Project Management I

Wintersemester 2022 / 23
Prof. Dr. Andreas Pfnür / Dr. Bettina Hornung
Technische Universität Darmstadt / Institut für
Betriebswirtschaftslehre
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PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung
 Project Management I
COST MANAGEMENT

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 3
Cost Management - Content

1. Definitions and Overview

2. Estimate Costs
3. Determine Budget
4. Control Costs

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 4
 Cost Management
1 DEFINITIONS AND OVERVIEW

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 5
Overview

Time and Schedule Management directly contribute to one of the three key
parameters of a project.

How,
who,
Scope Time & Schedule Costs & Budget
when?
Management Management Management
2.

Stakeholder &
Risk (Human) Resources
Communication
Management Management
Management

3. 1.
Procurement
Quality Management
Management
uch
How m t
(does i
cost)? What?

6
PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung
1.1 Definitions and Overview

Project Cost Management includes processes involved in planning,

estimating, budgeting, financing, funding, managing, and controlling
costs so the project can be completed within the approved budget

Set of processes involved in planning, estimating, budgeting, financing,

Project Cost
funding, managing, and controlling costs so the project can be completed
Management
within the approved budget

Project Cost Cost of the resources needed to complete the project activities

§ Approved estimate for a project or a work package

Budget
§ Project budget includes all funds authorized to execute the project

Number of labor units required to complete an activity or work package,

Effort
often expressed in person hours, person days, or person month

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 7
1.2 Overview

On some projects, especially those of smaller scope, cost estimating

and cost budgeting are tightly linked and can be viewed as a single
process

§ Project should consider project decisions on

- subsequent recurring cost of using, maintaining, and supporting the product, service, or result
of the project, e. g. limiting the number of design reviews reduces the project cost, but could
increase the product's operating costs
§ Different stakeholders measure project costs in a different way at different times, e. g.: cost of an
acquired item may be measured when the acquisition decision is made, the order is placed, the
item is delivered etc.
§ In many organizations
- predicting and analyzing the prospective financial performance of the project's product is
performed outside of the project
- exist formal or informal cost estimating and budgeting-related policies, procedures and
guidelines - e. g. Earned value management used in managing projects
§ For Agile projects
- no benefit from detailed cost calculations --> use lightweight estimation methods
- detailed estimates reserved for short-term planning horizons and in just-in-time fashion

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 8
 Cost Management
2 ESTIMATE COSTS

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 9
2.1 Estimate Costs Process

Estimate Costs is the process of developing an approximation of the

cost or resources needed to complete project work

§ Determines the monetary resources required for the project

§ Is periodically performed throughout the project as needed or
planned
Types of costs § Performed for all resources that will be charged to the project
occurring in a - labor1): effort * cost per labor unit
project - material
- equipment
- services
- facilities
- special categories like, inflation allowance, cost of financing,
contingency costs, conversion rates, taxes etc.

§ Can be presented at activity level or in summary form at any level

of the project work structure

1) Usually the effort is estimated and based on the estimated effort and the cost per
labor unit to for the respective resource the cost is calculated. It can happen that also
the cost per labor unit (e. g. the day rate) has to be estimated (e. g. EUR 1.200,-- for a
Project Manager)

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 10
2.1 Example for predictive planning (1/3)

Step 2: W
hile devel
schedule: oping the
d
t t he roles an (a) roles o
: Lis to
going their
r indi
Step 1 ou ’re to each ta viduals are assig
ces y and sk ned
resour the schedule In this correspon . These roles need
. dt to
assign s and prices man Step 1, w o to those listed in
te hu hich is us
day ra project only d supported ually
e e
sampl s are assign (b) effort
(here
by the res
pective to
ce ol
resour estimated ”Given Work”) is

State of t
he art pro
use this d ject plann
ata to cal ing tool
planned culate the
cost auto
matically
.
There is u
su
view” sho ally a dedicated ”
wing this co
informat st
ion

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 11
2.1 Example for predictive planning (2/3)

When yo
u enter th
start, act e data for
ual end, p actual
completio ercentage
n of
for each t and actual effort
ask that spent
on, state has been
of worked
managem the art project
ent tools
calculate automati
the actua cally
“Actual C l cost (see
os column
see also th t” in the example
e tables on …a
slide) the previo nd
us

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 12
2.1 Example for predictive planning (3/3)

State of t
he art pro
tools usu ject mana
ally prov gement
different ide a num
vi ber
managem ew that support co of
en st
(a) plann t, like the given e
ed cost vs x
cost per ta . actual v amples:
sk (in th s. expe
example i is particu cted
t’s lar
between t even distinguish
he approv
planned ed budge ed
t and the
(b) plann cost)
ed, actua
role l and exp
ected cost
per

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2.2 Estimate Costs in Scrum

Estimating1) costs for a Scrum project can be based on either a fixed-

date release or a fixed-scope release2)
Step Description Comments

1 Determine who is on the team. Assume that the team composition doesn’t materially
change either during a sprint or from sprint to sprint.

