Project cost management methods. General concepts of cost management

Impact on factors that cause baseline cost changes.
Checking approval for requested changes.
Cost change management.
Ensuring that costs (periodic and project-wide) are kept within the limits defined by the project's funding limits.
Implementation of cost performance monitoring in order to detect and analyze deviations from the baseline cost plan.
Fixing all deviations from the base plan in terms of cost.
Informing relevant project stakeholders of approved changes.
Taking action to keep cost overruns within acceptable limits.

Cost Management Process Inputs

Initial information for cost management are:

Basic plan by cost.
Project funding requirements.
Performance reports- contain information about the expenditure of resources in the process of performing actual work.
Information about the execution of work- contains data related to the status and cost of completed project activities, and includes the following:
- completed and incomplete deliverables;
- expenses approved and incurred;
- forecast of the completion time of scheduled operations;
- Percentage of schedule activities actually completed.
Approved Change Requests.
Project management plan. In progress cost management data are taken into account project management plan(plan cost management and other subsidiary plans).

Tools and methods for cost management

Cost change management system contains descriptions of the procedures for making changes to the cost baseline and includes forms, documentation, tracking systems, and determining the level of authority to approve changes.

Earned value method- integrated analysis of the execution of the project schedule and budget according to cost estimates, the most common method for measuring project performance and its management. (The earned value of a task is the approved budget allocated for its completion.) This method allows in one report - the earned value report - to present information on the execution of expenses and schedules, and both schedule and expenses are measured in the currency in which the project budget is maintained. Measuring both the costs and the project schedule in monetary terms is the most informative description of the state of the project. The method uses a cumulative reporting system that is based on tracking three indicators project:

Planned cost planned work or planned volume - PV(Planned Value). The planned volume is calculated on the basis of the cost baseline and the base schedule, where each operation has its own timing and cost estimate. The planned volume represents a budget with a cumulative total and displays in time when it is supposed to make expenses according to the project plan (Fig. 6.4);
actual cost executed works - AC(actual cost). actual cost with a cumulative total is displayed in time for each reporting period (Fig. 6.4);
Planned cost of work performed or earned value - EV(earned value). The scope of work is equivalent to the budget set for this work. Earned Value is plotted at the end of each reporting period based on the actual work performed.

If the project is progressing according to plan, all three indicators will have the same value. Deviations between indicators can be a signal that a project is behind schedule or over budget.

Rice. 6.4.

The challenges of the earned value methodology are data collection and performance reporting.

Key indicators of earned value methodology are:

cost variance - CV (Cost Variance). It is equal to the difference between the planned cost of the work performed and its actual cost. CV=EV-AC.
timing deviation - SV (Schedule Variance). It is equal to the difference between the planned cost of the work performed and the planned cost of the planned work. SV = EV - PV.
budget execution ratio (or cost performance index) - CPI (Cost Performance Index). CPI=EV/AC.
schedule performance index (or schedule performance index) - SPI (Schedule Performance Index). SPI = EV/PV.

Indices are relative indicators used to compare the progress of projects of different sizes, when comparing the absolute indicators of projects is impossible.

On fig. 6.5 presents various options for the state of the project and the corresponding values of the indicators.

Rice. 6.5.

Earned value method combines project scope, cost (or resource) and time parameters that help the project management team evaluate the effectiveness of project execution.

Forecasting involves estimating or describing the conditions that will occur in the future of the project, based on the information and knowledge available at the time of the forecast. As the project progresses, forecasts are generated, updated, and reissued based on incoming performance information.

Analysis of project execution efficiency compares time-efficiency for schedule activities or work packages that are either up or down from budgeted performance. The analysis is designed to evaluate the execution and assess the status of schedule activities or work packages. To conduct the analysis, one or more of the following methods for reporting on project performance are used:

deviation analysis includes comparing actual project performance data with planned or expected performance;
trend analysis involves examining project performance data over time to determine whether project performance is improving or deteriorating;
earned value method provides for a comparison of planned performance indicators with actual ones.

Requested Changes- processed, and in the process of overall change management, appropriate adjustments are made to the plan.

Organizational Process Assets (Updates). Lessons learned documents include information about the main sources of deviations, the criteria by which a particular corrective action was chosen, and other types of lessons learned related to cost.

Project Management Plan (Updates). Documents related to the base plan by cost, plan cost management and the project budget, are the constituent elements project management plan. All approved change requests that affect the content of these documents are issued as updates and included in the documents.

8.1. Basic principles of project cost management

The cost of the project is determined by the total cost of the project's resources, the cost and time of the project's work. For construction projects, the cost of construction is determined, which is a part of the project cost, which includes the funds necessary for capital construction. Estimating all project costs is equivalent to estimating the total cost of the project.

Project cost management includes the processes necessary to ensure and ensure that the project will be completed within the approved budget. In the context of this chapter, cost management and cost management are practically identical concepts. The objectives of the cost (cost) management system are the development of policies, procedures and methods that allow for planning and timely cost control.

Project cost (cost) management includes the following processes:

project cost estimate;

project budgeting, i.e. setting targets for project costs;

control of the cost (costs) of the project, constant assessment of actual costs, comparison with previously planned in the budget and development of corrective and preventive measures.

The main document by which the cost of the project is managed is the budget. The budget is a policy document, which is a register of planned expenditures and incomes, itemized for the corresponding period of time. The budget is a document that defines the resource constraints of the project, therefore, when managing the cost, its cost component comes to the fore, which is commonly called the project estimate.

Project estimate - a document containing the justification and calculation of the cost of the project (contract), usually based on the scope of the project, the required resources and prices.

One way to manage project costs is to use the structure of cost accounts (charts of accounts). To perform work, resources are required, which can be expressed both in the labor of workers, materials, equipment, and in the form of cash cost positions, when there is no need or possibility to know what specific resources they are. At the stage of budgeting the work, all the resources involved in its implementation are written off to various cost items.

Since the structure of cost accounts is developed according to the principles of decomposition, by aggregating information from the accounts of the lower levels of the structure, it is possible to obtain cost data at the required level of detail, up to the top one, which characterizes the project budget.

During the execution of project work, actual information on costs is also taken into account in the corresponding cost accounts, which allows comparison of planned costs (budget) with actual ones at the appropriate levels of detail.

Cost management is carried out throughout the entire Project Life Cycle, and, of course, management processes are implemented differently at different stages of the project cycle. This is reflected in the modern concept of project cost management - cost management throughout the project (life-cycle costing-LCC).

The presented concept will be described as we consider the processes that make up cost management, especially the project cost estimation process, since this process is fundamental both for budgeting and control, and for the cost management function as a whole.

The distribution of the project cost during its life cycle is uneven and usually has the structure shown in Fig. 14.1.2. As you can see, the bulk of the cost arises during the implementation phase of the project. But it should be noted that the main decisions that determine the project cost indicators are made at the pre-investment phase of the project. Thus, the ability to manage the cost of the project is also unevenly distributed throughout its life. life cycle.

8.2. Project Cost Estimation

Depending on the stage of the project life cycle and the objectives of the assessment, different kinds and methods for estimating project costs. Based on the purposes of assessments, the accuracy of such assessments also varies.

In table. 14.2.1 presents various types of project cost estimates, indicating the purpose of the estimates and their accuracy. To estimate the cost of the project, you need to know the cost of the resources that make up the project, the time it takes to complete the work, and the cost of this work. Thus, cost estimation begins with the definition of the project's resource and work structure. These tasks are solved within the framework of project planning (Chapter 13), and the results of this process should be sent to the costing module.

The cost of the project is determined by the resources, necessary to complete the work, including:

equipment (purchase, leasing, leasing); fixtures, devices and production facilities;

working labor (staff employees hired under a contract);

consumables (stationery, etc.);

materials;

training, seminars, conferences;

subcontracts;

transportation, etc.

Project stage	Assessment type	Purpose of assessments	Error, %
Project concept	Preliminary Viability Assessment/ project feasibility	Viability assessment/ financial feasibility of the project
Rationale for investment	Factorial	Comparison of planned costs with budget constraints, the basis for the formation of a preliminary budget
	approximate Estimated and financial	Making the final investment decision, financing the project. Conducting negotiations and tenders, the basis for the formation of an updated budget
	approximate Estimated and financial
Development of working documentation	final Estimated documentation	Basis for calculations and for project cost management
Project implementation	Actual For completed work	Evaluation of the cost of work already performed
Project implementation	Predictive Upcoming work	Estimation of the cost of work to be implemented
Commissioning	Actual
Commissioning	Predictive
Exploitation	Actual
Exploitation	Predictive
Project Completion	Actual	Full project cost estimate

All costs can be classified as:

direct and overhead costs;

repetitive and one-time. For example, monthly payments for the use of production facilities are recurring costs, the purchase of a set of equipment is a one-time cost;

fixed and variable on the basis of dependence on the amount of work;

overtime pay.

