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

Monitoring And Controlling the Project

The following are the important themes that you must remember from the PMI Perspective with respect to the Monitoring & Controlling Phase of the Project.

1. Project changes should be expected, planned for, and well managed.
2. Out-of-scope work (gold-plating) adds no value to the project and should be avoided.
3. Scope verification ensures that the work product is formally accepted. Quality assurance ensures the correctness of the work product.
4. Lessons learned are important resources for planning and future projects. Maintaining the lessons learned during project control is important.
5. All change-control systems should include guidance on the following factors;
o How to influence the factors that cause change
o How to detect when a change has occurred
o How to obtain agreement on a change activity
o How to manage the change
6. Earned value is the preferred project controlling and performance reporting technique.
7. Cost variance (CV) = earned value – actual costs (EV – AC)
8. Cost Performance Index (CPI) = earned value / actual costs (EV / AC)
9. Schedule variance (SV) = earned value – planned value (EV – PV)
10. Schedule Performance Index (SPI) = earned value / planned value (EV / PV)
11. Estimate at completion (EAC) = budget at completion (BAC) / CPI
12. Estimate to complete (ETC) = EAC - actual costs (AC)
13. Variances are always “earned value” minus something. Performance indexes are always “earned value” divided by something.
14. Performance indexes of less than 1 are unfavorable. Nearer the index is to ‘1’ the better.
15. Practically speaking maintaining the SPI or CPI at exactly ‘1’ is very difficult. Most practical managers expect to maintain it around 0.95 to 1.05
16. Quality control focuses on measurement. Quality assurance focuses on all the planned and systematic quality activities within the project.
17. The key quality control tools and techniques are control charts, pareto analysis (80/20 rule), Ishikawa diagrams (cause and effect, fishbone), trend analysis, and statistical sampling.
18. Preventing a risk event is always preferred to mitigating a risk event.
19. A key goal of effective risk management is to have a response plan ready (that is, a mitigation strategy) to be implemented if the risk event occurs.
20. Risk management may require re-planning, developing alternate strategies, and re-baselining the project, depending on the severity of the new risk that was identified.

Exam Trivia:

Gold Plating or Value Addition is something that large IT company’s expect its employees to do as a mandatory activity during project work. But, from PMI’s perspective Gold Plating is prohibited and project managers and team members are not supposed to do stuff that is not part of the Project Scope. Though you might be asked to do so by your management and you may do it as part of your work, you must not select that as a choice in the exam.

Other PMI Themes:

General PMI Themes
Project Framework
Project Initiation
Project Planning
Project Execution
Project Closure
Ethics & Professional Responsibility