Chapter "Determining Costs, Budget, and Earned Value" write up what you learned from this chapter. PLEASE EXEMPLIFY HIGH LEVEL ANALYSIS WITH YOUR WRITING (Project Managemnt)

Critical Success Factors

Estimated activity costs must be based on the estimated activity resources.

The person who will be responsible for performing the activity should estimate the costs for that activity. This generates commitment from the person.

Cost estimates should be reasonable and realistic.

Once the project starts, it is important to monitor actual costs and work performance to ensure that everything is within budget.

A system should be established to collect, on a regular and timely basis, data on costs actually expended and committed, and the earned value (percent complete) of the work performed, so they can be compared to the cumulative budgeted cost (CBC).

If at any time during the project it is determined that the project is overrunning the budget, or the value of the work performed is not keeping up with the actual amount of costs expended, corrective action must be taken immediately.

It is important to use the time-phased cumulative budgeted cost (CBC), rather than the total budgeted cost (TBC), as the baseline against which cumulative actual cost (CAC) is compared. It would be misleading to compare the actual costs expended to the total budgeted cost because cost performance will always look good as long as actual costs are below the TBC.

To permit a realistic comparison of cumulative actual cost to cumulative budgeted cost, portions of the committed costs should be assigned to actual costs while the associated work is in progress.

The earned value of the work actually performed is a key parameter that must be determined and reported throughout the project.

For each reporting period, the percent complete data should be obtained from the person responsible for the work. It is important that the person make an honest assessment of the work performed relative to the entire work scope.

One way to prevent inflated percent complete estimates is to keep the work packages or activities small in terms of scope and duration. It is important that the person estimating the percent complete assess not only how much work has been performed but also what work remains to be done.

The key to effective cost control is to analyze cost performance on a timely and regular basis. Early identification of cost variances (CV) allows corrective actions to be taken immediately, before the situation gets worse.

For analyzing cost performance, it is important that all the data collected be as current as possible and be based on the same reporting period.

Trends in the cost performance index (CPI) should be monitored carefully. If the CPI goes below 1.0 or gradually decreases, corrective action should be taken.

As part of the regular cost performance analysis, the estimated or forecasted cost at completion (FCAC) should be calculated.

The key to effective cost control is to aggressively address work packages or activities with negative cost variances and cost inefficiencies as soon as they are identified. A concentrated effort must be applied to these areas. The amount of negative cost variance should determine the priority for applying these concentrated efforts.

summary

The total project cost is often estimated during the initiating phase of the project when the project charter or a proposal is prepared, but detailed plans are not usually prepared at that time.

The project budgeting process involves two steps: the budget for each work package is determined and the budget for each work package is then distributed over the expected time.

Aggregating the estimated costs of the specific activities for the appropriate work packages in the work breakdown structure will establish a total budgeted cost (TBC).

The cumulative budgeted cost (CBC) is the time-phased baseline budget that will be used to analyze the cost performance of the project.

At any time during the project, it is possible to forecast what the total costs will be at the completion of the project or work package based on analysis of actual cost expended and the earned value of work performed.

The key to effective cost control is to analyze cost performance on a regular and timely basis.

It is important to manage the cash flow on a project.