The project cost structure by cost items is usually based on the structure of the project chart of accounts, which is a decomposition of costs from the highest level of the cost of the entire project to the bottom level of the cost of one unit of resources. For a specific project, a chart of accounts or a family of them is selected. As basic options, Russian accounting charts of accounts, international accounting charts of accounts, management accounting charts of accounts can be used.

The project cost estimation technique consists of 13 steps. These may vary by project and generally include the following:

Determining the resource needs of the job.

Development of a network model.

Development of a work breakdown structure.

Evaluation of costs in the context of the work breakdown structure.

Discuss the WBS (work breakdown structure) with each of the functional managers.

Development of the main course of action.

Cost estimate for each element of the CPP.

Alignment of base costs with the highest level of management

Discussion with functional managers of staffing needs.

Development of a scheme of linear responsibility.

Development of detailed schedules.

Formation of a summary report on costs.

Incorporate cost estimates into project documents.

A project cost estimate is essentially an estimate of all the costs required for the successful and complete implementation of a project. These costs may have different representations, colored by different economic meanings. At the same time, the differences between such representations are sometimes very subtle.

There are three types of costs:

obligations;

budget costs (estimated cost of work, distributed over time);

actual costs (cash outflow).

Obligations arise, for example, when ordering any goods or services well in advance of their use in the project. As a result, invoices are issued, payment for which can be made either at the time the goods are ready for delivery, or at the time of receipt, or according to the payment policy adopted by the organization. In any case, when ordering, the budget is reduced by the amount of this order. In some cases, it is not taken into account until the receipt of the invoice, which incorrectly reflects the current state of the budget. In this regard, there is a need for a system for planning and accounting for project obligations. In addition to performing its main functions, this system will allow you to predict future payments.

Budget costs characterize the costs planned in the course of work.

Actual costs reflect the costs incurred during the execution of project work, or at the time of payment Money.

The actual ratio of these types of costs depends on several factors, including:

the ratio between the volumes of labor resources, materials and subcontracts in the project;

the organization's bill payment policy;

the period of delivery of the main equipment;

the schedule for the execution of work under subcontracts;

the impact of the work schedule on when and how the costs of workers will be written off when equipment is delivered.

Understanding the difference between the described cost "expressions" will allow you to effectively manage the total costs of the project.

Based on the structure of the project life cycle, its cost includes the following components:

cost of research and development: conducting pre-investment studies, cost-benefit analysis, system analysis, detailed design and development of prototype products, preliminary evaluation of project products, development of design and other product documentation;

production costs: production, assembly and testing of project products, maintenance of production facilities, logistics, staff training, etc.;

construction costs: production and administrative premises (construction of new or reconstruction of old ones);

current costs: wages, materials and semi-finished products, transportation, information management, quality control, etc.;

removal of products from production: the cost of re-equipment of production facilities, disposal of residues.

8.3. Project budgeting

Budgeting is understood as the determination of the cost values of the work performed within the framework of the project and the project as a whole, the process of forming the project budget, containing the established (approved) distribution of costs by type of work, cost items, by time of work, by cost centers or by another structure. The structure of the budget is determined by the chart of accounts of the cost accounting of a particular project. The budget can be formed both within the framework of a traditional accounting chart of accounts, and using a specially developed management accounting chart of accounts. Practice shows that in most cases the accounting chart of accounts is not enough. Each specific project requires accounting for certain specifics in terms of cost management, so each project should have its own unique chart of accounts, but which is based on established management accounting indicators.

Different types of budgets are developed at different phases and stages of the project. The accuracy and purpose of these types of budgets are given in Table. 14.3.1.

Budgeting is cost planning, that is, the definition of a cost plan: when, how much and for what money will be paid.

The budget can be in the form of:

cost schedules;

cost allocation matrices;

bar charts of costs;

bar charts of cumulative (cumulative) costs;

line charts of time-distributed cumulative costs;

pie charts of the cost structure, etc.

Table 14.3.1. Types of budgets

Project stage	Budget type	Budget assignment	Error, %
Project concept	Budget expectations	Advance payment planning and financial needs
Rationale for investment	Provisional budget	Substantiation of cost items, substantiation and planning of attraction and use of financial resources
Feasibility Study	Provisional budget
Tenders, negotiations and contracts	Updated budget	Planning settlements with contractors and suppliers
Development documentation	final budget	Directive restriction of resource usage
Project implementation	Actual budget	Cost management (accounting and control)
Commissioning
Exploitation
Project Completion

The form in which budgets are presented depends on:

document consumer;

purpose of creating the document;

established standards;

information of interest.

Depending on the stage of the project life cycle, budgets can be:

preliminary (evaluative);

approved (official);

current (corrected);

actual.

After conducting feasibility studies (Chapter 4), preliminary budgets are drawn up, which are more estimated than prescriptive. Such budgets are negotiated by all stakeholders and ultimately approved by the project manager or other decision maker. Once the budget has become official, it becomes the benchmark against which actual results are compared. During the implementation of the project, deviations from previously planned indicators occur, which should be reflected in the current budgets in a timely manner. And at the end of all the work, the actual budget is created as the final document, which reflects the real numbers.

Of particular note are the estimates, which are expenditure budgets. Estimated documentation is an important component of budget documentation in large investment projects.

8.4. Project Cost Control Methods

Project cost control arises from the influence of factors that cause deviations from the previously planned budget, and is aimed at managing changes in the project cost in order to reduce the negative aspects and increase the positive effects of changes in the project cost.

Project cost control includes:

monitoring cost indicators of project implementation in order to detect deviations from the budget;

managing budget changes to ensure budget implementation;

prevention of previously planned erroneous decisions;

informing all stakeholders about the progress of the project in terms of compliance with the budget.

Project cost control has two components: accounting, i.e., an assessment of the actual cost of work performed and resources expended, and predictive, i.e., an assessment of the future cost of the project. The basic indicators used in project cost control are the following:

Need to Completion (NDC) establishes an estimate of the costs that will be required to complete the work or project. The LDN estimate is the best current estimate of how much more needs to be invested at the moment to complete the job;

Estimated Cost (PC): The best estimate of the total cost that a job or project will have when completed. Estimated cost is calculated as the sum of the actual costs for the current date and the VAT;

There are two main cost control methods: the traditional method; earned value method.

The traditional control method uses the following concepts:

Planned (budget) costs - BCWS (Budgeted CostofWork Scheduled). This is the budgeted cost of the work scheduled according to the schedule, or the amount of the resource expected to be used by the current date. The current date is the date for which there is actual information:

BCWS\u003d BC (total budget) x% of the plan.

Actual costs - ACWP (Actual Cost of Work Performed). This is the cost of actually completed work to the current date, or the amount of resource actually spent on the completion of work up to the current date. Actual costs do not depend on planned costs or resource consumption.

The main disadvantage of the traditional method is that it does not take into account what work was actually done with the money spent. In other words, he does not operate with time or work schedule.

The traditional cost variance is calculated as the difference between actual and planned costs.

The earned value method is based on determining the ratio of actual costs to the amount of work that must be completed by a certain date. This takes into account information on the cost, planned and actual schedule of work and gives a generalized assessment of the state of work at the current moment. The identified trends are used to predict the future cost of the scope of work at completion and determine the factors that affect the schedule of work.

Earned value analysis uses three metrics to determine schedule and cost discrepancies:

planned (budget) costs - BCWS;

actual costs - ACWP;

earned value - BCWP (Budgeted Cost of Work Performed).

This is the planned cost of the actual work done, or the amount of the resource planned for the amount of work actually done to date. Earned Value is independent of the actual cost of the activity:

BCWP= Planned cost x % resource usage.

Since the earned value method takes into account the time factor, it allows you to determine both the real cost variance and the backlog in the work schedule.

The cost variance (cash overrun) is the difference between the actual cost of work performed (ACWP) and the planned cost of work performed (BCWP). For a work in progress, a percentage of completion (in terms of cost) needs to be completed:

CV (costVariance) = ACWP – BCWP

Backlog is defined as the difference between the planned cost of work on schedule (BCWS) and the planned cost of work performed (BCWP).

Using the earned value analysis method requires additional structuring of the project cost management system and additional efforts of the manager to collect and analyze data. Nevertheless, this approach allows you to get a more accurate picture of the status of the project and present it to senior management and the customer in the form of various reports.

The main indicators used to analyze the status of project costs are presented in Table. 14.4.1.

