETC required for completion

• The estimated cost to complete all remaining work for a schedule activity, work breakdown structure component, or entire project

Distinguish between EAC and ETC

• The starting point of the whole project is 0, the expected end point of the project in one year is 1 million, the whole project is halfway done, the CPI is equal to 0.8, the cost has been overrun, how much will it cost to complete the project according to this super value situation, the project BAC cost benchmark The cumulative value is 1 million, and the valuation may cost 1.1 million. 1.1 million is how much it will cost to complete the project, so 1.1 million isEstimate at Completion EAC, ETC is actually very closely related to EAC. For these unfinished activities (red brackets), how much will it cost to complete the activities in the future? It will cost 600,000. 600,000 is ETC. AC is now 500,000. In the future ETC is 600,000, ETC is calledCompletion needs to be estimated(That’s how much the remaining work is expected to cost).

Tip: The so-called forecast is based on the performance information currently available (CPI) and other knowledge, calculate EAC or ETC to be completed

Calculate ETC formula

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• Special deviation (one-time deviation): Now that the project is in progress, the first six months are over, because of a special reason (January to December is the entire cycle, the first six months are the Spring Festival, and during the Spring Festival, one-time payments must be given to employees, customers, etc. to start the new year. Yes, the project spent 200,000 yuan), the entire project spent an additional 200,000 yuan because of the Spring Festival. The project will not spend more in the next 6 months. This kind of deviation isspecial deviation(either a one-time deviation, or a deviation that does not last)(BAC is the total amount of work, EV is the amount of work that has been completed, and the total amount of work minus the amount of completed work equals the amount of unfinished work.)

• Typical deviation (deviation persists):(Test often) In the first 6 months of the project, the current CPI value is particularly bad. Now the CPI is equal to 0.8. The project is overspending. In this case, the leader asked how much the unfinished work will cost in the future if the overspending continues (that is, the completion of the project) Need to estimate)?(The total amount of work completed minus the amount of work that has been completed is the future workload. The ratio of the future workload to the overrun is the ETC.)

• Completed on time and on budget under extreme conditions:(Rarely take the exam)Now the cost performance of the project is not good. CPI is equal to 0.8. When CPI and SPI affect ETC at the same time, the denominator must be divided by CPI times SPI. The two multiplication relationships are called key ratios. The formula is only used in this special case. In the question It must be made clear that both indicators are not very good and affect ETC at the same time. Only use the formula to calculate ETC.

• Top-down re-estimation:(learn)The original estimate was not accurate (why the current CPI is not good, the original estimate was not accurate), to estimate how much future activities will cost, simply re-estimate the unknown activities with team members for each activity, and then add up the costs of each activity.

Master the first two formulas.

Calculate the estimate at completion EAC.

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• Special deviation (one-time deviation): During the Spring Festival, an extra 200,000 was spent, and the CV was negative 20, which means an extra 200,000 was spent. The EAC of the overall project was originally scheduled to be 1 million, BAC-(-20), and the EAC is equal to 1.2 million.(Actual cost (cost that has already been incurred) plus the remaining workload in the future. Opening the brackets equals BAC minus EV, which is EV-AC, which is CV.)
• Typical deviation (deviation persists):The CPI so far of the project is 0.8. The leader asked if the deviation will continue until the end. How much will the project cost overall? BAC100 divided by CPI of 0.8 equals 1.25 million. 1.25 million is the EAC.

During the entire project progress, how many times is the EAC calculated (that is, the estimate of completion, how many times should it be estimated?)

• no limit. You are willing to calculate EAC once a week, or even once every day. The EAC calculated under normal circumstances is always similar to the completion budget BAC (for example: BAC is 1 million, and the calculated EAC is 1.05 million, 9 60,000, 930,000, 1.07 million, all normal, indicating good control) If one day it is found that EAC continues to be larger than BAC (EAC, 1.03 million, 1.05 million, 1.2 million), it means that the project cost may be out of control, and other measures must be taken ,soProject managers should pay special attention to EAC.

Reserve analysis

• Controlling costs is a monitoring process. Reserve analysis includes setting aside contingency reserves/management reserves. It is a time of planning. When planning, reserve analysis is done to reserve money or time for monitoring (for example: when controlling costs, reserve analysis is done to allow for emergency reserves). As the project progresses, analyze the reserves left at that time. During the project progress, look at the unknown Is there a match between the risks/future risks and the reserves left? If the project is just started and the future risks are found to be increasing, but the reserves are used up, then changes are made and more reserves are left, but the project is almost completed. Since the money reserve has not been spent and there is no risk, the change will be made and the emergency reserve will be released.) So it isThe reserve analysis in the monitoring process is to see whether there is a match between the remaining reserves and the remaining risks. When there is a mismatch, Qi will try to find a way to make it match.

