1. Chapter 15 Cost Control

2. Cost Management Cost estimating Cost accounting Project cash flow
Company cash flow
Direct labor costing
Overhead rate costing
Others, such as incentives, penalties, and profit-sharing

3. Cost Control Requirements
Measure resources consumed
Measure status and accomplishments
Compare measurements to projections and standards
Provide the basis for diagnosis and re-planning

4. Cost Control Requirements (Continued)
Frequent, periodic comparison of actual progress and expenditures to schedules and budgets, both at the time of comparison and at project completion

5. WHEN TO IMPLEMENT A COST MANAGEMENT SYSTEM
Possible cost
reductions
Cost of change
PROJECT
COSTS
PROJECT LIFE CYCLE PHASES
CONCLUSION
A cost management system should be implemented right at the beginning of the life cycle of the project.

6. PLANNING AND BUDGETING
WBS Element
Work Package
Work packages M G R
Org
WP______ORG_______
Description of task_____
____________________
Sched: Start____Stop__
Budget:______________
Org
Org

7. Sources Of Additional Funding
Funded contract change
Management reserve
Undistributed budget (money waiting to be allocated)

8. Cost Data
Labor
Material
Other direct charges
Overhead

9. VARIABLES FOR VARIANCE ANALYSIS
BUDGETED COST FOR WORKED SCHEDULED (BCWS) IS THE BUDGETED AMOUNT OF COST FOR WORK SCHEDULED TO BE ACCOMPLISHED PLUS THE AMOUNT OF LEVEL OF EFFORT.
BUDGETED COST FOR WORK PERFORMED (BCWP) IS THE BUDGETED AMOUNT OF COST FOR COMPLETED WORK, PLUS BUDGETED FOR LEVEL OF EFFORT OR APPORTIONED EFFORT ACTIVITY COMPLETED WITHIN A GIVEN TIME PERIOD. THIS IS SOMETIMES REFERRED TO AS AN “EARNED VALUE.”
ACTUAL COST FOR WORK PERFORMED (ACWP) IS THE AMOUNT REPORTED AS ACTUALLY EXPENDED IN COMPLETING THE WORK ACCOMPLISHED WITHIN A GIVEN TIME PERIOD.
COST VARIANCE = BCWP – ACWP
SCHEDULE/PERFORMANCE VARIANCE = BCWP - BCWS

10. Variances
The cost variance compares deviations only from the budget and does not provide a measure of comparison between work scheduled and work accomplished.
The scheduling variance provides a comparison between planned and actual performance but does not include costs.

11. Measurements
Measurable efforts: discrete increments of work with a definable schedule for accomplishment, whose completion produces tangible results.
Level of effort: work that does not lend itself to subdivision into discrete scheduled increments of work, such as project support and project control.

12. COST VARIANCE CALCULATION
CV = BCWP - ACWP
A NEGATIVE VARIANCE INDICATES A COST OVERRUN

13. SCHEDULE VARIANCE CALCULATION
SV = BCWP - BCWS
A NEGATIVE VARIANCE INDICATES
A BEHIND SCHEDULE CONDITION

14. VARIANCE PERCENTS SV SCHEDULE VARIANCE % = X 100 (SVP) BCWS
COST VARIANCE % =
(CVP)
X 100
BCWS CV
X 100
BCWP

15. Project Variance Analysis
VARIANCE UPPER BOUNDARY
PROJECTED COST $
ACTUAL COST VARIANCE
VARIANCE LOWER BOUNDARY
R&D
QUALIFICATION
DEVELOPMENT
PHASE I
PHASE II
PHASE III
TIME

16. Management Reserve CONTRACTED COST MANAGEMENT ACTUAL COST RESERVE $
RELEASED BUDGET
TIME

17. Information Requirements
Budgeted cost for work scheduled (BCWS)
Budgeted cost for work performed (BCWP)
Actual cost for work performed (ACWP)
Estimated cost at completion
Budgeted cost at completion
Cost and schedule variances/explanations
Traceability

18. Earned Value Status Reporting
TIME LINE
BCWS SV
ACWP CV
CUMMULATIVE COST, $
BCWP
TIME

19. ESTIMATE AT COMPLETION (EAC)
ACWP
EAC = X
Budget at completion
BCWP
(BAC)
The estimate at completion is the best estimate of the total cost at the completion of the project.
The EAC is a periodic evaluation of the status of the project - usually on a monthly basis or until a significant change has been identified.

20. Cost Problems
Poor estimating techniques and/or standards, resulting in unrealistic budgets
Inadequate work breakdown structure
No management policy on reporting and control practices
Poor work definition at the lower levels of the organization