Table. Cost parameters of the project work

Index	Formula or method of calculation
Planned cost of work performed (BCWP, Earned Value). Planned cost of work actually completed or the amount of the resource planned for the amount of work actually completed to date	BCWP = Planned cost x % resource usage
General budget costs	The total cost of the work assumed in the base plan
Budget Value (BCWS). Part of the cost of work that must be completed by the current date in accordance with the baseline (cost of work calculated over the period of time according to the plan)	Total budget costs x % according to the plan
Actual Costs (ACWP)	Actual cost of work to date
Cost absorption index 1 - costs for the current date are in line with the plan >1 - less money spent on the current date than expected <1 - на текущую дату средств затрачено больше, чем предусмотрено	Earned Value / Actual Costs
Cost variance< 0 - перерасход средств на текущую дату >0 - underexpenditure for the current date	Earned Value - Actual Costs
Relative cost variance	Shows the ratio of cost variance to current date's budgeted cost (BCWS)
Estimated cost to completion	Based on current results
Estimation (forecast) of the cost at completion - an estimate of the total cost of the work, based on current results	Actual Cost + Estimated Cost to Completion
Plan execution index - the ratio of earned value to the budgeted cost of work according to the plan for the current date	Earned Value / Budgeted Value
Cost discrepancy< 0 - перерасход затрат	Budget Costs - Estimated Cost on Completion
Cost overrun percentage, %	Cost discrepancy / Budget costs

The main advantage of the earned value methodology is the possibility of “early detection” (detection at the early stages of the project implementation) of discrepancy between the actual project indicators and the planned ones, forecasting on their basis the results of the project implementation (terms, costs, etc.) and taking timely corrective actions, up to termination of the project.

In addition to estimating the total cost of a project, other project characteristics can also be predicted from the observed earned value.

Let's explain the difference between the traditional method and the earned value method with an example.

Let's say the project budget is $100. units It was planned to spend 25 units on the performance of work until the current date, but in fact 22 units were spent, i.e. BCWS = 25, and ACWP = 22. At the same time, according to the plan, 20 units had to be spent on the performance of work, i.e. .BCWP=20.

In accordance with the traditional approach, the deviation in costs is 25-22=3 units, i.e., savings are observed. In accordance with the earned value method, the real cost variance is 20-22 = -2 units, i.e., there is a cash overrun. At the same time, the deviation from the schedule for spending funds is 25-20=5 units, which indicates that the actual progress of the project is lagging behind the planned one by 20%.

Cost forecasting involves estimating the final cost of a project based on current project cost information.

There are the following options for estimating the final cost of a project (EAC), which use both the traditional valuation method and the earned value method:

Cost at Completion = Actual Cost to Date + Remaining Project Cost Adjusted for Cost Achievement Index;

Cost at Completion = Actual Cost to Date + Estimated Remaining Project Cost (ETC);

Cost on Completion = Actual Cost as of Today + New Estimate for the Remainder of the Project.

8.5. Cost reporting

Reporting provides the basis for work coordination, operational planning and management. The process of movement of reporting information in the organization is shown in Fig. 14.5.1.

The initial information for reporting is data on the planned costs of work and the actual costs of their implementation.

At the project planning stage, reports are generated on the budget cost of work (Fig. 14.5.2), the distribution of budget funds by cost accounts (Fig. 14.5.3), etc.

At the control stage, as a rule, cost data are collected on:

labor costs;

materials;

other direct costs;

overspending.

A cash overrun report is generated annually or monthly for the entire project.

The actual cost (ACWP) and earned value (BCWP) values for each activity are the main elements upon which cost status reporting is based. This data is collected at the expense account level and included in reports. Typically, these reports are prepared on a monthly basis for each level of CRR or CCO, depending on the required level of information aggregation. In addition to them, weekly reports on actual labor costs are generated, on the basis of which it is possible to analyze the use of human resources.

The main goal of project cost management is to complete it within the approved budget.

Why you need to manage project cost

The project manager is primarily concerned with managing the direct costs of the project, but the current trend in project management is that his role in project cost management will increase due to the increasing inclusion of non-traditional areas of cost management. It can be assumed that in the future more and more project managers will deal with the management of indirect costs and project costs.

The idea that the project manager should be more responsible for the cost of the project comes from an analogy with the responsibility of the manager or owner of a small business. To do this, the project manager must know many aspects of running a business, including how to manage project costs. The competence of the project manager in this area may be even more important than his possession of certain technical skills and abilities. Typically, each project involves a large number of technical people, but not enough people who pay attention to the business aspects of the project.

At the same time, regardless of what the project manager is specifically responsible for, it is critical that his work be evaluated according to those and only those indicators for which he is responsible. For example, if the project manager is not responsible for the cost of materials in the project, then there is no point in evaluating his work by this indicator.

For cost accounting, it is also very important to establish an appropriate timing for the collection of actual cost data. The project budget should be synchronized with the collection procedure. For example, if the project manager is responsible for the cost of materials, then you need to determine when an expense should be shown in the budget. Should this happen when the project manager makes a purchase decision, or when the purchase is delivered? Or maybe you should fix the expense after the completion of the acceptance of the purchased, or at the moment when the purchase is paid? Issues like these can make project cost management a nightmare.

Thus, if a project is not properly managed for cost, it is bound to get out of control, and more money will be spent to complete it than expected. Project cost management aims to prevent this situation.

Consider one of the methods of project cost management.

Earned Value Report

The Earned Value Report is the most preferred method for reflecting the progress of a project. Its advantage is that one sheet of paper can show the status of a significant project milestone. In the Earned Value Report, you can see how the planned costs of the project are distributed over time, as well as the actual costs of funds and the volume of actual work performed. Based on the data in this report, variances in costs and terms can be calculated.

There are several metrics that you need to understand in order to use the Earned Value Report effectively in your practice. Consider three main indicators - BCWS, BCWP And ACWP.

The first indicator is BCWS(Budgeted Cost of Work Scheduled) - the planned (estimated) cost of the planned (to be performed for the period under consideration) work ( PSZR). Project Management Institute ( PMI) has renamed the BCWS indicator and is now called Planned Value, or PV(which can be translated into Russian as "planned volume." - Approx. ed.). Let's see if this new terminology will be accepted in the professional environment, or if people will continue to use the old abbreviation. It is enough to understand how this indicator is calculated to understand that its name accurately conveys the meaning: it is the sum of the planned budgetary costs of the project's work that must be completed in the considered period of time. All elementary project activities have a planned budgeted cost, which is determined on the basis of the cost estimate and the project schedule (the schedule contains the start dates and duration of each activity). Thus, BCWS is simply the sum of these amounts, combined by the planned time of the upcoming implementation of the costs, that is, the project plan, presented in the form of budget amounts tied to the points in time when these amounts were planned to be spent.

The next indicator is ACWP(Actual Cost of Work Performed) - the actual cost of work performed. As with BCWS, PMI has also given this metric a new name - actual cost, or abbreviated AC(which can be translated into Russian as "actual costs." - Approx. ed.). When calculating this indicator, not planned, but real project costs incurred for the period under consideration are combined. At the end of each reporting period, the total project costs for that period are added to the total costs for previous reporting periods.

And finally, the third indicator, which is slightly more complicated than the previous ones, is BCWP(Budgeted Cost of Work Performed) - planned (estimated) cost of work performed ( PSVR). It is also sometimes called Earned Value, or abbreviated EV(which can be translated into Russian as "earned value". - Approx. ed.). This metric has given its name to both the earned value method and the earned value report. The BCWP projected value of work performed (EV), like the two previous measures, is the pooling of cash over the time period under consideration. Above, we indicated that each of the elementary works of the project has a planned budget cost and deadlines. BCWP is the union of the planned costs of the work actually performed during the reporting period. For example, if work is completed with a planned (estimated) cost of $ 1,000, then the BCWP for this work at its completion will be equal to $ 1,000. Just like for other indicators, in order to get the BCWP of the project, the BCWPs of all works performed by the end of the project are summed up. reporting period.

The Earned Value Report shows all three metrics. If the project is in strict accordance with the planned deadlines and budget, then, obviously, all three indicators will coincide.

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on the topic "Project Cost Management"

Introduction

1. The concept and meaning of project cost management

2. Project cost management methods

3. Earned value method as a project cost management method

Conclusion

List of used literature

Introduction

Project cost management is associated with one of the three major constraints in projects - cost, time, and domain requirements. Compliance with all these restrictions allows you to complete the project within the planned time frame and budget with full satisfaction of the customer's previously defined expectations (that is, with the full achievement of all predetermined results).

The aim of the study is to study the cost management methods of business projects in industrial production.

Research objectives. To achieve the goal set in the work, the following tasks are solved:

Conduct an analysis of the concept of project cost management;

Conduct a cost management analysis on the example of a specific business project.

The object of the research is business projects in industrial production.

The subject of the research is the approaches and methods of project cost management, including investment business projects.

Theoretical and methodological issues of real estate and business valuation are reflected in the works of domestic and foreign scientists: SV. Valdaytseva, V.V. Grigorieva, A.P. Kovaleva, A.G. Gryaznova, M.A. Fedotova, D. Northcott, J. Richard, J. Friedman, U.F. Sharpe, G.D. Alexander, J.W. Bailey, L.J. Gitman, P. Hovranek.

