Chapter 28: Cost Management during Monitoring & Controlling the Project

Aim: To understand the Control Costs process

The control costs process helps the project manager ensure that the work is occurring within the project budget and identifies any variances early in the process.

The table below shows the inputs, tools and techniques, and outputs for the control costs process.

Control Costs
Inputs	Tools & Techniques	Outputs
Project management plan Project funding requirements Work performance information Organizational process assets	Earned value management Forecasting To-complete performance index Performance reviews Variance analysis Project management software	Work performance measurements Budget forecasts Organizational process assets updates Change requests Project management plan updates Project document updates

The control costs process identifies any areas that are costing more than planned. As a project moves toward completion the value of the project’s deliverables changes. The “value” of a project at any point in time is known as its earned value. One method of comparing the earned value of a project to the budget is earned value analysis.

Exam Alert:

Do you remember Earned Value Analysis? The calculations where we calculate SPI & CPI using the EV, PV and AC. Remember??

The whole idea behind a corrective or preventive action is to help preserve the healthy execution of your project and maximize its resource utilizations.

Let us Recap the Terms & Formulae used during Earned Value Analysis:
Terms:

• BAC – Budget At Completion – This is the amount that you planned that your project will use at completion
• EV – Earned Value – The value (in monetary terms) your project has earned so far
• PV – Planned Value – The value that your project is supposed to have earned so far
• AC – Actual Cost – The Actual cost that you have spent so far
• ETC = Estimate To Complete – The amount of money you will need to complete the project
• EAC = Estimate At completion – The Amount of money you would have spent when the project completes
• TCPI – To Complete Performance Index – The Cost Performance Index that you must attain in order to finish the project as per the planned amounts

Formulae:

• SPI – Schedule Performance Index = EV / PV
• CPI – Cost Performance Index = EV / AC
• SV – Schedule Variance = EV – PV
• CV – Cost Variance = EV – AC
• ETC = EAC – AC
• EAC = BAC / CPI
• TCPI = BAC – EV / BAC – AC or
• TCPI = BAC – EV / EAC – AC

To know more about the Control Costs process Click Here

To know more about the Earned Value Measurements with examples Click Here

Preb: Chapter 27

Next: Chapter 29

Chapter 86: Controlling Cost

Controlling cost means monitoring and controlling updates and changes to costs, budget, and the cost baseline of the project. Monitoring and controlling costs has two dimensions to it: expenditure of project funds and the work performed as a result of those expenditures. One major aspect of cost monitoring and controlling is to determine the relationship between the expenditures and the accomplishments. The cost performance depends on this relationship. The other main aspect is to control the changes to the approved cost performance baseline.

Trivia:
Like any other change, change in cost and budget must also be processed through the integrated change control process and should only be implemented after its approval.

To be more specific, monitoring and controlling the project cost includes the following tasks:

• Influence the factors that can create changes to the approved cost baseline.
• Monitor the following:

o Work performed against the funds expended
o Variance of cost performance from the approved baseline

• Prevent unapproved changes from creeping into cost reports and expenditures.
• Act to keep cost overruns within the planned acceptable limits.
• Ensure the following:

o Change requests are dealt with in a timely fashion and managed as they occur.
o Expenditures do not exceed the approved budget by period or by total amount. Any change to the budget must be approved before implementation.

• Communicate with the appropriate stakeholders about the cost associated with the approved changes.

Cost is monitored and controlled by using the Control Cost process illustrated by the picture below:

The input items to this process are the project management plan, work performance information, project funding requirements, and organizational process assets. The items in the project management plan useful for controlling cost are the cost management plan and the cost performance baseline. The cost management plan describes how the cost will be monitored and controlled. The cost performance baseline or cost baseline in short is an approved budget; that is, the cost with the timeline for the project attached to it. Work performance information contains performance related data from the execution of the project, including how much cost has been incurred in performing certain tasks. This cost can be compared to the planned cost to make the cost performance measurements. Project funding requirements are part of the cost baseline. Organizational process assets that can influence the cost control includes cost control related policies, procedures, and guidelines; monitoring and reporting methods; and tools used in controlling cost.