Do remaining reserves and remaining risk match?

• Reserve analysis is used to monitor the use of contingency reserves and management reserves in the project to determine whether these reserves are still needed or whether additional reserves need to be added.

Performance index to completion

• To Complete Performance Index (TCPI, To Complete Performance Index)It is a cost performance indicator that the use of remaining resources must achieve in order to achieve specific management goals, such as reaching the completion budget BAC or the completion estimate EAC.(Indicates the CPI that future work should achieve, called TCPI.)

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• If the CPI so far is less than 1, in order to ensure that it is completed as planned and at cost, the CPI of those jobs in the future must be greater than 1, (that is, for every dollar spent on future work, more money must be earned, and it must be greater than 1. ). In another situation (a particularly good situation), the CPI so far is 1.2, (that is, if you have saved money so far, and the leader gives you 1 million, the CPI of future work can be 0.8 or 0.7. In the future You can be more generous), so the conclusion isFor project managers, the bigger the CPI, the better, and the smaller the TCPI, the better..

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• It is recommended to remember this formula.
• BAC-EV is the remaining workload.
• BAC minus the actual cost AC is the estimated cost, which is the remaining money.
• TCPI is the remaining amount of work compared to the remaining money
• The larger the denominator, the better, and the smaller the numerator, the better.(The greatest pain in life is that the person is still there but the money is gone (that is, all the money has been spent in advance).)
• By default this formula is used to calculate TCPI.

• The current CPI is particularly bad. The current CPI is 0.6. After calculating the TCPI through the formula, it is 1.3, which is impossible to achieve. A normal development team cannot jump the CPI from the original 0.6 to 1.3, so you can tell the leader, If the project is really completed based on a BAC of 1 million, the TCPI to be achieved is 1. 3. This is impossible to accomplish. Leaders who understand the rules may give some tolerance. If you calculate the TCPI denominator (which is the remaining money), don’t press BAC. You can give 1.3 million or 1.5 million. Estimate what the EAC is. Estimate EAC is equal to 1.5 million. To calculate TCPI, you can just change the denominator to EAC minus AC.
• The question will directly tell you to use EAC to calculate TCPI. Just use this formula. Otherwise, use the above formula.

Tip: Simply put, TCPI is the cost to complete the remaining work divided by the remaining budget.

TCPI example

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• From the beginning of the project to the present, it has been found that the CPI has continued to deteriorate (the slanted blue line of the cumulative CPI) (that is, the CPI has been very small now, and the cost deviation is getting larger and larger). In this case, if the TCPI is calculated, the position is particularly high (baseline The TCPI above the plan), if it is completed according to the budget, the TCPI must be equal to 1.4/1.5, which is impossible Completed, so if the TCPI calculated using the completion budget is unrealistic, you can use the completion estimate EAC formula, which is likely to calculate the TCPI. Now if the CPI is 0.6, the CPI calculated by the EAC formula is 0.8, which is possible Yes, the responsible members can realistically raise the CPI from 0.6 to 0.8.When choosing between the two formulas, you have to listen to the leader in the production environment, and you have to look at the exam requirements during the exam.

Completion Variance VAC

• Completion Variance VAC, which is a prediction of the budget deficit or surplus, which expresses the difference between the project completion cost and the estimated cost. (At any point in time during project execution, the completion deviation can be calculated. In fact, it is how much the deviation will be worth when you estimate it will be completed.)

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• The larger the completion deviation, the better, can be interpreted as how much money will be saved when waiting for completion. From a leadership perspective, the completion deviation is positive, the bigger the better. (If the project is completed immediately, how much money will be left.)

