Lecture 5: Project Cost Management – Notes

1. Introduction to Project Cost Management

 Definition (PMBOK): Processes involved in planning, estimating, budgeting, and
controlling costs to ensure project completion within the approved budget.
 Key Goals: Meeting cost, time, performance, and quality objectives.
 Definition of Cost: A resource sacrificed or foregone to achieve a specific objective,
usually measured in monetary units.
2. Key Processes in Project Cost Management
1. Plan Cost Management: Develop a cash outflow plan, usually monthly.
2. Cost Estimating: Approximate costs of resources needed.
3. Cost Budgeting: Allocate estimated costs to work items for baseline measurement.
4. Cost Control: Monitor and manage changes to the budget.
3. Principles of Cost Management
 Direct Costs: Directly related to project deliverables (e.g., salaries, equipment).
 Indirect Costs: Indirectly related (e.g., office rent, travel, insurance).
 Sunk Cost: Past expenses that should not influence future decisions.
4. Cost Estimation & Factors Affecting Costs
 Project Scope: Larger scope increases costs.
 Time & Effort: Man-days required to complete tasks.
 Resources: Team size, experience, salaries, infrastructure, utilities.
5. Cost Estimation Techniques
1. Analogous Estimation (Top-Down):
o Based on previous similar projects.
o Example: Website development effort comparison.
2. Empirical Estimation (Parametric):
o Uses mathematical models (COCOMO, Function Points).
o Example: Reports take 10 hours each; 8 reports → 80 hours.
3. Decomposition (Bottom-Up):
o Breaking down tasks (WBS) for better estimation.
o Example: Estimating each module separately.
4. Process-Based (SDLC):
o Efforts estimated based on the software development lifecycle.
6. Cost Budgeting
 Allocating costs over time.
 Establishing a Cost Baseline to track expenses.
 Importance of Cash Flow Forecasting to manage expenditures.
7. Cost-Benefit Evaluation Techniques
1. Payback Period: Time required to recover the investment.
2. Return on Investment (ROI): Net gain relative to investment.
3. Net Present Value (NPV): Future costs/benefits adjusted to present value.
8. Cost Control
 Monitor performance using Earned Value Management (EVM).
 Compare Estimated vs. Actual Cost regularly.
  Address cost overruns immediately.

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Lecture 6: Earned Value Management – Notes

1. Introduction to Cost & Schedule Variances
 Project Cost Control Includes:
o Monitoring cost performance.
o Ensuring only necessary changes are made to the budget.
o Keeping stakeholders informed about financial updates.
 Key Objective: Keep the project within budget by comparing estimated vs. actual costs.
2. Earned Value (EV) Technique
 Measures project performance by comparing planned work with actual accomplishments.
  Helps determine if cost and schedule performance are on track.
3. Key Earned Value Management (EVM) Components
1. Planned Value (PV):
o Budgeted cost of work scheduled to be completed at a given time.
2. Earned Value (EV):
o Budgeted cost of actual completed work.
3. Actual Cost (AC):
o Total cost incurred for completed work.
4. Cost & Schedule Variance Calculations
 Schedule Variance (SV): Measures whether work is ahead or behind schedule.
o Formula: SV = EV – PV
o Negative SV → Project is behind schedule.
o Positive SV → Project is ahead of schedule.
 Cost Variance (CV): Measures whether spending is within budget.
o Formula: CV = EV – AC
o Negative CV → Project is over budget.
o Positive CV → Project is under budget.
5. Performance Indexes
 Cost Performance Index (CPI): Efficiency of cost utilization.
o Formula: CPI = EV / AC
o CPI < 1.0 → Over budget.
o CPI > 1.0 → Under budget.
 Schedule Performance Index (SPI): Efficiency of schedule performance.
o Formula: SPI = EV / PV
o SPI < 1.0 → Behind schedule.
o SPI > 1.0 → Ahead of schedule.
6. Estimate at Completion (EAC) & Variance at Completion (VAC)
 EAC: Forecasts the total project cost based on current performance.
o Formula: EAC = BAC / CPI
 VAC: Predicts how much over or under budget the project will be at completion.
o Formula: VAC = BAC – EAC
o Negative VAC → Project will exceed budget.
7. Example Calculation
 Project Budget = Rs. 1,000,000
 50% work completed, but Rs. 800,000 already spent.
 Expected remaining cost = Rs. 800,000, leading to a cost overrun of Rs. 600,000.
8. Importance of Earned Value Management (EVM)
 Identifies inefficiencies early.
 Provides data-driven decision-making.
 Helps predict future project performance.

