MeetUp Assignment for CAPM/PMP Study Group January 13, 2014 Presenter: Susie Schoonmaker Knowledge Area: Project

Cost Management Process Group: Planning / Determine Budget

I Knowledge Area Overview

Project Cost Management establishes the policies, procedures and documentation for planning, managing, expending and controlling project costs so that the project can be completed within the approved budget. The key benefit of this process is that it provides guidance and direction on how the project costs will be managed throughout the project. Three step process: Estimate Costs: What do you think it will cost? Determine Budget: In what categories? Control Costs: How will you manage cost changes?
I Process Group Overview:

Determine Budget is the process of summing the estimated costs of individual work packages to establish the cost baseline. The key benefit of this process is that it provides the cost baseline against which project performance can be monitored and controlled.

PMBOK definition:
Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
I Inputs:

Cost Management Plan Scope Baseline: Project Scope Statement, WBS and WBS Dictionary Activity Cost Estimates: cost estimates for each work package Basis of Estimates: supporting details for cost estimates Project Schedule: finish and start dates can be used to aggregate costs per work periods Resource Calendars: may need to level resources to accommodate funding limitations Risk Register: includes information about how to aggregate costs for risk responses Agreements: any applicable information regarding purchase of products or services Organizational Process Assets: budgeting policies, procedures and guidelines, cost budgeting tools, reporting methods

Tools and Techniques:

Cost Aggregation: summing the costs for each work package Reserve Analysis: Contingency Reserves: known unknowns dollar or time value allocated for identified risks to ensure that the project doesnt overrun available funding, controlled by Project Manager included in cost baseline and funding requirements Management Reserves: unknown unknowns, dollar value, set aside for unplanned, in-scope work, not included in cost baseline, included in funding requirements may be controlled by project sponsor or other senior management Expert Judgment: expertise appropriate for budgeting the project Historical Relationships: may provide data from parametric or analogous estimates for similar projects in the past Funding Limit Reconciliation: planned expenditures must meet any funding limits
I

Outputs:

Cost Baseline Summation of time-phased budgets along a project timeline Used to measure, monitor and control overall cost performance on project Basis for comparison of actual expenditures to planned expenditures Can only be changed through formal change control procedures Also called Budget at Completion (BAC) or Performance Measurement Baseline Time-phased view of cost baseline typically displayed as an S-curve Project Funding Requirements Project expenditures plus anticipated liabilities Outlined in incremental amounts, distributed over time as required Project Documents Updates Risk Register Project Schedule

Practice Questions:

1. The project cost baseline should include all of the following EXCEPT: a. Interest charges b. Management reserves c. Corporate allocations d. Equipment costs 2. The Cost Performance Baseline is a time-phased budget and is used as a basis to measure, monitor, and control overall cost performance of the project. It is usually displayed in the form of: a. An S-chart b. A pie chart c. A histogram d. An S-curve 3. Which of these are NOT inputs to Determine Budget? a. Basis of estimates, activity cost estimates b. Project schedule, resource calendars c. WBS Dictionary d. Cost baseline, requirements traceability matrix 4. Contingency Reserves are estimated costs to be used at the discretion of the project manager to deal with: a. Scope creep b. Anticipated but not certain events. c. Unanticipated events d. Anticipated and certain events 5. Funding requirements for a project are usually in incremental amounts that are not continuous, and these appear as a step function in the graph depicting Cash flow, Cost baseline and Funding. Any gap at the end of the project, between the funds allocated and the cost baseline represents: a. Management reserves b. Contingency reserves c. Cost variance d. Charting error

Question for Discussion: 6. Jane is leading a small construction project for the first time. The responsible sales manager already had some price discussions with the customer. Therefore she is unsecure if she should first estimate costs and then determine budget or determine the budget first and then estimate costs. What should she start with? a. Determine budget then estimate costs, because the sales manager already had price negotiations with the customer b. There is no binding order, because on some projects cost estimating and cost budgeting are so tightly linked that they are viewed as a single process c. Estimate costs then determine budget, because budget depends on the costs d. First she should ask the sales manager for the price, because costs are derived from price.