5th Edition PMBOK® Guide—Chapter 7: Process 7.4 Control Costs


1. Introduction

The three of the four processes devoted to cost management are in the Planning Process Group. The fourth process, 7.4 Control Costs, is in the Monitoring & Controlling Process Group. The performance baseline for costs, the cost baseline, which was determined in the last process, 7.3 Determine Budget, is what the performance of the project will be measured against when the actual costs of doing the work are calculated.

The purpose of this post is to give a general overview of the inputs, tools & techniques, and outputs of this process.

2. Inputs

The main inputs come from the cost management knowledge area, as you would expect. For those projects which are not totally funded in advance of the project, but at various stages during the project, project funding requirements will need to be paid attention to so that the project doesn’t get too far ahead of itself to the point that funding is temporarily not available for activities.

Work performance data is used which will be analyzed and processed into work performance information through this process. The ubiquitous OPAs inputs are also important as they give access to the company’s corporate knowledge base when it comes to cost control.

7.4 CONTROL COSTS
INPUTS
1. Project Management Plan The following elements of the Project Management Plan are inputs to the process.

  • Cost Baseline—This is an output of process 7.3 Determine Budget
  • Cost Management Plan–This is an output of process 7.1 Plan Cost Management.
2. Project Funding Requirements
This not only specifies the projected expenditures for the project, but also the schedule of when those expenditures will be periodically released for the project.
3. Work Performance Data The data that will be used in earned value management calculations are

  • which activities have been started and completed, and the degree of progress for those in process, and
  • the costs that have been planned for those activities and the actual costs incurred.
4. OPAs
  • Cost control-related policies, procedures, and guidelines
  • Cost control tools
  • Methods for monitoring and reporting costs
TOOLS & TECHNIQUES
1. Earned Value Management Combines scope, schedule, and resource measurements to assess the project performance and progress. Main EVMs are

  • planned value (PV),
  • earned value (EV), and
  • actual costs (AC).

These are used to calculate variances:

  • Schedule variance (SV = EV – PV)
  • Cost variance (CV = EV – AC)
  • Schedule performance index (SPI = EV/PV)
  • Cost performance index (CPI = EV/AC)
2. Forecasting Developing an estimate at completion (EAC) to see how far it varies from the budget at completion (BAC), VAC = BAC – EAC
3. To-complete performance index (TCPI) Measures the cost performance to be achieved in order to have the project completed within the budget at completion (BAC), or alternately, the estimate at completion (EAC). TCPI is calculated by taking the remaining work and dividing by the remaining funds, which can be taken from either the BAC or EAC:

TCPI = (BAC – EV)(BAC – AC)

TCPI = (BAC – EV)(EAC – AC)

4. Performance Reviews
  • EVM (earned value management): takes a snapshot of the performance of the project at any given time
  • Variance analysis: The cause of the cost or schedule variance found through EVM is analyzed to determine corrective or preventive actions required in order to eliminate or reduce that variance.
  • Trend analysis: Examines performance over time (as measured through EVM) to see if there is a trend towards improvement or deterioration.
5. Project Management Software This tool is often used to monitor PV, EV, and AC.
6. Reserve Analysis Monitors the status of contingency reserves and management reserves. Unused contingency reserves for probable risk events which do not occur may be removed from the project budget.
OUTPUTS
1. Work Performance Information The calculated values of CV, SV, CPI, SPI, TCPI, and VAC
2. Cost Forecasts The calculation of estimate at completion either based on a bottom-up recalculation or through one of the formulas.
3. Change Requests Based on the work performance information and cost forecasts, changes may be indicated in one of the following categories

  • Corrective action
  • Preventive action
  • Changes to the cost baseline itself
4. Project Management Plan Updates The same elements of the cost management plan that were inputs may be modified as a result of this process.

  • Cost baseline
  • Cost management plan
5. Project Documents Updates
  • Cost estimates
  • Basis of estimates
6. OPAs Updates
  • Causes of variances
  • Corrective actions to be taken
  • Financial Databases
  • Lessons learned

3. Tools & Techniques

The subject of earned value management, forecasting, the TCPI (To-Complete Performance Index), and performance reviews are the main techniques, with the project management software being the main tool. Earned value management takes a snapshot of the present moment to see how the project is doing. The techniques of forecasting and TCPI shows how the future of the project will evolve given how the project is doing now.

Finally, the performance reviews compare the past performance with the present performance to see how the progress of the project has evolved up until the present moment.

Reserve analysis takes into account the “extra layers” on top of the cost estimates, the contingency reserves (which are added to the cost estimates to get the cost baseline) and the management reserves (which are added to the cost baseline to get the project budget). It should be decided whether any unused reserves will simply be left in the project budget, thereby improving the performance of the project, or whether they will be taken out of the project budget to possibly be used on other projects.

4. Outputs

The work performance information and the cost forecasts are elements which need to be communicated to the project team and concerned stakeholders on a regular basis. If the analysis of these indicate that there is a variance in either the cost or schedule performance of the project that needs correcting, then a change request may be recommended.

The corrective action aims to reduce the variance, whereas preventive action aims to prevent the variance from growing larger in the future. It may happen, however, that the variance is so large that the cost baseline is determined to be unrealistic, in which case it may be suggested that the cost baseline itself is changed.

In any case, these change requests are outputs of this process, but then are inputs to the process in the Integration Management Knowledge area called process 4.5, Perform Integrated Change Control.

As usual with monitoring and controlling processes, the management plans, project documents, and OPAs may end up being updated as a result.

The inputs to this process are clear enough, but the technique of earned value management (EVM) and associated techniques (forecasting, TCPI) are so vital to project management that they deserve some posts of their own, which I will begin with starting tomorrow.

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