The Control Cost process converts the cost related project performance information into project performance measurements by using some tools and techniques, such as the earned value technique, variance analysis, and forecasting. These tools and techniques will be discussed separately. Performance reviews compare the actual progress to the planned progress. Project management software can be used for earned value management.

Work performance measurements made by comparing the work performance information to the planned performance are the obvious output of the Control Cost process. The analysis of the project performance can result in making some change requests to keep the project on track. The budget forecasts can be made from the earned value analysis. The causes of the variance of the progress from the planned progress and the lessons learned become part of the organizational process assets that can be used in future projects.

A common input to controlling scope, schedule, and cost is work performance information, and a common output is work performance measurements. That means these three processes use work performance information to make performance measurements.

Prev: Controlling Schedule

Next: Measuring Performance

Chapter 83: Big Picture of Controlling Scope, Schedule, and Cost

The nutshell of running a project is delivering the scope according to some schedule, which will cost someone. Completing a project successfully includes delivering the planned scope according to the planned schedule and within the planned budget. The fundamental parameters for budget and schedule are cost and time, respectively. Budget is the cost with a timeline, and schedule is determined from the time estimates for completing the schedule activities. So scope, time, and cost make the heart of any project. These three project parameters comprise a triple constraint that is a framework for evaluating competing demands. A triple constraint is often depicted as a triangle, with each side representing one of these three parameters. Since these 3 parameters are of utmost importance for any project, we are going to refer to them as “The Golden Triangle”

Trivia:
Don’t be confused if you see the triple constraint referred to as scope, schedule, and cost constraint as well as scope, time, and cost constraint. Time and schedule are intrinsically connected.

For example, assume you are being interviewed by a functional manager for a project manager position. Don’t be surprised if you are asked a question based on the following situation:

1. The project is way behind the schedule.
2. No extra resources, such as money or project team members to perform activities, are available.
3. You have to implement all the planned features.

The question is, what will you do to meet the deadline that is approaching within a week?
From a project management viewpoint, this situation is a good example of the triple constraint. The project is behind schedule, which means there is a schedule change (or a change in time available to finish the remaining project). Therefore, at least one of the other two parameters must change. If you want to meet the deadline, either you should be allotted more funds to hire more human resources or the scope of the project should be changed, which means some of the features would be left out. Depending upon the knowledge level of the functional manager about project management, this answer might not get you the job, but as a project manager, you must stand your ground. Project management is not magic; it involves dealing with cold, hard reality in a realistic way, thereby establishing clear and achievable objectives.

You can see the relationship of triple constraint to quality by recalling that a high-quality project delivers the required product on time and within the planned scope and budget. Therefore, while balancing between these three constraints, the quality (and as a result, customer satisfaction) might be affected. The triple constraint is also a good example of how one change can give rise to other changes across the project. This highlights the importance of managing and controlling changes.

Trivia:
These 3 factors are shown as a triangle because – when you try to change the size of one of the sides of the triangle, the other two automatically get changed and it is inevitable. The same is the case with these 3 factors. In any project, you cannot change just the cost or the scope or the schedule without affecting the other two factors. Just hard-wire that into your brain and never forget this.

Changes to scope, schedule, and cost are controlled using the Control Scope, Control Schedule, and Control Cost processes, respectively, which we will discuss in detail. These three processes are at the center of the project action.

The picture below is the big picture of the whole idea.

As you can see, they take work performance information from the project execution and generate work performance measurements that are used by the quality control process to generate quality control measurements and by the report performance process to generate performance reports.

Prev: Introduction to Monitoring & Controlling the Golden Triangle

Cost is incurred in executing a schedule, which depends on the scope.

Don't worry if this doesn't make much sense as of now. We will dive head-first into this topic and cover them until we drown.

Prev: Introduction to Monitoring & Controlling the golden triangle

Next: Controlling Scope