Project Cost Estimation
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by Arindam Ghosh
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Tools and Techniques of Cost Control

Cost Change Control System

A cost change control system, documented in the cost management plan, defines the procedures by which the cost baseline can be changed. It includes the forms documentation, tracking systems, and approval levels necessary for authorizing changes. The cost change control system is integrated with the integrated change control process.

Performance Measurement Analysis

Performance measurement techniques help to assess the magnitude of any variance that will I invariably occur.  The earned value technique (EVT) compares the cumulative value of the budgets cost of work scheduled (planned) to the actual cost control, resource management, and production.

An important part of cost control is to determine the variance, the magnitude of the variance, and to decide if the variance requires corrective action.

The earned value technique uses the cost control contained in the project management plan to assess project progress and the magnitude of any variations that occur. The earned value technique involves developing these key values for each schedule activity, work package, or control account.

Planned value (PV)

PV is the budgeted cost for the work scheduled to be completed on an activity or WBS component up to a given point in time.

Earned value (EV)

EV is the budgeted amount for the work actually completed on the schedule activity or WBS component during a given time period.

Actual cost (AC)

AC is the actual cost incurred in accomplishing work on the schedule activity or WBS component during a given time period. This AC must correspond in definition and coverage to whatever was budgeted for the PV and the EV (e.g. direct hours only, direct cost only, or all costs including indirect costs).

Estimate to complete (ETC) and estimate at completion (EAC)

The PV, EV, and AC values are used in combination to provide performance measures of whether or not work is being accomplished as planned at any given point in time. The most commonly used measures are cost variance (CV) and schedule variance (SV). The amount of variance of the CV and SV values tend to decrease as the project reaches completion due to compensating effect of more work being accomplished. Predetermined acceptable completion can be established in the cost management plan.

Cost Variance (CV)

CV equals earned value (EV) minus actual cost (AC). The cost variance at the end of the project will be the difference between the budget at the completion (BAC) and the actual amount spent.

Formula: CV=EV-AC

Schedule Variance (SV):

SV equals earned value (EV) minus planned value (PV). Schedule variance will ultimately equal zero when the project is completed because all of the planned values will ultimately equal zero when the project is completed because all of the planned values will have been earned.

Formula: SV=EV-PV

These two values, the CV and SV, can be converted to efficiency indicators to reflect the cost and schedule performance of any project.

Cost performance index (CPI)

A CPI value less than 1.0 indicate accost overrun of the estimates. A CPI value greater than 1 indicates a cost under-run of the estimates. CPI equals the ratio of the EV to the AC. The CPI is the most commonly used cost-efficiency indicator.

Formula: CPI=EV/AC

Cumulative CPI (CPI^c):

The cumulative CPI is widely used to forecast project costs at completion. CPIC equals the sum of the periodic earned values (EV^c) divided by the sum of the individual actual costs (AC^c).

Formula: SPI=EV/PV

The earned vale technique in its various forms is a commonly used method of performance measurement. It integrates project scope, cost (or resource) and schedule measures to help the project team assess project performance.


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Title: Software Project Estimation   
Name: Nikko Quilisadio
Date: 2011-11-09 6:51:43 AM
Comment:
Can you give me a Sample format of Software Project Estimation..,
any Format would do.

tnx
Title: cost istimation   
Name: helth club
Date: 2011-05-13 12:24:49 AM
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how decide the project cost on which base please send information on anandshindepatil@rediffmail.com
Title: cost estimation project   
Name: yahye haybe omar
Date: 2010-11-29 9:42:29 AM
Comment:
plz give one example of cost estimation
Title: Quantity Surveyor   
Name: Tayebwa Duncan
Date: 2010-11-24 7:49:08 AM
Comment:
The Topic was well discussed. However, i wish you could give details of the cost control process based on an hypothetical example,the ways and means and the challenges expected to be met in the process.

