Friday, August 8, 2014


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

  • 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:

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


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

Where CPI = cost performance index


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

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