hartley, project management: integrating strategy, operations and change, 3e tilde publishing...
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Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Chapter 6
Cost Management Ending the reliance on the budget variance
© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Chapter overview
1. Planning for cost management 2. Estimating project costs3. Pulling the budget together4. Controlling project costs5. Crashing the schedule
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© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Planning for cost management
It is the planning process that establishes the policies, procedures and documentation for planning, managing, expending and controlling project costs, given different stakeholders - contribute different amounts of funding measure costs differently report costs in different ways control costs at different times
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© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Estimating project costs
Pre-determined Expert judgement Analogous Group decision making Unit rates Published commercial data Parametric Vendor bid Reserve 3 point
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© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Pulling the budget together
Traditional Zero based Program Top down Bottom up
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© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Controlling project costs
Option 1 Traditional Budget
oBudget – Actual = Variance oReports a positive or negative value
Option 2 Earned value analysis
oPlanned value, Earned value, Actual costoHistorical and predictive performance analysis
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© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Crashing the schedule
Cost Slope = Crash Cost – Normal Cost Normal Duration – Crash Duration
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© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Review questions1. How would a cost management plan address the challenges
of managing project costs within the internal financial procedures and accounting codes of the organisation?
2. What are some of the challenges estimating project (resource) costs, and how can these be overcome?
3. What benefits do budgeting processes bring to projects, and what weaknesses to they possess?
4. What does traditional budgeting fail to report and control in project management?
5. How does earned value management provide for both schedule and cost performance reporting, analysis and forecasting?
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© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Group learning activities
Discuss why a cost management plan is needed in addition to existing organisational financial systems, processes and controls
Review the estimating techniques and identify learner preference and rationale
Flowchart the budget preparation and management activities
Critique a budget report looking for how it addresses historical and forecast project performance
Discuss where earned value management may not be applicable (and why) in some projects
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© 2014 Hartley, Project Management: Integrating Strategy, Operations and Change, 3e Tilde Publishing
Assessment options
Create a cost management plan that will be effective in guiding and directing how project costs are dealt with throughout the project
Develop a template for a non-traditional budget that captures more meaningful and relevant data
Generate an earned value report (Excel or MS Project) on a current report and assess both past and future performance
Short answer questions Multiple choice questions
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