Friday, January 13, 2017

Cost Control Management

1. COST CONTROL

This is the process of monitoring the status of the project budget and managing changes to the cost baseline. It involves taking the cost baseline and performance data about what has actually done in order to determine the work accomplished against the amount spent.
Monitoring the expenditure of funds without regard to the value of work being accomplished for such expenditure has little value to the project other than to allow the project team to stay within the authorized funding. The key to effective cost control is the management of the approval cost performance baseline and the changes to that baseline.

For those projects that are funded at various stages and output this process are described below.














2.     COST CONTROL INPUT
2.1.  Project Management Plan

The project management plan described above contains the cost performance baseline, which can be compared with the actual results to determine if a change, corrective action or preventive action is necessary. It also contains the cost management plan that describes how the project costs will be managed and controlled.


2.2.  Project Funding Requirement
The cost baseline described above and need to reflect the cash flow needs of the project including management reserves and contingencies.

2.3.  Work Performance Information

This includes information about project and also includes costs that have been authorized and incurred, and estimates for completing project work.

2.4.  Organizational Process Assets

These include existing formal and informal cost control related policies, procedures and guidelines, cost control and the monitoring and reporting methods to be used.

2.5.  Cost Controls: Tools and Techniques

Earned Value Management (E.V.M), forecasting, the T.C.P.I (To Complete Performance Index), and performance reviews are the main techniques used, along with the project management software. Earned Value Management takes a snapshot of the present moment to see how the project is doing.
The techniques for forecasting and T.C.P.I shows how the future of the project will evolve given how the project is doing now. The performance reviews compare the past performance to see how the project has evolved up until the present moment.



Reserve analysis takes into account the extra layers on top of the cost estimates, the contingency reserves (which are added to the cost estimates to get the cost baseline) and the management reserves (which are added to the cost baseline to get the project budget). It should be decided whether any unused reserves are going to be left in the project budget, or whether they will be taken out.

2.6.  Earned Value Management (EVM)
It is defined as follows:
Earned Value Management (EVM) is a methodology that combines scope, schedule and resource measurements to assess project performance and progress . It is a commonly used method of performance measurement for projects. It integrates the scope baseline with the cost baseline, along with the schedule baseline, to form the performance baseline, which helps the project management team assess and measure project performance and progress.
It is a project management technique that requires the formation of an integrated baseline against which performance can be measured for the duration of the project.


The Earned Value compares the money spent ($130 K) with what should have been spent ($150 K). This means that:
      Work to the notional value of $140 K has been done but, $130 K has actually been spent. There fore the project is $10 K under its planned cost at this point.
Also the project has only completed $140 K of work as opposed to the $150 K that was planned.

       This means that the project is $10 K behind schedule.

It may seem strange to express time in dollars but the reason it makes sense is because time is money.

2.7.  Forecasting
As the project progresses, the project team can develop a forecast for the estimate at completion that may differ from the budget at completion costs. The most common approach is a manual, bottom up summation by the project manager and project team.

2.8 To Complete Performance Index (TCPI)
This is an earned value term which describes the performance needed for you to achieve your earned value targets, and hence to control cost.


2.9 Performance Reviews
These compare cost performance over time, schedule activities or work packages over running the budget, and estimated funds needed to complete work in progress. They are used to determine those areas where costs are under or over performing, and yet again uses earned value management to compare actual results with the cost baseline and hence the ability to be able to control cost via forecast trends and indexes. 

2.10 Reserve Analysis
Monitors the status of contingency reserves and management reserves. Unused contingency reserves for probable risk events that do not occur may be removed from the project budget.

3. Cost Controls: Outputs
This process will create the following outputs:

3.1 Work Performance Information
It is important to capture all of the relevant costs when measuring progress. This information should be communicated to the project team and concerned stakeholders on a regular basis.


3.2 Cost Forecast
These determine the extra funding that will be required based on the actual costs accrued so far. Earned Value can help forecast not just remaining costs but also the required total cost for the project. This information should be communicated to the project team and concerned stakeholders on a regular basis.

3.3 Change Requests
These refer to cost related change request of course, may be needed if the control cost process shows that the project will be costing more or less than the cost baseline. In this case it changes will be needed to bring the project back on track.


3.4 Project Management Plan Updates
This relates to any changes such as those to the cost baseline or the cost management plan. It may also relate to other aspects of the project management plan for example a modification to project scope.


3.5 Project Document Updates
These include cost estimates and are normally needed as a consequence of project plan updates.


3.6 Organizational Process Assets Updates
These include, causes of variances, corrective action chosen and other types of lessons learned from project cost control in order to improve control cost management in the future projects. If either the work performance information or the cost forecasts indicate that there is a variance in either the cost or schedule performance of the project that needs correcting, then a change request may be recommended.

  • Corrective action aims to reduce the variance
  • Preventive action aims to prevent the variance from growing larger in the future.
It may happen, however, that the variance is so large that the cost baseline is determined to be unrealistic, in which case it may be suggested that the cost baseline itself is changed.
In any case, these change requests are outputs of this process, but then are inputs to the process in the integration management knowledge are called process Perform Integrated Change Control.

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