#PM Cost Management—A Closer Look at the Tools & Techniques of the Control Costs Process


1. Introduction

In the last post, I organized the steps of the Control Costs Process in terms of 5 stages, each corresponding to one of the stages of the methodology of Six Sigma, or DMAIC (Define-Measure-Analyze-Improve-Control). This is obviously not the standard PMBOK Guide approach, but I thought that organizing the stages of the Control Costs process in this way would make a little more sense out of the inputs, tools & techniques, and outputs of this process.

As a recap, here is a detailed description of the steps of the Control Costs Process broken down into 5 stages.

Fig. 1 Stages of the Control Costs Process

Stage

DMAIC

Control Costs Process element

Stage 1. Define The cost performance plan is where the cost management processes are defined and the criteria set forth for controlling project costs.
Stage 2 Measure Monitoring cost performance (CV, CPI) and work performance (SV, SPI) to detect variances from cost performance baseline.

Monitoring cost expenditures (AC) so that they do not exceed periodic funding requirement limits.

Stage 3 Analyze Forecasting estimate at completion (EAC) and comparing to budget at completion (BAC) based on current trends.

Using To-Complete Performance Index or (TCPI) to calculate level of cost performance that needs to be achieved to bring EAC in line with BAC by the end of the project.

Determining the factors that create changes to the cost performance baseline.

Stage 4 Improve Corrective action to bring current cost overruns within acceptable limits. These actions can result in change requests.

  • Change requests are evaluated and approved/rejected.
  • Approved changes requests are implemented.
  • Stakeholders are informed of approved changes.

Another type of change request is a change to the cost performance baseline if the current one is shown to be unrealistic. This must be approved by sponsor and stakeholders.

Stage 5 Control Preventive action to bring future costs overruns within acceptable limits—these can also result in change requests (see above under Improve).

2. Tools & Techniques of the Control Costs Process

Here are 5 techniques of the Control Costs Process listed with the numbers assigned to them on p. 181-187 of the PMBOK® Guide. The tool listed for the Control Costs Process, Project Management Software, is one which can be used in conjunction with any of the 5 techniques and so it is not listed below in the chart.

Stage

Tool or Technique

Control Costs Process element

Stage 1 Define N/A The cost performance plan represents Stage 1 of the process, but it is an input to the Control Costs process, not a tool & technique

 

Stage 2 Measure 1. Earned Value Management An input of the Control Costs process, work performance information, is used to get the earned value or EV and the actual costs or 

AC. Another input, the cost performance baseline, gives the planned value or PV. Earned value management is used to compute the cost and schedule variance (CV and SV), and/or the cost and schedule performance index (CPI and SPI).

Stage 3 Analyze 2. Performance Reviews  

This takes the variances at any particular point in the project and determines if they are beyond any of the “control limits” set in the cost performance plan that would trigger correction and/or preventive action. Trend analysis is done to see if performance is improving or deteriorating over time.

 

3. Forecasting  

Given current trends in the variances, what will be estimate at completion or EAC (actual costs incurred at end of project)? The difference between the budget at completion or BAC and the EAC is the variance at completion or VAC.

 

4. TCPI (To-Complete Performance Index)  

Based on the EAC estimated in the Forecasting technique, what will the cost performance have to be from here on out in order to have it equal to the budget at completion? If this is attainable, corrective and/or preventive actions are taken to attain the TCPI. If this is not attainable, a change request must be made to adjust the cost performance baseline.

 

5. Variance Analysis The trend analysis of variances done in the Performance Reviews technique is taken one step further. The factors which are causing the variance are analyzed and isolated, leading to suggestions for change requests.
Stage 4

Improve

N/A Corrective action to bring current cost overruns within acceptable limits represents Stage 4 of the process, but it is an output of the Control Costs process, not a tool & technique.
Stage 5

Control

N/A Preventive action to bring future cost overruns within acceptable limits represents Stage 5 of the process, but it is an output of the Control Costs process, not a tool & technique.

You can see how the Control Costs Process techniques are mainly about measuring cost and schedule variance based on a comparison between the cost performance baseline and actual work performance information. Then these variances are analyzed using various techniques and change requests may be suggested as a result. These change requests then become the outputs of the process to bring any out-of-control costs back in line.

With this in mind, reviewing the outputs of the Control Costs process in tomorrow’s post should be very easy indeed.

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