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Lecture 7: Stakeholder Management – Notes
1. Introduction to Stakeholder Management
 What is Stakeholder Management?
o Engaging and collaborating with people involved in the project.
o Understanding and handling different stakeholders to ensure project success.
 Why is it important?
o Good stakeholder relationships lead to:
 Better resources.
 Clearer requirements.
 Higher team performance.
2. Identifying Stakeholders
 Who are stakeholders?
o Any person or organization affected by the project.
o Anyone who can influence project outcomes.
 Types of Stakeholders:
1. Internal Stakeholders:
 Top Management – Project sponsors, executives.
 Project Manager (PM) – Responsible for execution.
 Team Members – Perform project tasks.
 End Users – Use the project outcome.
2. External Stakeholders:
 Clients/Customers – Buy or use the product.
 Vendors/Suppliers – Provide materials/resources.
 Regulators – Government agencies setting rules.
3. Stakeholder Analysis
 Stakeholder Register Includes:
o Name, location, contact details.
o Expectations, influence, and level of interest in the project.
o Classification: Supporter or Blocker?
 Stakeholder Engagement Categories:
o Unaware: Not aware of the project.
o Blocker: Aware but resistant.
o Neutral: Neither supportive nor resistant.
o Supportive: Supports project success.
4. Planning Stakeholder Management
 After identifying stakeholders, develop a Stakeholder Management Plan that includes:
o Engagement Levels (Inform, Consult, Collaborate).
o Stakeholder Inter-relationships (Who influences whom?).
o Communication Requirements (How often and what format?).
o Strategies for Managing Stakeholders (Persuasion, collaboration, etc.).
 Power/Interest Grid: Categorizes stakeholders based on:
o Power (Authority over project).
o Interest (Level of involvement).
o Four categories:
1. Manage Closely – High power, high interest.
2. Keep Satisfied – High power, low interest.
3. Keep Informed – Low power, high interest.
4. Monitor (Minimal Effort) – Low power, low interest.
5. Managing Stakeholder Engagement
 Why is engagement important?
o Most IT projects fail due to poor stakeholder involvement.
o Good engagement leads to:
 Quality professional relationships.
 Clear business communication.
 Strong executive support.
 How to engage stakeholders effectively?
o Communicate early & frequently (e.g., kickoff meetings).
o Set clear roles & responsibilities.
o Use structured reports for progress updates.
6. Controlling Stakeholder Engagement
 Key Actions for Project Managers:
o Involve key stakeholders in important meetings.
o Encourage open dialogue and active participation.
o Track stakeholder-related risks and expectations.
o Use tools like Issue Logs to monitor stakeholder concerns.
 Best Practices:
o Be transparent from the start.
o Explain consequences of decisions.
 o Have a contingency plan for conflicts.
o Avoid surprises and miscommunication.

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For your final exam preparation, I have highlighted key charts, numerical examples, and
important non-theoretical content from Lectures 5, 6, and 7 that are likely to appear in the
exam.

Lecture 5: Project Cost Management – Important Charts &

Numericals
1. Cost Estimation Techniques Chart
Technique Description Example
Analogous Uses past project data for If a website took 3 months to develop
Estimation (Top- rough estimates. for MCB-AMC, it may take 3-4
Down) months for Meezan Bank.
Empirical Uses mathematical formulas COCOMO model: Effort =
Estimation for estimation. a(KLOC)^b
(Parametric)
Decomposition Breaks project into tasks and WBS-based estimation: Each
(Bottom-Up) estimates each separately. module’s effort summed to get total.
Process-Based Uses Software Development Assigning effort to each SDLC phase
Estimation Lifecycle (SDLC) stages for (requirements, coding, testing).
estimation.