Research methods. To solve the tasks set in the dissertation work, the theoretical and methodological foundations of business valuation were used, methods of economic and mathematical modeling, system and situational analysis, and expert assessments.

1. The concept and meaning of project cost management

Project cost management is associated with one of the three main constraints in projects - cost, time, and domain requirements. Compliance with all these restrictions allows you to complete the project within the planned time frame and budget with full satisfaction of the customer's previously defined expectations (that is, with the full achievement of all predetermined results).

The main goal of project cost management is to complete it within the approved budget.

2. Project cost management methods

In terms of project cost management, we are faced with risk analysis at the very first stage of project budgeting. Indeed, in the process of drawing up a project plan, one of the first operations after the completion of the definition of its work, the process of developing a detailed project estimate is initiated, which is formed by estimating the cost of each WBS work. However, if we want to maximize the quality and accuracy of our estimates, we should analyze them statistically in a manner similar to project duration analysis (PERT).

In the analysis, PERT is calculated on the end date of the project in accordance with the dates of completion of its activities, as a certain range of values corresponding to the average value of the duration +2 standard deviations. According to statistics, the actual end date of the project should fall within this period with a 95.5% probability.

When estimating the cost of performing work, the optimistic, pessimistic, and most likely values are three independent values provided by the project team members who are responsible for budgeting.

What principles are used in determining three independent values of value? Obviously, in the case of an optimistic value, that rare case is considered when everything in the project goes as well as possible. The pessimistic value corresponds to situations in which performers manage to step on all possible rakes. When forming the most probable value we assume that some of the problems manifested themselves during the project, and some of the work was not implemented. In other words, in all three cases, we estimate the cost of performing a particular task based on an analysis of the risks associated with this task.

Let us describe a method for obtaining quantitative estimates of the optimistic, pessimistic and most probable values of the cost of the project work. As you know, the risk is the same work of the project, like any of the components of the WBS, with the condition that this work may or may not appear in the course of its implementation. Thus, each risk corresponds to a certain value of the probability of its manifestation. When a risk occurs, it becomes work to be done and is associated with a certain amount of cost - this amount is called the impact of the risk. For the purpose of further analysis of risks and their ranking in terms of significance for the company and the project, we introduce a third value - the so-called expected risk value:

RH = probability * impact (mon. units) (1.1)

The probability of occurrence of the risk, the impact of the risk, and the expected magnitude of the risk are used to estimate the multiple costs. When calculating the pessimistic value of the cost, we use the magnitude of the impact of all the risks associated with this work. When calculating the optimistic value, we assume that the risks identified by us will not manifest themselves in this work, i.e. the probability value will be equal to 0. When estimating the most probable value, we use the expected risk values, assuming that in real project Some of the identified risks will materialize to the full extent of the impact, some will not manifest themselves or will be partially neutralized by the positive risks (opportunities) that have emerged.

Moving on to the next stage of cost planning, namely the formation of the budget, knowledge and ideas about the risks of the project are again used. In particular, it is on the basis of data on expected risk values that the so-called contingency budget is formed. According to the PM methodology, it is a mandatory part of the overall project budget. Another part of the project budget, the so-called management reserve, is budgeted in case of unknown (undefined) risks of the project. It should be emphasized that these risks are necessarily present in every project, and their share depends on the area in which the project is being implemented.

Later on, the principles of risk management are used at the stage of project implementation - in the course of tracking the development of the project with the help of project managers' favorite reports on earned value (earned value reports). The classic earned value method considers three curves corresponding to the three types of data collected - AC (actual cost), PV (planned value) and EV (earned value). Rather, it is considered that the collected data relate only to two curves - AC and EV, and the planned cost is deferred based on the original project plan. However, as the project progresses and any planned risks materialize, the contingency budgeted money shown on the chart as a fixed amount above the end point of the PV curve (the budget at completion point called BAC) is carried forward. to the operating budget and are added to the PV curve, giving it a step increase. As a result of a change in the total value of the operating budget, the position of the BAC point itself is also adjusted.

Many more interesting points of contact between risk management and project cost management could be considered. In particular, project justification methods are based on the so-called cost-benefit analysis and are reduced to an analysis of the company's risk tolerance in financial terms for a particular project with different levels of profits and other benefits. At this point, however, we would like to stop discussing the cost characteristics of the project and move on to a somewhat non-traditional aspect of risk management - namely, project schedule risks.

Time Management and Project Risk Management: Risk and Schedule.

Most often, when considering the risks of a project, we first of all think about the cost, that is, the monetary expression of risks. However, we should not forget that the implementation of the project on time also involves certain risks, which in this case are expressed in terms of the schedule.

Taking into account the integrality of project management as a methodology that we have already postulated, it is not difficult to assume that similar methods should also exist in terms of time management. Indeed, such techniques exist; these are the so-called mechanisms for developing buffer schedules, or buffered schedules.

The logic behind this methodology is simple. From the point of view of probability theory, various possible values of the completion time of the project correspond to a certain probability distribution of the manifestation of these values. If we assume that it is normal, then its mode will be located at the point corresponding to the most probable end time of the project (see Fig. 2). Most often, we use this value in order to promise our client one or another date for the completion of the project. However, it is easy to see that for a normal distribution, the mode coincides with the median. Thus, to the left and to the right of the most likely project completion date, 50% are located options.

A more or less formalized project management practice exists today in most Russian corporations. However, experience shows that in the absence of a formalized management system, the project manager and participants inevitably face problems associated with conflicts of goals, priorities, deadlines, assignments, resources, and reporting.

For the successful implementation of projects, a project management system is created at the enterprise.

The structure of the project management system

The project management system allows you to:

Allocate special procedures for project management, within the framework of which the coordination and adjustment of the goals and results of projects is carried out;

Increase the accuracy of project planning - by formalizing and describing the company's experience in implementing individual project procedures, using special scheduling tools;

To increase the efficiency of interaction between divisions and employees of the company - by describing the functional duties, distributing the responsibility of project participants, determining the principles of interaction and resolving conflicts on project tasks;

To increase the efficiency of the company's employees in relation to project tasks - by developing methods for performing standard procedures, creating a mechanism for accumulating "best practices" in the course of the company's project implementation activities;

Ensuring the minimization of project implementation risks - through the development of special methods and procedures for identifying, assessing and managing risks in the course of project planning and implementation;

Optimize the financial costs of the company in the framework of the implementation of projects - through the use of special procedures for budgeting the stages and work of the project (planning, allocation and control over the expenditure of funds), the use of tools.

Improve control by the project manager and company management of the execution of one or a group of projects, the ability to identify negative trends in the implementation of projects and make informed decisions at an early stage - through the use of tools for scheduling and financial analysis.

Analysis and optimization of resource loading, that is, even distribution of work between resources, is one of the most complex operations performed when creating a project in MS Project. In this lesson, you'll learn how to use MS Project's automation capabilities to allocate resource load and distribute it manually in cases where automated tools can't cope with the task.

There are several methods of project cost planning: by analogy, "top down", by parameters and "bottom up". Determining the cost of a project by analogy (analogous estimating) can be used when the planned project is similar to a number of others that were previously carried out in the organization. In this case, the total cost of the project is determined based on the accumulated experience, and then the total cost is distributed among the tasks.

This method is the least accurate, but it takes the least time to apply. As a rule, the cost of the project is estimated in this way only at the initial stage of planning, when the scope of work has not yet been finally determined and more accurate methods cannot be used. To use this method in MS Project, it is enough to manually fill in the appropriate fields in the table (they will be discussed in this lesson).

Determining the cost of a project by parameters (parametric modeling) is a fairly popular technique. A typical example is estimating the cost of a house under construction by area or determining the cost of furniture by running meters.

The accuracy of this method and, accordingly, the labor costs for its use depend on the number of estimated parameters. You can apply primitive techniques, such as those given in the example, in small projects, especially if you have accumulated great experience their implementation. For large-scale projects, techniques using a large number of parameters can be applied. The accuracy of such methods is much higher, but their application takes more time. To apply the parametric technique in MS Project, you need to use custom fields and functions (they were discussed in the "Custom fields" section of the previous lesson).

The bottom-up estimating method for determining the cost of a project consists in calculating the cost of individual tasks of the project and forming the total cost of the project from the total cost of all works.

It is this technique that is the most accurate, and it is precisely on its use that the MS Project program is oriented. True, its application requires the most time, since its accuracy largely depends on the degree of detail of the scope of work and resources. Consider how to plan the cost of a project using this technique.

The opposite is the top-down costing methodology, which calculates the total cost of a project or phase, and from this determines the possible costs of the components of the project or phase. Typically, this technique is used when the project is constrained by budget, or in combination with the method of estimating by analogy.