Thank you once again
Title: cost estimation   
Name: Gloria Thomas
Date: 2010-11-23 8:46:39 PM
Comment:
Great information. I read about Hybrid: Phase estimating by Larson and Gray and was wondering where does it fit in the category discussed here
Title: cost estimating and budgeting   
Name: PCC Student
Date: 2010-10-07 12:11:39 AM
Comment:
Base in the actual society, their are lots of project baseline which involved cost estimating and budgeting. This kind of strategy are very applicable to the business project management.
Title: CIVIL ENGINEER   
Name: PETETI SUBBARAYUDU
Date: 2010-09-22 1:01:37 AM
Comment:
GOOD EXPLANATION.ONE SUGGETION ACCORDING TO MY KNOLDGE PLS GIVE ONE EXAMPLE OF BUILDING COSTING
Title: Quantity Surveyor   
Name: Cris
Date: 2010-06-17 9:46:11 PM
Comment:
Great info... I would be glad if you can send me a manhour table for computing the labor cost of a construction project of a multi-storey building that is applicable in the Philippines.
Title: cost engineer   
Name: manish
Date: 2010-04-05 9:16:33 AM
Comment:
very well explained but should add more engineering based case studies if u peopkle find anything related to cost estimation pls forward to shingala_manish2000@yahoo.com
Title: Project Cost Estimation   
Name: Shekar
Date: 2010-03-18 2:25:21 AM
Comment:
Thank you. Good Explanation. A few examples would be great. if any particular templates with this will be more value added.
Once again Thank you very much.

Thanks,
Shekar.K
Title: Project Cost Estimation   
Name: Kuldeep Shige
Date: 2010-03-10 9:00:53 AM
Comment:
well explained post for Project Cost Estimation;
Title: cost easimating   
Name: ashok bahuguna
Date: 2009-12-25 8:49:55 AM
Comment:
Kindly explaine me about cost eastimation
Title: cost estimation   
Name: rupali
Date: 2009-09-27 4:26:06 AM
Comment:
excellent...!!!!!!!!! :)
Title: Assistant Professor   
Name: D Bhattacharya
Date: 2009-08-27 2:44:44 AM
Comment:
Thank you for the great insight of the subject.Please do give us some more knowledge about project management.

Regards
Title: Cost Estimation   
Name: Ali
Date: 2009-05-03 4:08:28 PM
Comment:
Good explanation.
Title: Research Scholar   
Name: Jagannath Malllick
Date: 2009-03-30 3:26:02 AM
Comment:
The article is very excellent. Please provide one example.

Thanks
Jagannath
Title: Project Manager   
Name: Ritesh Lakhani
Date: 2008-10-07 10:55:23 AM
Comment:
Ultimate article, involves everything related to cost of project in a small and single article. good one.
Title: Costestimation Comment   
Name: Mohitraj
Date: 2008-05-21 8:25:08 AM
Comment:
We feel proud after take a look on this topic but u should need to expaned in the detail of the given topic.............!!!!!!!!!
Title: Proect Planning and management consultant   
Name: S Vijaya Bhaskar
Date: 2008-04-26 8:12:24 PM
Comment:
Clear Explanation. Hats off to Arindam Ghosh.
Title: mba   
Name: venicia
Date: 2008-04-13 1:14:53 PM
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thank you,good information
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Name: indra
Date: 2008-03-27 4:21:41 AM
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Title: teacher   
Name: madina
Date: 2008-02-22 1:25:57 AM
Comment:
very clear explanations.
Thank you.
Title: MBA 08   
Name: Kevin
Date: 2008-02-01 11:04:18 PM
Comment:
Well-explained. Thank you.

Kevin
Title: Project Manager   
Name: Vasoula Christoforides
Date: 2007-12-17 4:44:52 PM
Comment:
Your article is very informative. Successful Estimation is not simple, your article has provided a better understanding. A few examples would be great. Thank you
Title: Cost estimation   
Name: Hariharan
Date: 2007-10-15 1:57:57 PM
Comment:
Really very impressive. Good Arindam. Apart from a conceptual, If any practical sample documents / Templates added with this will be more value added.
If any one of you have such things pl. send across to nhariharann@rediffmail.com

Many thanks again to Arindam Ghosh...
Hari
Title: Manager   
Name: Neelakandan
Date: 2007-10-07 2:39:05 PM
Comment:
I read the document and was very impressed. I want one Example for the Estimation, kindly send as the earliest.
Thanks
Neelakandan
Title: Consultant   
Name: sankar jayaram
Date: 2007-08-15 11:28:16 PM
Comment:
Excellent ..
jshankar.2002@gmail.com
Title: Project Cost Management   
Name: Rahul Gurchal
Date: 2007-06-09 2:01:20 AM
Comment:
Hello,
I read the document and was very impressed with the kind of depth the topic was covered with.I thank you for the great insight i received from your article on this topic.

Thanks & regards,
Rahul Gurchal,

Savoir Faire Management Solutions Pvt Ltd,
New mumbai, Vashi sector 17.
Title: GIVE SOME PRACTICAL EXAMPLE OF PROJECT COST ESTIMATION   
Name: P.C.E
Date: 2007-02-17 12:30:47 PM
Comment:
GIVE SOME PRACTICAL EXAMPLE OF PROJECT COST ESTIMATION

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