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PROJECT COST MANAGEMENT (IMPORTANT (Many IT projects are never initiated…

- - - - can be informal and broad
        or formal and detailed
      - INFORMATION IN COST MANAGEMENT PLAN:
        
        level of accuracy
        
        units of measure
        
        organizational procedure links
        control thresholds: uses WBS and CA
        
        rules of performance measurement
        
        reporting formats
        
        process descriptions
    - - TYPES OF COST ESTIMATES
        
        ROUGH ORDER OF MAGNITUDE(ROM): estimate of what project will cost;
        
        also referred to as ballpark estimate, guesstimate, swag or broad gauge
        
        often 3-more years prior to project completion
        
        accuracy: -50% to +100%
        
        BUDGETARY ESTIMATE: used to allocate money into an organization's budget
        
        usually made 1-2 years prior to project completion
        
        accuracy: -10% to +25%
        
        DEFINITIVE ESTIMATE: accurate estimate of project costs
        
        used for making many purchasing decisions
        
        accuracy: -5% to +10%
        
        made one year or less prior to project completion
      - PROBLEMS
        
        Estimates are done too quickly
        solution: create a ROM estimate and budgetary estimates
        remember: estimates are done in various stages of the project and PMs must explain the rationale for each estimate
        
        People lack estimating experience
        solution: organization must have good project management techniques and develops history of keeping reliable project information including estimates and org must enable it PMs by providing training and mentoring on cost estimating
        
        Human beings are biased toward underestimation
        solution: review estimates and ask important questions to make sure estimates are not biased
        
        Management desires accuracy
        solution: develop good cost and schedule estimates and use leadership and negotiation skills to stand by those estimates
      - DEVELOPING ESTIMATES:
        
        review draft of the project schedule (WBS)
        
        determine when the work will be performed
        
        develop a cost model using the preceding information
        
        allocate cost for each month based on the project schedule and when costs will be incurred
        
        in some cases: project team might also be asked to provide a RANGE ESTIMATE for each item instead of one discrete amount
    - - Main Goal:
        produce a cost baseline for measuring project performance and to determine project funding requirements
      - Cost budgeting provides information for project funding requirements.
- - - - TOOLS:
        
        PERT weighted average
        
        Monte Carlo simulation
  - - - EARNED VALUE MANAGEMENT: a project performance measurement technique that integrates scope, time, and cost data.
        
        involves calculating three values for each activity:
        
        PLANNED VALUE
        
        ACTUAL COST
        
        EARNED VALUE