The described methods for determining the cost can be applied both to the project as a whole and to its individual tasks. When planning the cost "from the bottom up" for individual tasks, other methods may be used. For example, a parametric model can be used to calculate the cost of the "Articles received by the editor" task, since it depends on two parameters: the cost of the article and the number of articles received by the editor. If it is known that the cost of testing a program is 25% of the cost of a software development project, then it is possible to estimate the cost of all work on the project using a bottom-up methodology and, based on this, determine the total cost of the testing phase, and only then plan the costs for tasks for this phase.

The use of project management (PM) methodology is becoming a reality today for most information technology projects. And although the PM methodology is sufficiently multivariate in relation to the subject area of the project, at the same time, some features of the information technology sector cannot be ignored.

It would seem that the general methodology of PM is well known. However, until now, PM methods are often understood, first of all, as methods of scheduling and control. In practice, it turns out that the competent development of plans and following them is not a panacea. Efficient Management projects implies a systematic view of the project and its environment, which is based on taking into account the entire set of components of the project implementation - financial, temporary, organizational, technical, etc.

The analysis was carried out taking into account the influence of the chosen scheme on the efficiency of the project as a whole, i.e. ensure that the project is completed to the required quality, on time and within budget.

As can be seen from the table, each option has its pros and cons. According to the recently published results of a marketing study conducted over two years among visitors to specialized exhibitions, it turned out that the determining factors in choosing software products are brand awareness, technological advantages and system cost.

These results correlate with the analysis carried out on the criterion of choosing the organizational scheme for the implementation of the project. Indeed, it can be said that supplier consultants are identical to the criterion of brand recognition, technological advantages can best be provided by a system integrator, and development on your own seems to be the cheapest option.

3. Earned value method as a project cost management method

Earned value analysis is the most commonly used cost management method for a project. Allows the project manager and the project team to track deviations in the volume and cost of work actually completed to a given point in time from the volume and cost that were planned for a given point in time. The principles of the earned value method can be applied to any project in any industry.

Rice. 1. Graphical representation of the main indicators of the earned value method (EVA)

There are also relative indicators:

SPI (Shedule performance index) - schedule performance index. Used to predict project completion. A value less than 1.0 indicates completed less work than planned. A value greater than 1.0 indicates that work is being done ahead of schedule. First of all, it is necessary to analyze the work that is on the critical path in order to understand whether the project will be completed ahead of time or late.

SPI = EV / PV (3.1)

CPI (Cost performance index) - an index of the cost of work performed. Determines the efficiency of using the budget for the work performed. A value less than 1.0 indicates that the cost level is ahead of the amount of work done. A value greater than 1.0 indicates that the cost level is less than the actual amount of work performed.

CPI=EV/AC (3.2)

The earned value method is a serious analytical methodology that allows you to evaluate the performance of design work in three main areas: scope, timing, cost. An auxiliary tool for solving the problem of monitoring the status of a project is a Gantt chart. The ideology of EVA (Earned Value Method) is based on the calculation and comparison between each other on a certain date of control of three cost characteristics of the project (definitions are given by):

Planned volume(planned cost of planned work, PSZR, Budget Cost of Work Scheduled, BCWS, Planned Value, PV) is the budgeted cost of work that, according to the schedule, must be completed as a result of an operation or WBS element by a certain date.

Earned value(budgeted cost of work performed, BCWP, BudgetCostofWorkPerformed, BCWP, EarnedValue, EV) is the budgeted amount of work actually performed as a result of a scheduled activity or WBS element during a specific time span.

actual cost(Actual Cost of Work Performed, ACWP, ActualCostofWorkPerformed, ACWP, ActualCost, AC) is the total cost of completing work as a result of a schedule activity or WBS element over a specified period of time.

Two caveats should be made at once:

1. The use of the earned value method is possible only when the Baseline is built according to the PMB (Performance Measurement Baseline) type, that is, at a minimum, a time schedule for the implementation of project costs must be prescribed.

2. As you know, project costs can be divided into direct costs, estimated using the “bottom-up” method by assigning and estimating the resources necessary to perform work from the WBS, and overheads that cannot be correlated with one or another WBS element that is economically feasible. way and relate to the project as a whole according to some rule. In my opinion, only direct costs can be controlled using the earned value method.

In addition to the three main cost characteristics (PV, EV, AC), two derivatives are introduced

Cost Variance (OST, CostVariance, CV)-- represents the difference between the earned value of EV and the actual cost of AS.

CV = EV -- AC (3.3)

Timing deviation (OSR, ScheduleVariance, SV)-- represents the difference between earned EV and planned PV.

SV = EV -- PV (3.4)

For certain tasks two indices are also calculated

Cost Performance Index (ICCT, CostPerformanceIndex, CPI)-- is equal to the ratio of earned value EV to the actual costs of AS.

CPI = EV/AC (3.56)

Timing performance index (SPI, SchedulePerformanceIndex, SPI)-- is equal to the ratio of earned value EV to planned value PV.

SPI = EV / PV (3.67)

The earned value method is based on the following two rules

Rule 1 If earned value exceeds actual costs, i.e. there are budget savings. If, on the contrary, the actual costs exceed the earned value, then there is a budget overrun.

Rule 2 If the earned value exceeds the planned value, i.e. there is a schedule delay. If, on the contrary, the planned volume exceeds the mastered one, then there is a backlog from the schedule.

These two rules become absolutely clear if planned PV is interpreted as what needs to be done on a certain date in terms of value, earned value EV as what is actually done on that date in terms of value, and actual costs AC as cost. funds expended by the date under consideration to achieve the project objectives. At the same time, it is implicitly assumed that the amount of work can be expressed in some conventional units, which have their own cost. The cost of a unit of work in the planned and earned volume is measured in the initial budget prices, and in actual costs - in the prices prevailing at the time the costs were incurred. Thus, the planned and earned volumes turn out to be proportional to a certain number of units of work, which can be interpreted as the number of conventional time units.

Rice. 2. Geometric interpretation of the EVA method

The earned value method allows for a convenient geometric interpretation (see Figure 2).

Combining the three plots of PV, EV and AC over time, we can draw conclusions about savings/budget overruns and ahead of schedule/behind schedule (see Figure 3.)

Rice. 3. Combination of PV, EV, AC charts

So, fixing the dates of monitoring on the time axis and calculating the planned, earned value and actual costs, we get a clear picture of the change in the status of the project over time.

You can also get a picture of the change in the status of the project by calculating the indexes of completion of terms and costs on fixed dates and marking the corresponding points on the plane in the axes (SPI, CPI) (see Fig. 4).

If at a certain point in time a point with coordinates (SPI, CPI) is in the upper right quadrant, then the status of the project is satisfactory, and unsatisfactory if this point falls into the lower left quadrant. How to assess the status of a project if, for example, there is a backlog from the schedule, but at the same time the budget is saved?

Rice. 4. Change project status

To solve this problem, one usually calculates

critical ratio (Critical Ratio, CR), equal to the product of the index of meeting deadlines and the index of fulfilling the cost:

CR = SPI x CPI (3.7)

The use of the critical factor is based on the following rule:

Rule 3 If the critical coefficient exceeds one, then the status of the project should be considered satisfactory, and unsatisfactory if the opposite inequality takes place.

Next, let us dwell on the circumstance noted in . The closer a project gets to the completion stage, the more “rosy” the picture of meeting deadlines is painted by the EVA method. Indeed, the completion of the project means the completion of all the work provided for by the Basic Plan, therefore, due to which the cost expression of the deviation in terms ceases to give an adequate assessment of the implementation of the schedule. Instead of the cost characteristics of the schedule, it is proposed to consider temporary, so-called. Elapsed Working Time, however, the methodology for calculating this value is unclear.

If we talk about the practical value of using the critical coefficient CR to assess the status of the project, then a lot of questions also arise here. The method provides for the formal multiplication of two factors, one of which characterizes the deviation from the schedule, the other - from the budget. This absolutely ignores the priorities in the implementation of the project (the so-called model of triple constraints, Triple Constraints). Moreover, as noted above, the SPI factor responsible for the deviation from the schedule does not adequately describe the state of affairs.

In particular, in the considered example, which shows only 0.5% of the "positive effect", which means that the project is at risk. That is, for example, a small change in the actual percentage of work completed (which, as we have seen, is quite subjective) can lead to a drift into the “inefficiency area”.

However, large systematic deviations from unity in positive side indexes CPI, SPI and CR (for example, more than 20%) can mean by no means the quality work of the project team, but a deliberate understatement of planned indicators.

Let's move on to the analysis of the problem stated at the very beginning of the article - to the discussion of the methodology for controlling the cost of the project. Returning to the considered example, we ask ourselves the question, where did the value come from? Quoted from the definition of actual costs AC (see above), does not give any understanding of the nature of this value. It is tautological and, in fact, reduces the actual cost equals the actual cost!

