9. Cost & Scope Management

Cost & Scope

Cost Management

Cost management ensures the project is completed within the approved budget. It involves four processes:

1. Plan Cost Management — Establish policies, procedures, and documentation
2. Estimate Costs — Develop approximations of monetary resources needed
3. Determine Budget — Aggregate estimates to establish a cost baseline
4. Control Costs — Monitor spending and manage changes to the budget

Cost Estimation Techniques

• Analogous Estimating — Based on similar projects (top-down, less accurate)
• Parametric Estimating — Statistical relationship (e.g., cost per square foot)
• Bottom-Up Estimating — Estimate individual tasks and sum them (most accurate)
• Three-Point Estimating — PERT-based: (O + 4M + P) / 6
• Reserve Analysis — Contingency reserves for known unknowns

Earned Value Management (EVM)

EVM integrates scope, schedule, and cost data. Key metrics:

• Planned Value (PV) — Budgeted cost of work scheduled
• Earned Value (EV) — Budgeted cost of work performed
• Actual Cost (AC) — Actual cost of work performed
• Cost Variance (CV) = EV - AC (negative = over budget)
• Schedule Variance (SV) = EV - PV (negative = behind schedule)
• CPI = EV / AC (< 1 = over budget)
• SPI = EV / PV (< 1 = behind schedule)

Project Charter

The project charter formally authorizes the project. It includes the business case, project purpose, measurable objectives, high-level requirements, key stakeholders, budget summary, and the project manager's authority level.

Selection Methods

Techniques to evaluate and select projects:

• Net Present Value (NPV) — Present value of future cash flows minus investment
• Internal Rate of Return (IRR) — Discount rate where NPV = 0
• Payback Period — Time to recover initial investment
• Benefit-Cost Ratio (BCR) — Ratio of benefits to costs (> 1 is favorable)
• Weighted Scoring Model — Multi-criteria decision analysis