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This chapter covers key concepts related to Project Cost Management.

The knowledge area of Project Cost Management consists of the following processes 
Project Cost Processes
Process  Project Phase  Key Deliverables 
Plan Cost Management  Planning  
Estimate Costs  Planning  Activity Cost Estimates,Basis of estimates 
Determine Budget  Planning  Cost performance baseline 
Control Costs  Monitoring and Controlling  Work performance measurements 

Alternative identification process identifies other solutions to an identified problem.

Value Analysis approach is used to find more affordable, less costly methods for accomplishing the same task.

The Estimate Costs process takes the following inputs 
 Scope baseline
 Project schedule
 Human resource plan
 Risk register
 Enterprise environmental factors
 Organizational process assets

Depreciation is technique used to compute the estimated value of any object after few years. There
are three type of depreciation techniques. These are
 Straight line depreciation The same amount is deprecated (reduced) from the cost each year.
 Doubledeclining balance  In the first year there is a higher deduction in the value  twice the amount of straight line. Each year after that the deduction is 40% less than the previous year.
 Sum of year depreciation  Lets say the life of an object is five years. The total of one to five is fifteen. In first year we deduce 5/15 from the cost, in second year we deduce 4/15, and so on.

Analogous Estimating is an estimating technique with the following characteristics 
 Estimates are based on past projects (historical information)
 It is less accurate when compared to bottomup estimation
 It is a topdown approach
 It takes less time when compared to bottomup estimation
 It is a form of an expert judgment

In Parametric Modeling Estimation, you use a mathematical model to make an estimate.
It is of two types.
 Regression Analysis
is a mathematical model based upon historical information.
 Learning Curve model is based upon the principal that the cost per unit decreases
as more work gets completed.

Bottom up estimation is same as WBS estimation. It involves estimating each work item and adding the estimates
to get the total project estimate.

You can expect five to ten questions related to Earned Value Management. These are generally pretty simple once you
have good understanding of the concepts, and remember the formulae. These formulae
are explained below.
 Planned Value (PV) refers to what the project should be worth at this point in the
schedule. It is also referred as BCWS (Budgeted Cost of Work Scheduled).
 Earned Value (EV) is the physical work completed to date and the authorized budget for that.
It is also referred as BCWP (Budgeted Cost of Work Performed).
 Actual Cost (AC) is the actual amount of money spent so far.
It is also referred as ACWP (Actual Cost of Work Performed).
 Estimate At Completion (EAC) refers to the estimated total cost of the project at completion.
 CPI refers to Cost Performance Index. It is defined as
CPI = EV/AC
If CPI is less than 1, this means that the project is over budget.
 BAC refers to Budget at Completion. It is related to EAC.
EAC = BAC/CPI
 ETC refers to Estimate to Completion. It is defined as
ETC = EAC  AC
 CV refers to Cost Variance. It is defined as
CV = EV  AC
 SV refers to Schedule Variance. It is defined as
SV = EV  PV
Negative cost or schedule variance means that project is behind in cost or schedule.
 SPI refers to Schedule Performance Index. It is defined as
SPI = EV/PV
 VAC refers to Variance At Completion. It is defined as
VAC = BAC  EAC

The process of Cost budgeting defines time phased cost estimates for the project. For example,
in the first month the project will require $10,000. Cost estimating involves defining cost estimates
for tasks. Cost budgeting defines cost estimates across time.

The tools and techniques used for Estimate Costs are 
 Expert judgment
 Analogous estimating
 Parametric estimating
 Bottomup estimating
 Threepoint estimates
 Reserve analysis
 Cost of quality
 Project Management estimating software
 Vendor bid analysis

Cost baseline refers to what is expected to be spent on the project. It is usually an Scurve.
That is the expenditure is less in the beginning, and the end. The expenditure is maximum during the middle of the project.
 The after project costs are called life cycle costs.
Questions on Project Cost Knowledge area are available in
Cost Questions.
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