As you know, in the practice of accounting, there are two methods of recognition of income / expenses - the cash method and the accrual method. When using the first method, costs are recognized upon the fact of the “expulsion” of funds from the organization, aimed at achieving the goals of the project on a certain date. In the second case, we must recognize the costs on a certain date, for example, on closed invoices. If we are based on the cash basis of cost recognition, then the discrepancy between earned value EV and actual AC costs can be generated by one of the following factors:

1) imperfection of the methodology and subjectivity in determining the actual percentage of work in progress;

2) availability of accounts payable or receivable to suppliers and contractors;

3) the presence of completed and paid works that are not included in the Basic Plan (the so-called Scope Creep Phenomenon - the phenomenon of spontaneous growth in the volume of work). The cost of these works cannot be included in earned value because the Base Plan does not see them;

4) change in the scale of prices for the current date compared to the project budgeting date.

When using the accrual method, factor #2 (accounts payable and receivable) is essentially ignored. The advantages that the accrual method provides in comparison with the cash method of recognizing income / expenses in accounting are well known. For example, the following situation is quite possible: a certain contractor is building a facility, and the contract provides for a significant deferred payment. The object was put into operation, acceptance certificates were signed, the project was closed, and mutual settlements with the contractor were not made on a completely legal basis. Of course, in this case it is not worth talking about some savings in the project budget. On the other hand, when analyzing the dynamics of the organization's costs aimed at achieving the project goals, and the deviation of these costs from the planned ones, the project manager cannot but take into account the actual outflow of funds.

It should not be directly interpreted as savings (overspending) of the budget. The significant difference between earned value and actual cost figures is more likely to reflect on the reasons for the variance (see the list of factors above).

Pitfalls in determining the actual costs of the project are also inherent in the very nature of project budgeting and estimates. If project plan is compiled according to the PMB (Performance Measurement Baseline) type, then you need to clearly ask yourself what type of financial responsibility center models the project plan (cost center, revenue center, profit center or investment center, see, for example)? The interpretation of the project as a certain center of financial responsibility gives an understanding when dividing project costs into direct and overhead, which is especially critical when interpreting the project as a center of profit. Suppose a company has a large number of typical commercial projects (profit centers), some of which require the purchase of new equipment, which will then be used in other projects. Attributing the cost of purchasing equipment to the project for which it was originally purchased will lead to a distortion of profit indicators for individual projects included in the company's portfolio. Even if we assume that the company's methodologists have established rules for the "fair" allocation of costs across projects, then the question of taking into account the use of this equipment when assessing the planned PV and earned EV, and most importantly, reflecting the fact of purchase in the actual costs of AC for a specific project, arises. Another incident lies in the assessment of the so-called shareware resources, i. resources used in some project and owned by the organization itself.

A typical problem is estimating the labor costs of project team members who are employees of the company and receive fixed salaries. In addition to participating in the project, these employees perform other functions in the company, which often leads to the impossibility of assessing their labor costs in the project (except by the normative method), even if the order to include these employees in the project team fixes the percentage of working time that they must allocate for project work. And what then is meant by the actual costs of this type of resource? Payment of a certain percentage wages? If all such costs are allocated to overheads (and the question of determining the amount of overheads for a project is very non-trivial and far beyond the scope of the problems discussed in this publication), then we can get a huge number of projects for which direct costs are simply zero.

The earned value method is also used to forecast, at the monitoring date, the actual project timeline and budget to completion (EAC, Estimate at Completion, EAC). Estimated value

cost management strategic planning

tfact = tplan/SPI (3.8)

where - the planned timing of the project, does not stand up to serious criticism, because, as noted above, when the project approaches completion.

EAC = BAC / CPI (3.9)

The resulting forecast values at the end of the EAC will only be of value if the actual costs at the end of the project are close to the predicted ones. However, it should be well understood that this will only happen if very strict restrictions are met. In the first case, this means holding the CPI cost performance index at a fixed level, in the second case, holding the CV cost deviations at a fixed level (and this entails at least the assumption of market prices being constant). Of course, these estimates can be used as some zero approximation for the forecast, but at the same time, one must be well aware of the nature of the assumptions, only under which the forecast will be adequate.

A. Slavin's articles were published on the website of the International Community of Managers. These publications dealt with some of the theoretical provisions of project management as a science, the formal application of which in practice can lead to, to put it mildly, strange results. The same applies to the formal use of the earned value method to analyze the status of a project. At the same time, one sometimes hears that in companies “advanced” in the field of project management, monitoring of the project status using the earned value method is carried out almost daily. For a project manager, such work without the presence of software in the field of project management with “good functionality” would be simply overwhelming. However, in this case, only the methodologists, consultants and (to a lesser extent) IT specialists who set up this software know what is behind the numbers with which the manager reports to management about his work. I understand perfectly well that this publication does not so much give recipes as it raises questions. I am by no means opposed to using the EVA method to analyze the status of a project. I am only for an adequate interpretation of the results that this method gives us.

Conclusion

Project management implies a mandatory detailed analysis internal and external conditions for its implementation, risk analysis and development of project thinking in the team that implements the project, planning of design work carried out by the project manager and persons responsible for the implementation of its individual stages.

To coordinate activities and control the implementation of the project, a certain structure is required, which includes a management group, project and working groups.

The tasks of the management group are as follows:

definition of strategic goals

development of management principles

approval of project managers

Resolving internal and foreign policy organizations

Support and assistance to project managers during project implementation.

Tasks of the project teams:

Implementation of approved work plans for the project

Evaluation of the results achieved in the course of projects

Evaluation of costs and savings

Prevention of conflicts and contradictions in the team

reaction to emerging difficulties.

The functions of the working group are to fulfill the tasks and goals set by the project and management groups.

Depending on the goals, objectives, scope and other parameters of the project, two main types of project team structure can be used.

The matrix structure of the team is used, as a rule, for small and medium-sized projects with a life cycle duration of up to two years.

The project team structure is a high-quality new scheme of interaction between departments and project executors and is used to manage large-scale projects for a long period (more than two years).

List of used literature

1. Bradbury, D., Garrett, D. How to herd chickens. Custom project management. - M.: NTPress, 2006.

2. Vaidman R.M. Project cost control is simple // Project Management (2007), No. 1 (6) b p. 4-9.

3. Vakhrushina M.A. Accounting management accounting. * M.: Omega-L, 2004.

4. Mazur, I.I., Shapiro, V.D., Olderogge N.G. Project management. -- M.: Omega - L, 2005.

5. Milosevic, D.Z. A set of tools for project management - M .: IT, DMK press, 2008.

6. Newell M. Project management for professionals. Certification Exam Preparation Guide. * M.: KUDITS-OBRAZ, 2008.

7. Razu M.L. etc. Project management. Fundamentals of project management. -- M.: KNORUS, 2006.

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Introduction

1. Theoretical foundations of project cost management

1.1 The concept and meaning of project cost management

1.2 Project cost management methods

2. Project cost management

2.1 Rationale for project implementation

2.2 Project cost management

Conclusion

Bibliography

Introduction

Project cost management is associated with one of the three main constraints in projects - cost, time, and domain requirements. Compliance with all these restrictions allows you to complete the project within the planned time frame and budget with full satisfaction of the previously defined customer expectations (that is, with the full achievement of all predetermined results)

The aim of the study is to study the cost management methods of business projects in industrial production.

Research objectives. To achieve the goal set in the work, the following tasks are solved:

– to analyze the concept of project cost management;

– to analyze cost management on the example of a specific business project.

The object of the research is business projects in industrial production.

The subject of the research is the approaches and methods of project cost management, including investment business projects.

1. Theoretical foundations of project cost management

1.1 The concept and meaning of project cost management

Project cost management is associated with one of the three main constraints in projects - cost, time, and domain requirements. Compliance with all these restrictions allows you to complete the project within the planned time frame and budget with full satisfaction of the previously defined customer expectations (that is, with the full achievement of all predetermined results)

The main goal of project cost management is to complete it within the approved budget.

1.2 Project cost management methods

When estimating the cost of performing work, the optimistic, pessimistic and most likely values are three independent values provided by the project team members who are responsible for budgeting.

What principles are used in determining three independent values of value? Obviously, in the case of an optimistic value, that rare case is considered when everything in the project goes as well as possible. The pessimistic value corresponds to situations in which performers manage to step on all possible rakes. When forming the most probable value, we assume that some of the problems manifested themselves during the project, and some of the work was not implemented. In other words, in all three cases, we estimate the cost of performing a particular task based on an analysis of the risks associated with this task.