2 Determine the sprint length. Assume that all sprints have the same length.

3 Based on team composition and This is simple if previous assumptions are true, and
sprint length, determine the only slightly more complicated if the team composition
personnel costs of running a or sprint length fluctuates.
sprint. 2)Alternative: Using
Historical Cost per Story
4a For a fixed-date release, multiply The result is the fixed personnel cost for this release. Point
the number of sprints in the • Take data about how
many points of work
release by the cost per sprint. where completed during a
previous period of time
4b For a fixed-scope release, The results are the rang of personnel costs • Divide it into the loaded
labor cost of the team à
multiply both high and low associated with the release. One represents the lower cost per point
number of sprints by the cost per amount the release should cost and the other the • multiply this cost per
sprint. higher amount it should cost. points with estimated
number of points
estimated for the release
1) What is really estimated is the size of the work (Story Points) and then the cost is calculated
Kenneth S. Rubin, Essential Scrum – A Practial Guide to the Most Popular Agile Process, Addison-Wesley

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 14
2.2 Estimate Costs in Scrum

Estimating1) costs for a Scrum project can be based on either a fixed-

date release or a fixed-scope release2) (1) e.g.: person 1 (senior developer) – 800 €/day,
Step Description Comments person 2 (developer) – 600 €/day, person 3
(senior developer) – 800 €/day, person 4
1 Determine who is on the team. Assume that the team(testcomposition doesn’t
automation materially
expert) – 700 €/day etc.
change either during a sprint or from sprint to sprint.
(2) e.g.: Sprint length = 2 weeks (10 work
days)
2 Determine the sprint length. Assume that all (3)
sprints
if have
you the same an
assume length.
effective capacity of 80%
for each person and a full utilization of
3 Based on team composition and This is simple if previous assumptions are true, and
sprint length, determine the
each team member, you get a total cost of
only slightly more complicated if the team composition
personnel costs of running a 23.200 € per sprint
or sprint length fluctuates.
sprint. ((800 €/d + 600 €/d +800 €/d + 700 €/d)
Alternative: Using 2)

The result is the fixed*personnel

10 d * 0,8) Historical Cost per Story
4a For a fixed-date release, multiply cost for this release. Point
the number of sprints in the (4) if you assume that your project• will have
Take data about8how
many points of work
release by the cost per sprint. sprints your estimated total costwhere is the
completed during a

4b For a fixed-scope release, estimated sprint

The results are the rang of personnel costscost * number of sprints
previous period of=time
• Divide it into the loaded
multiply both high and low 185.600
associated with the release. € represents the lower
One labor cost of the team à
cost per point
number of sprints by the cost per amount the release should cost and the other the • multiply this cost per
sprint. higher amount it should cost. points with estimated
number of points
estimated for the release
1) What is really estimated is the size of the work (Story Points) and then the cost is calculated
Kenneth S. Rubin, Essential Scrum – A Practial Guide to the Most Popular Agile Process, Addison-Wesley

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 15
 Cost Management
3 DETERMINE BUDGET

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 16
3.1 Determine Budget Process

Determine Budget is the process of aggregating the estimated costs of

individual activities to establish an authorized cost baseline

§ Determines the cost baseline against which the project

performance can be monitored and controlled

§ Performed once or at predefined points in the project (usually stage

boundaries)

§ Can lead to rescheduling or changing the approach depending on

the funding limits on the commitment of funds for the project

PM-I – Cost Mgmt – WiSe 22 / 23 – FB Immobilienwirtschaft & Baubetriebswirtschaftslehre - Dr. Bettina Hornung 17
3.2 Project Budget Components

Project Budget Management

Reserve

Cost Baseline Contingency

Reserve

Work Package
Cost Estimates

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3.2 Project Budget Components

Risk Management
Project Budget Management
Reserve

Contingency
Reserve
Cost Baseline

Work Package
Cost Estimates

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3.2.1 Project Budget Components

§ Approved version of the time-phased Project Management

project budget that includes Budget Reserve
contingency reserves, but excludes
Cost Contingency
management reserves Baseline Reserve
§ Basis for comparison to actual cost
§ Developed as a summation of the Work
Cost Baseline Package
approved budgets for the different Cost
schedule activities Estimates
§ Enables time-phase view of the cost
baseline, as cost estimates that make
up the cost baseline are directly linked
to the schedule

Management
§ à next slide
Reserve

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3.2.2 Project Budget Components

Project Management
Budget Reserve

§ Amount of the project budget withheld for Cost Contingency

management control purposes, reserved for Baseline Reserve
unforeseen work that is within the scope of the project Work
§ Intended to address the unknown unknowns Package
Management § Not included in the cost baseline, but part of the Cost
Estimates
Reserve overall project budget
§ are added to the cost baseline to produce the project
budget
§ An amount of management reserves can be added to
the cost baseline based on a (formal) change
§ Are the budget within the cost baseline that is
allocated for identified risks
§ Intended to address the known-unknowns that can
Contingency affect a project, e. g. rework for some project
Reserve deliverables
§ Can be provided at any level form the specific activity
to the entire project
§ May be a percentage, a fixed number

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 Cost Management
4 CONTROL COSTS

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4 Control Costs Process

Control Costs is the process of monitoring the status of the project to

update the project costs and managing changes to the cost baseline
( ii) co mpare
h e e x p enses , ast /
t ec
§ Maintains the cost baseline throughout the project (i ) c apture nd (iii) for ry costs.
you h
a
e plan ning necess
a
to t ai
them t he rem
a t e
§ Performed throughout the project estim es pe cially )
s ( b
o f d eviation t the reason, k or, if
In case ) a) find ou back on trac on
§ Monitoring expenditure with regard to the value of work ns n ct
overru e the deviatio has an effe
accomplished
manag t possible an
d
e r ele vant
t’ s n o in f o rm t h
o as k for a
th a t, t
§ Bring expected cost overruns within acceptable limits to t a l budge m ig ht need
the d ers. Yo
u
eh o l
stak increase. n be:
u d g e t o n s c a
b ti
§ Major output of the process: cost forecast u d g e t devia d, higher
c a u s es for b than expecte han
Roo t eeded a r g ed t
r e e ff or t n
u r ce s ch
r es ources
m o eso he r
y r a tes for r crease of ot
da
n e d , price in
plan
tc.
used e

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 Cost Management
ANNEX – NOT EXAM RELEVANT

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Earned Value Calculations Summary Table

PMI, PMBoK Guide 6th Edition

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