[Step-4] Control Costs

Control Costs is the process of monitoring the status of the project to update the project budget and managing changes to the cost baseline
Monitor Project status w.r.t. Cost Baseline - Identify the Variance - Take corrective action to minimize the gap or the associated risk

During Cost Control, It is important to understand the relation between the two factors below
v  Monitor the expenditure of funds
v  Value of the work being accomplished

If we do not understand the relation, then simply tracking the costs has no value.

A. Work Performance Information: Calculated values of CV SV, CPI, SPI, TCPI and VAC for Work packages, control accounts
B. Cost Forecasts: EAC, TCPI

C. Change Requests: Approved Change Requests to the cost baseline

D. Project Management Plan Updates: Changes to cost baseline and cost management plan
E. Organizational Process Asset updates: Causes of Variances, Corrective action chosen and the resources.

Tools & Techniques:
A. Earned Value Management:

Earned Value Management (EVM)  is a methodology that combines scope, schedule and resource measurements to assess project performance and progress.  EVM integrates Scope base line + Cost baseline + Schedule Baseline = to get= Performance Baseline. Thus, performance baseline helps project management team assess and measure project performance and progress.

EVM is used in Project Management to assess
v  Are we ahead or behind schedule
v  Are we under or over budget
v  How efficiently are we using time & resources?
v  What is the remaining and entire project likely to cost

Planned Value (PV) = Authorized Budget Assigned to scheduled work - Work that "Should be done"
Earned Value (EV) = Budget Associated with the authorized work that has been completed – Work that “Has been done”

Actual Cost (AC) = Cost incurred till date for the work performed – Cost Spent to complete the work done

Cost Variance (CV) = EV-AC [positive means cost under run, Negative means cost overrun]

Schedule Variance (SV) = EV-PV [Positive means Ahead of the schedule, Negative means behind the schedule]

Cost performance Index (CPI) = EV/AC - Rate at which Cost is spent = [For every dollar we spent out of our pocket, how much value we are getting back] - Positive means cost under run - negative means cost overrun.

Schedule performance Index (SPI) = EV/PV - Rate at which scheduled work is progressing.  [i.e. %ge progress rate at which the scheduled work is being progressed] - Positive means Ahead of the schedule and Negative means behind the schedule.
Budget At Completion = total Planned Value for the Budgeted work i.e. Total job "Supposed to cost" at beginning

Refer the link http://www.krishnamurtybusiness.blogspot.in/ for further details.

B. Forecasting:
EAC (Estimate at Completion) = BAC/CPI (if the future work is expected to be  progressed at the current run rate) - Total job "Expected to cost" now

EAC= AC + (BAC-EV) when future work happens at current Rate
EAC= AC+ { [BAC-EC]/CPI * SPI} when project schedule is a factor that impacts ETC efforts.

Variance At Completion = "Will the job" be ahead or under budget - BAC – EAC

C. To-Complete Performance Index (TCPI):
Rate at which remaining work has to be finished within in the allocated budget

TCPI = Work Remaining/ Budget Remaining ={ [BAC-EV]/ [BAC-AC])
Gives the run rate at which remaining work to get progressed to complete the project within the budgeted cost.

TCPI >1 Harder to complete
TCPI = 1 same complexity to complete
TCPI <1 Easier to complete


Source: PMP’s  PMBOK page 224

D. Trend Analysis - Difference of BAC and EAC - Examines project performance over time to determine if performance is improving or deteriorating
Earned Value Performance:  All the indices provided in the above chart.

E. Reserve Analysis: Contingency Reserves are approved for Known and Risks (i.e. Known unknowns) where risk response strategy is approved by steering committee - It is included as part of cost baseline -
Cost Baseline = Activity Costs + Contingency reserve costs

Management Reserve - For Unknown Unknowns (i.e. For Unknown Risks) (eg. Calamity, Earth Quake) - Not included as part of Cost baseline
Project Efforts = Cost Baseline Efforts + Management Reserve Efforts

Management reserve efforts are taken trough Change control procedure

F. Project Management Software: Like Microsoft Project Plan to help plan, organize and manage resource pools and develop resource estimates- Resource Break down structures, Resource availability-Resource Rates and various resource calendars to assist in optimizing resource utilization.
Project Management Plan - Project Funding Requirements - Work Performance Data - Organizational Process Assets (Policies and Procedure regarding Cost Control, Cost Control Tools and Historical Information, Lessons Learnt, Monitoring and Reporting Methods to be used)