Summary calculation

**Control costs, especially three calculation questions: **

• The first is earned value analysis or earned value management. You know that earned value analysis also focuses on scope, schedule, and cost. Earned value analysis calculates the three values ​​​​of PV, EV, and AC, and calculates CV/ through the subtraction relationship between the three values. SV, or the division relationship to calculate CPI/SPI.
• The second one is based on the current situation, mainly focusing on costs, and predicting the completion estimate EAC based on the current CPI, or the completion superior estimate ETC. Whether it is calculating EAC or ETC, the technology is called forecasting. The difficulty is when calculating EAC, you need to Divided into three types, mainly two situations are considered. So far, deviations only occur In a very special stage, there will be no deviation in the future. Use the subtraction relationship to calculate EAC. If the deviation of CPI will continue, you have to use the division relationship, but you must refer to the question requirements for the specific formula. The third type is rarely To test, clearly state the cost performance that CPI and SPI affect at the same time, and divide it by CPI times SPI.
• The third requirement is to be able to calculate TCPI. In principle, the smaller the TCPI, the better.

Earned value calculation summary table

Supplement: Calculation strategies for earned value analysis questions

3.Output

job performance information

• Work performance information includes information about the performance of project work (against the cost baseline). Variances in work performed and work costs can be assessed at the work package level and control account level. For projects using earned value analysis, CV, CPI, EAC, VAC and TCPI will be recorded on job performance reports

cost forecast

• Whether it is a calculated EAC value or a bottom-up estimated EAC value, it needs to be recorded and communicated to stakeholders.

change request

• After analyzing project performance, changes may be requested to the cost and schedule baselines, or other components of the project management plan. Change requests should be reviewed and processed through the implementation of an overall change control process

Project management plan updated

• Project management plan components that may require change requests include:
  • Cost Management Plan: Contents that need to be updated in the cost management plan include: control thresholds or required accuracy for managing project costs. Update them based on stakeholder feedback
  • Cost Baseline: After changes to scope, resources, or cost estimates are approved, corresponding changes need to be made to the cost baseline. In some cases, cost deviations may be so severe that the cost baseline needs to be revised to provide for performance measurement. Provide realistic and feasible basis.
  • Performance Measurement Baseline: After changes to scope, schedule performance, or cost estimates are approved, corresponding changes need to be made to the performance measurement baseline. In some cases, performance deviations may be so severe that a change request is required to revise the performance measurement baseline in order to provide a realistic basis for performance measurement.

Project file updates

• Project files that can be updated during this process include:

  • Assumption Log: Cost performance may indicate the need to revise assumptions about resource productivity and other factors that impact cost performance
  • Basis of estimate: Cost performance may indicate a need to revisit the basis of the initial estimate
  • Cost Estimates: Cost estimates may need to be updated to reflect the actual cost efficiency of the project
  • Lessons Learned Register: Techniques for effectively maintaining budgets, variance analysis, earned value analysis, forecasting, and corrective actions to address cost variances should be updated in the Lessons Learned Register
  • Risk register: The risk register should be updated if cost deviations occur, or if costs threaten to reach critical values

Core knowledge organization

• Controlling costs is monitoring project status to update project costs,Manage cost baseline changesprocess

• Earned value reflects the project performance at any moment or point in time.

• The four basic concepts in earned value analysis are:Planned value PV, earned value EV, actual cost AC and completion budget BAC

• The concept related to cost performance isCost Variance CVandcost performance indexCPI

• Concepts related to schedule performance areProgress deviation SVandSchedule Performance Index SPI

• Forecasting costs includes calculatingEstimate at Completion EACandETC needs to be estimated upon completion

• To-Complete Performance Index TCPIIs the cost required to complete the remaining work divided by the remaining budget

word

serial number	word	abbreviation	translate	describe
1	Variable Cost		variable cost
2	Fixed Cost		fixed costs
3	Direct Cost		direct cost
4	Indirect Cost		indirect costs
5	Opportunity Cost		opportunity cost
6	Sunk Cost		sunk cost
7	Earn Schedule	ES	Earn progress
8	Planned Value	PV	planned value
9	vote		vote
10	Earned Value Analysis	EVA	Earned value analysis
11	Actual Cost	AC	actual cost
12	Earned Value Management	EVM	Earned value management
13	Earned Value	EV	earned value
14	Performance Measurement Baseline	PMB	performance measurement benchmarks	Alias ​​of PV
15	Budget cost at completion	BAC	completion budget	Total PV
16	To Complete Performance Index	TCPI	Cost Performance Indicators (Predicted Values)
17	Schedule Variance	SV	progress deviation
18	Cost Variance	CV	cost deviation
19	Schedule Performance Index	SPI	schedule performance index
20	Cost Performance Index	CPI	cost performance index
21		EAC	Completion Estimate
22		ETC	Completion needs to be estimated
23	To Complete Performance Index	TCPI	Performance index to completion
24		VAC	Completion Variance