Let us describe a method for obtaining quantitative estimates of the optimistic, pessimistic and most probable values of the cost of the project work. As you know, the risk is the same work of the project, like any of the components of the WBS, with the condition that this work may or may not appear in the course of its implementation. Thus, each risk corresponds to a certain value of the probability of its manifestation. If a risk occurs, it becomes work to be done and is associated with a certain value of value - this value is called<воздействие риска>(impact). For the purpose of further analysis of risks and their ranking in terms of significance for the company and the project, we introduce a third value - the so-called expected risk value:

RH = probability × impact (mon. units) (1.1)

The likelihood of the risk occurring, the impact of the risk, and the expected magnitude of the risk are used to compile<смет множественных стоимостей>. When calculating the pessimistic value of the cost, we use the magnitude of the impact of all the risks associated with this work. When calculating the optimistic value, we assume that the risks identified by us will not manifest themselves in this work, i.e. the probability value will be equal to 0. When evaluating the most probable value, we use the expected risk values, assuming that in a real project some of the identified risks will materialize to the full extent of the impact, some will not manifest themselves or will be partially neutralized by the positive risks that have appeared (<возможностями>).

The principles of risk management are then applied to the implementation phase of the project as well, by tracking the progress of the project with the help of project managers' favorite earned value reports. The classic earned value method considers three curves corresponding to the three types of data collected - AC (actual cost), PV (planned value) and EV (earned value). Rather, it is considered that the data collected relates only to two curves - AC and EV, and the planned cost is deferred based on the original project plan. However, as the project proceeds and some planned risks are realized, the money budgeted for contingencies and shown on the graph as a fixed amount above the end point of the PV curve (the budget at completion point, called BAC - budget at completion), is transferred to the operating budget and are added to the PV curve, giving it a step increase. As a result of a change in the total value of the operating budget, the position of the BAC point itself is also adjusted.

Time Management and Project Risk Management: Risk and Schedule.

The logic behind this methodology is simple. From the point of view of probability theory, various possible values of the completion time of the project correspond to a certain probability distribution of the manifestation of these values. If we assume that it is normal, then its mode will be located at the point corresponding to the most probable end time of the project (see Fig. 2). Most often, we use this value in order to promise our client one or another date for the completion of the project. However, it is easy to see that for a normal distribution, the mode coincides with the median. Thus, to the left and to the right of the most probable completion date of the project, there are 50% of the possible options.

For the successful implementation of projects, a project management system is created at the enterprise.

The structure of the project management system

The project management system allows you to:

· Allocate special procedures for project management, within the framework of which the coordination and adjustment of the goals and results of projects is carried out;

Increase the accuracy of project planning - by formalizing and describing the company's experience in implementing individual project procedures, using special scheduling tools;

To increase the efficiency of interaction between departments and employees of the company - by describing the functional duties, distributing the responsibility of project participants, determining the principles of interaction and resolving conflicts on project tasks;

To increase the efficiency of the work of the company's employees in relation to project tasks - by developing methods for performing standard procedures, creating a mechanism for accumulating "best practices" in the course of the company's activities to implement projects;

Analysis and optimization of resource loading, that is, even distribution of work between resources, is one of the most complex operations carried out when compiling a project in MS Project. In this lesson, you'll learn how to use MS Project's automation capabilities to allocate resource load and distribute it manually in cases where automated tools can't cope with the task.

The accuracy of this method and, accordingly, the labor costs for its use depend on the number of estimated parameters. You can apply primitive techniques, such as those that were given in the example, in small projects, especially if you have accumulated a lot of experience in their implementation. For large-scale projects, techniques using a large number of parameters can be applied. The accuracy of such methods is much higher, but their application takes more time. To apply the parametric technique in MS Project, you need to use custom fields and functions (they were discussed in the "Custom fields" section of the previous lesson).

It would seem that the general methodology of PM is well known. However, until now, PM methods are often understood, first of all, as methods of scheduling and control. In practice, it turns out that the competent development of plans and following them is not a panacea. Effective project management implies a systematic view of the project and its environment, which is based on taking into account the entire set of project implementation components - financial, temporal, organizational, technical, etc.

As can be seen from the table, each option has its pros and cons. According to a recently published two-year marketing study conducted among visitors to trade shows, brand awareness, technology advantages and system cost are the determining factors in choosing software products.

These results correlate with the analysis carried out on the criterion of choosing the organizational scheme for the implementation of the project. Indeed, it can be said that vendor consultants are identical to brand awareness, technological advantages can best be provided by the system integrator, and in-house development is the cheapest option.

2. Project cost management

2.1 Rationale for project implementation

Currently, the management of the company has set the task of improving the quality of coke before the coke production of OAO Severstal. For coke oven batteries No. 5.6, a significant improvement in quality is possible due to the launch of the CDTC. This will allow, without changing the raw material base, to improve the mechanical strength, reactivity and strength of coke in the hot state.

USTC is designed to produce coke over High Quality. In addition, up to 40% of the energy spent on charge coking will be recovered due to the utilization of coke heat during dry quenching in the form of steam and electricity. CDF is much less environmentally polluting than wet quenching.

Coke oven batteries Nos. 5 and 6 are the latest in terms of commissioning after re-laying in 1993–1994. Batteries have 77 chambers with a volume of 29.8 m 3 , the productivity of each is 660 thousand tons of coke with 6% moisture per year. During their construction, the task was to restore the volume of coke production as soon as possible. For this reason, the relocation was carried out without the construction of the CDTC. At present, all coke of No. 5.6 batteries is subjected to wet quenching.

Wet quenching of coke is significantly inferior in terms of efficiency to CTCS. Wet quenching coke has a higher reactivity, lower strength and higher abrasion.

The industrial plant for dry coke quenching is blocked from separate sections. Each section consists

- extinguishing chambers with a lift and a lift shaft;

– waste heat boiler;

– dust collecting plant (dust settling bunker and 4 cyclones type TsN-15 with a diameter of 2000);

– draft fans (main and standby);

extinguishing chambers, waste heat boilers, draft fans are combined by gas ducts into a closed system. CDTC is designed with the following initial parameters:

– USTK chamber 3 pcs.

– productivity of one chamber for coke 70 t/h

– temperature of quenched coke 180–250 С

– temperature of coke loaded into the chamber 1000–1100 С

in front of the waste heat boiler 750–800 С

– temperature of circulating gases

before entering the fire extinguishing chamber 150–200 С

– production of a chamber of one chamber 35 t/h

– steam pressure 4.0 MPa

– superheated steam temperature 430–450 С

– the residence time of coke in the chamber is 2.5–2.8 hours.

2.2 Project cost management

The time from the start of work to commissioning is specified in the terms of reference for the construction of the CDTC and will be 30 months or 2.5 years:

– the planned date for the implementation of the CDTC is 01.01. 2011

- Feasibility study - 01.02.2009

– project implementation - 01.07.2009

– construction and installation of equipment - 01.07.2010

– commissioning and start-up on 01.01.2011

Based on the technical and commercial proposal of GIPROKOKS, the costs for the construction of the USTC will amount to $ 9,000,000 or 27,000,000 rubles. at the rate of 1 US dollar = 30 rubles.

The cost of construction and installation works was taken on the basis of the scope of work estimated at unit prices for construction work in the region of St. Petersburg, as well as on aggregated estimated cost indicators (UPS) for 1 ton of installed equipment and 1 m 3 of the building.

The cost of construction and installation works includes the cost of dismantling existing buildings, vertical planning, dismantling works transfers. A summary estimate of the cost of construction of the CDTC is given in Table 2.1.

Table 2.1. Investments in fixed assets

	Name of works	Cost, million rubles
	Site preparation: Vertical planning Dismantling works Transfers Total for 1 stage
	The main objects of construction of USTK
	Auxiliary buildings USTK Measures to protect atmospheric air from pollution. Improving the process of dry quenching with the exception of emissions of excess circulating gases of the CDTC Intershop communications of pipelines of circulating gas USTK Total for Stage III
	Commissioning works
	Total construction:

The distribution of investments in fixed capital by months of construction was carried out in accordance with the schedule given in Table 2.2.

Table 2.2. Distribution of investment costs by months of construction

Net working capital:

Net working capital, i.e. the financial resources required for operation in accordance with the production program will amount to 202.5 million rubles.

Total production costs:

The calculation is based on the following data:

Project costs of materials, fuel and energy carriers, replacement equipment, determined in accordance with the technological process;

The initial investment costs of the construction of the CDTC are determined by the consolidated cost estimate;

The design number of personnel required to operate the facility;

Accelerated form of depreciation (constant share method - 40% is written off in the first 3 years of operation) in agreement with the Ministry of Economy of Russia.

Full production costs are calculated by years of operation for the volume of production corresponding to the level of development of the planned productivity.

As a result of the launch of the CDTC of the coke oven battery No. 5.6, the following economic indicators will be achieved:

1. Improving the quality of coke without changing the raw material base will improve the mechanical strength, reactivity and strength of coke in the hot state, reduce the abrasion of coke, as well as its consumption in blast furnaces.

Thus, an increase in the proportion of M25 coke during dry quenching by 1% reduces its consumption in a blast furnace by 0.6%. After the launch of the CDTC, the output of M25 will increase by 5%, therefore, the total reduction in coke consumption in the blast furnace will be 3%.

