OPM - COST PLANNING & CONTROL

Method to estimate cost:

• Parametric – use per unit rate
• Estimate – from lowest to upper most level
• Indexing – use previous cost + 10 % increase
• Cost Capacity – Use previous project cost of different size
• Factoring – Use cost for an item from previous project

Contracting:

• Fixed Price
• Targeted Cost – include risk and uncertainties, benefit and risk are shared 
• Maximum Guaranteed price – Risk to contractor, benefit is shared
• Easy Payback – cost and expenses reimbursed to contractor without profit
• Cost Plus – Time and materials are reimbursed with agreed profit margin
• Unit rate – based on work accomplished

Cost and Project Objectives:

• Cost is one of the project objectives
• Unless cost is controlled project objectives can be jeopardized
• Cost, time and quality are interlinked. Cost control is most critical
• Most poorly managed project have cost overrun 

Cost Control:

Who control cost?

• Project manager must control spending and cost
• Strong culture of trust and responsibility is crucial for cost control

When to Control cost?

• Project cost spending is low at the beginning
• As project progress complexity increases and control effectiveness reduces

Where to control cost

• Cost are best controlled at source
• Issues and problems are to be resolved before cost is incurred
• Cost controller can be located on site

 How to control Cost? – use traditional variance analysis and Earned Value Analysis

Cost Collection:

Labor

• Time sheet – normal delay in data collections and fed back to PM can cause be serious ( 3 weeks to reach PM)

Materials

• Accurate data must record procurement of materials at issue of PO, at receipt of goods and at payment of invoice
• Three stages collection gives more up to date indication on cost and spending information

Cost Codes

• Cost codes helps detailing spending and improves control
• Too much details can increase cost collections and slow action

Complete cost information data is mandatory for an effective cost control

SV = BCWP – BCWS

CV  =  BCWP  - ACWP

Performance indices gives dimensionless index with value less or more than 1.0

CPI  =  BCWP / ACWP

Where CPI = cost performance index

SPI  =  BCWP/ BCWS

Where SPI = Schedule Performance index

Performance indicator:

CPI > 1.0    Project is saving

      < 1.0    Project is over spending

SPI  > 1.0  Project is ahead of schedule

       < 1.0 project is behind schedule

• Accuracy of performance indicator is dependent on the accuracy of cost data collection
• Detailed data sheet indicating cost and schedule can be cumbersome and computer and software need to be utilized
• Usually used for large projects due to administrative costs