Topic 1: Project Costs
How do you estimate project costs?
As you learned earlier, project managers are expected by
customers and stakeholders to deliver a definitive and functional cost estimate
in a timely manner. How do project managers do this? Good question. As you
read, there are three levels of estimation in a project: the WAG, the SWAG, and
the “you bet your job on this figure” estimates. Actually, they are referred to
in industry as, the “Order of Magnitude” the “Budget,” and the “Definitive”
cost estimates. The PMBOK addresses them under Analogous, Parametric, and
Bottom-up estimates respectively (PMBOK section 6.5.2). Explain which of the
three is used where in the project lifecycle.
Project costs are estimated for several reasons. It allows
you to weigh estimated benefits against expected costs to see whether the
project makes sense.It allows you to see whether the necessary funds are
available to support the project. It allows serves as a guideline to help
ensure that you have sufficient funds to complete the project.
Topic 2 – Why should you know how to use EVM?
Project costs are monitored and controlled using a common
technique called earned value management (EVM).
Given the following information:
Project PV AC EV
A 10,000 11,000 10,000
B 9,000 8,000
7,000
C 8,000 8,000
8,000
D 7,000 7,000
5,000
Based on the Planned Values, Actual Costs, and Earned Values
listed for Projects A, B, C, and D in the above table, how would you rank these
four projects, from best- to worst-performing?