With a decrease in the abradability of coke in terms of M10 by 1%, its consumption in the blast furnace decreases by 2.8%. The decrease in the M10 coke abrasion after the launch of the CDTC will be 0.7% and the coke savings in the blast furnace according to M10 will be 1.96%.

The consumption of coke at blast furnaces Nos. 1–3 is 412 kg/t of pig iron, so the total coke savings in terms of M25 and M10 will be 20.43 kg/t of pig iron.

The annual production of pig iron in a blast furnace from coke produced at coke oven battery No. 5.6 is 2,683,591 tons, coke savings will be 54,826 thousand tons.

The cost of coke (as of February 2008) is 1818.67 rubles.

54 826 × 1.81867 \u003d 99 710.40 thousand rubles.

The main economic indicators from improving the quality of coke are shown in Table 2.3.

Table 2.3. Economic efficiency indicators from improving the quality of coke

Name of indicator	Unit	Value	Expected economic effect from the implementation of the project
Increasing the strength of coke according to M25 after the start-up of the CDTC			60 million 324 thousand rubles
Decrease in coke consumption due to increase in M25
Decrease in coke abrasion according to М10 after start-up of CDTC			39 million 386 thousand rubles
Decrease in coke abrasion from reduction of M10
Cost of coke (as of February 2008)
Annual production of pig iron from coke c.b. №5,6
Overall reduction in coke consumption	kg/t pig iron
Coke consumption at blast furnaces No. 1–3	kg/cast iron

As a result of improving the quality of coke, its consumption in the blast furnace decreases, which leads to coke savings, which will amount to 99 million 710 thousand rubles.

2. By utilizing the heat of dry quenching coke in the form of steam and electricity. The prime cost of the CDTC steam is much lower in comparison with the steam of the combined heat and power plant. The capacity of the CHPP allows to provide the plant with steam without resorting to the services of the CDTC. Savings for the workshop will be determined by the reduction in fuel costs. The indicators of the expected economic effect from the received energy resources are given in Table 2.4.

Table 2.4. Indicators of the economic effect from the received energy resources

The overall expected economic effect after the launch of the CDTC will be -130 million 291 thousand rubles.

The payback period for the dry coke quenching plant is 2.07 years:

Current=270.0/130.291=2.07 years

Table 2.5. Economic effect from the construction of CDF on coke oven batteries No. 5.6

	Name	Value
	Design production of 6% moisture coke on coke batteries No. 5.6, (thousand tons)
	Yield of metallurgical coke from dry coke at CB No. 5.6 (%)
	Annual production of pig iron from coke KB No. 5.6 (t)
	Skip coke consumption at blast furnaces No. 1–3 (per 1 kg/pig iron
	Increase in coke strength according to M25 after the start-up of the CDTC (%)
	Decrease in coke consumption from an increase in M 25 (%)
	Decrease in M10 coke abrasion after start-up of CDTC (%)
	Decrease in coke consumption from reduction of М10 (%)
	Total reduction in coke consumption (kg/t)
	Cost of 1 ton of coke (according to February 2008), (rubles)
	Effect of reduced coke consumption (thousand rubles)
	The amount of steam produced after the start-up of the CDTC (Gcal)
	The cost of one Gcal pair (rubles) as of January 2008
	Cost of produced steam (thousand rubles)
	The overall economic effect of the construction of the CDTC (thousand rubles)
	The cost of construction of the USTC ($9 million according to GIPROKOKS). (thousand roubles.)
	Payback period of construction (years)

This investment project for the construction of CTCS of coke oven battery No. 5,6 does not carry any risks, since the coke produced on them is used for internal consumption in blast furnaces No. 1–3 and is not sold to the outside. Financial and economic assessment investment project occupies a central place in the process of substantiation and selection of possible options for investing in operations with real assets. The effectiveness of the project is characterized by a system of indicators that reflect the ratio of costs and results in relation to the interests of its participants. We will give an economic justification for investments aimed at improving the quality of coke. In table. 2.6 shows cash flows from core activities.

Table 2.6. Cash flows from operating activities

Period of time	cash flows	Depreciation deductions (thousand roubles.)	Property tax	Taxable base including depreciation and property tax (thousand roubles.)	Income tax rate	Total net profit (million rubles)	Total cash flows (million rubles)

Assessment of future costs and results in determining the effectiveness of an investment project is carried out within the calculation period, the duration of which is taken into account the duration of construction, the weighted average standard service life of the main technological equipment, achieving the specified profit characteristics.

To assess the effectiveness of the project, the comparison of different time indicators is carried out by discounting their value in the initial period.

Next, we find the net present value NPV, which is used to judge the feasibility of investing in this project. Net present value is equal to the present value of future receipts, discounted at an appropriate interest rate, less the present value of costs.

The net present value NPV is determined by the formula (1.5). We take the discount rate equal to the bank rate -23%, then the real discount rate is:

r p = r t /1+r t =23/1+0.23=18.7 =19%

NPV=(-60.8/(1+0.19) – 135.0/(1+0.19) 1 -74.2/(1+0.19) 2) + 106.4/(1+0.19) 3 + 106.4/(1+0.19) 4 +106.4/(1+0.19) 5 +106.4/(1+0.19) 6 +106.4/(1+0.19) 7 +

106.4/(1+0.19) 8 +106.4/(1+0.19) 9 = -226.4+278.4 = 51.8 million rubles

In our project NPV has positive value.

The next step in the analysis of the project is the calculation of the index of profitability (profitability) of investments:

DPI = PV/I= 278.4/226.6=1.229

To calculate the internal rate of return ratio, at which the net cash flow NPV=0, you must use the net cash flow calculation formula and equate it to zero. Using the financial function VNDOH Microsoft Excel calculate the IRR cash flows:

CF 1 = -60.8 million rubles

CF 2 = -135.0 million rubles CF 6 =106.4 million rubles IRR=25%

CF 3 \u003d -74.2 million rubles. CF 7 =106.4 million rubles

CF 4 \u003d 106.4 million rubles. CF 8 =106.4 million rubles

CF 5 =106.4 million rubles CF 9 =106.4 million rubles

The value of the internal rate of return exceeds the conditional cost of the investor's capital (the rate on bank loans).

The last indicator in the analysis of the effectiveness of the project is the payback period. This indicator does not take into account the value of deferred income, therefore, to eliminate this shortcoming, all the main indicators of investment efficiency are calculated only using discounted cash flows. To determine this indicator, you must first calculate the annuity using the formula:

A=PV/ (P/A; r; t)=278.4/4.163=66.9

The value (P / A; r; t) is found according to a special table for finding the annuity. Then we calculate the discounted and non-discounted payback period of the investment project using the following formula:

DPP =I/A=226.6/66.9 = 3.4 years

PP=I/A=270/106.4=2.5 years

The discounted payback period increases, i.e. DPP is always greater than PP.

Table 2.7 shows indicators of economic evaluation.

Table 2.7. Indicators of the economic evaluation of the investment project

Thus, this project for the construction of the CDTC should be taken into consideration, since the net present value of income is greater than zero and the return on investment is greater than one, the internal rate of return is greater than the bank interest rate.

The indicators of the economic evaluation given above testify to the effectiveness of this project.

Calculations of the main criteria for evaluating a project are often accompanied by sensitivity analysis - an assessment of the influence of the most variable parameters (sales volumes, prices, costs) on the resulting criteria. Each firm conducts such an analysis in different ways. The most commonly installed NPV dependencies are:

- from the interest rate for a fixed number of years of project implementation;

- from the price at fixed volumes and from volumes at fixed prices;

– from current and capital costs;

- from the estimated period of the project, etc.

All this allows you to determine the most risky parameters of the project and evaluate the profitability in case of development of events along the optimistic, pessimistic, and most probable path.

Conclusion

Project management implies a mandatory detailed analysis of the internal and external conditions for its implementation, risk analysis and development of project thinking in the team that implements the project, planning of project work carried out by the project manager and persons responsible for the implementation of its individual stages.

To coordinate activities and control the implementation of the project, a certain structure is required, which includes a management group, project and working groups.

The tasks of the management group are as follows:

§ definition of strategic goals

§ development of management principles

§ approval of project managers

§ resolving issues of internal and external policy of the organization

§ support and assistance to project managers during project implementation.

Tasks of the project teams:

§ implementation of approved work plans for the project

§ evaluation of the results achieved in the course of projects

§ assessment of costs and savings

§ prevention of conflicts and contradictions in the team

§ reaction to emerging difficulties.

The functions of the working group are to fulfill the tasks and goals set by the project and management groups.

Depending on the goals, objectives, scope and other parameters of the project, two main types of project team structure can be used.

The matrix structure of the team is used, as a rule, for small and medium-sized projects with a life cycle duration of up to two years.

The project team structure is a high-quality new scheme of interaction between departments and project executors and is used to manage large-scale projects for a long period (more than two years).

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