2. Project Cost Example (Budgeting & Forecasting)

 Scenario: A project has a budget of Rs. 1,000,000.
 50% of the project is completed, but Rs. 800,000 has already been spent.
 Remaining cost expected = Rs. 800,000.
 Total Cost Overrun = Rs. 600,000.
 Key Insight:
o The project is over budget and requires cost control strategies to manage
spending.
3. Cost-Benefit Techniques Formulas
Technique Formula Example
Payback Period Initial Investment / Annual Rs. 500,000 / Rs. 100,000 = 5
Cash Inflows years
Return on Investment (Total Benefits - Total Costs) / (Rs. 800,000 - Rs. 600,000) / Rs.
(ROI) Total Costs 600,000 = 33.3%
Net Present Value Σ (Cash flow / (1 + Discount If PV1 = 10,000 × 0.909 = Rs.
(NPV) rate)^n) 9,091

Lecture 6: Earned Value Management – Important Charts

& Numericals
1. Earned Value Analysis Table
Metric Formula Meaning
Planned Value Budgeted cost of scheduled Expected progress cost at a point in
(PV) work time
Earned Value Budgeted cost of completed How much work is actually done?
(EV) work
Actual Cost (AC) Total cost incurred Money spent so far

2. Cost & Schedule Variance Formulas

 Schedule Variance (SV) = EV - PV
o If SV < 0, project is behind schedule.
o If SV > 0, project is ahead of schedule.
 Cost Variance (CV) = EV - AC
o If CV < 0, project is over budget.
o If CV > 0, project is under budget.

3. Performance Index Formulas

Index Formula Interpretation
Cost Performance Index (CPI) EV / AC If CPI < 1, project is over budget.
Schedule Performance Index (SPI) EV / PV If SPI < 1, project is behind schedule.
Example Calculation:
 PV = Rs. 630,000
 EV = Rs. 590,000
 AC = Rs. 690,000
Cost Variance (CV) = EV - AC
= Rs. 590,000 - Rs. 690,000 = (-100,000) (Over Budget)
Schedule Variance (SV) = EV - PV
= Rs. 590,000 - Rs. 630,000 = (-50,000) (Behind Schedule)
CPI = EV / AC
= 590,000 / 690,000 = 0.86 (Over Budget)
SPI = EV / PV
= 590,000 / 630,000 = 0.94 (Behind Schedule)

4. Estimate at Completion (EAC) & Variance at Completion (VAC) Formulas

 EAC = BAC / CPI
 VAC = BAC - EAC
Example Calculation:
 BAC = Rs. 800,000
 CPI = 0.86
 EAC = 800,000 / 0.86 = Rs. 930,232
 VAC = 800,000 - 930,232 = Rs. (-130,232) (Over Budget)

Lecture 7: Stakeholder Management – Important Charts &

Models
1. Power-Interest Grid (Stakeholder Classification)
Power → / High Interest Low Interest
Interest ↓
High Power Manage Closely (Involve in decision- Keep Satisfied (Provide
making) updates)
Low Power Keep Informed (Regular Monitor (Minimal effort)
communication)

2. Stakeholder Register Example

Stakeholder Role Influence Engagement Level
Name
CEO Sponsor High Manage Closely
IT Manager Project Lead Medium Keep Informed
End-User Software User High Keep Satisfied

3. Stakeholder Engagement Best Practices

 Communicate early & frequently.
 Set clear expectations (e.g., kickoff meetings).
 Track stakeholder issues using an Issue Log.

Final Exam Preparation Tips

Key Topics for Numerical Questions:
✔ Earned Value (EV), Planned Value (PV), and Actual Cost (AC) calculations.
✔ Schedule Variance (SV) and Cost Variance (CV) formulas.
✔ Cost Performance Index (CPI) and Schedule Performance Index (SPI).
✔ Estimate at Completion (EAC) and Variance at Completion (VAC).
✔ Payback Period, ROI, and NPV calculations.
Key Topics for Conceptual Questions:
✔ Cost estimation techniques (Analogous, Empirical, Decomposition).
✔ Stakeholder analysis and classification models (Power-Interest Grid).
✔ Importance of cost control and budget tracking.
✔ Stakeholder engagement strategies and issue tracking.

Final Exam Strategy:

📌 Understand formulas – You don’t need to memorize all, but know how to apply them.
📌 Practice calculations – Solve at least 5 different numerical problems.
📌 Review charts & tables – Questions may ask about classifications like Power-Interest Grid.
📌 Prepare real-life examples – Use case studies from lectures for stakeholder management
scenarios.

This is a comprehensive exam preparation guide including numericals, charts, and key
theoretical concepts. Let me know if you need further details or practice problems!