Project cost control includes:
Influencing the factors that create changes to the cost
Ensuring requested changes are agreed upon
Managing the actual changes when and as they occur
Assuring that potential cost overruns do not exceed the
authorized funding periodically and in total for the project
Monitoring cost performance to detect and understand
variances from the cost baseline
Recording all appropriate changes accurately against the
Preventing incorrect, inappropriate, or unapproved changes
from being included in the reported cost or resource usage
Informing appropriate stakeholders of approved changes
Acting to bring expected cost overruns within acceptable
limits. Project cost control searches out the causes of positive and negative
variances and is part of Integrated Change Control (Section 4.6). For example,
inappropriate responses to cost variances can cause quality or schedule problems
or produce an unacceptable level of risk later in the project.
7-6. : Cost Control: Inputs, Tools &
Techniques, and Outputs
7.3.1 Cost Control: Inputs
.1 Cost Baseline
Described in Section 220.127.116.11.
.2 Project Funding Requirements
Described in Section 18.104.22.168.
.3 Performance Reports
Performance reports (Section 10.3.3.1) provide information on cost and resource
performance as a result of actual work progress.
.4 Work Performance Information
Work performance information (Section 22.214.171.124) pertaining to the
status and cost of project activities being performed is collected. This
information includes, but is not limited to:
Deliverables that have been completed and those not yet
Costs authorized and incurred
Estimates to complete the schedule activities
Percent physically complete of the schedule activities.
.5 Approved Change Requests
Approved change requests (Section 126.96.36.199) from the Integrated
Change Control process (Section 4.6) can include modifications to the cost terms of
the contract, project scope, cost baseline, or cost management plan.
.6 Project Management Plan
The project management plan and its cost management plan
component and other subsidiary plans are considered when performing the Cost
7.3.2 Cost Control: Tools and Techniques
.1 Cost Change Control System
A cost change control system, documented in the cost management
plan, defines the procedures by which the cost baseline can be changed. It
includes the forms, documentation, tracking systems, and approval levels
necessary for authorizing changes. The cost change control system is integrated
with the integrated change control process (Section 4.6).
.2 Performance Measurement Analysis
Performance measurement techniques help to assess the magnitude of
any variances that will invariably occur. The earned value technique (EVT)
compares the cumulative value of the budgeted cost of work performed (earned) at
the original allocated budget amount to both the budgeted cost of work scheduled
(planned) and to the actual cost of work performed (actual). This technique is
especially useful for cost control, resource management, and production.
An important part of cost control is to determine the cause of a
variance, the magnitude of the variance, and to decide if the variance requires
corrective action. The earned value technique uses the cost baseline (Section 188.8.131.52)
contained in the project management plan (Section 4.3) to assess project
progress and the magnitude of any variations that occur.
The earned value technique involves developing these key values
for each schedule activity, work package, or control account:
Planned value (PV). PV is the budgeted
cost for the work scheduled to be completed on an activity or WBS component up
to a given point in time.
Earned value (EV). EV is the budgeted
amount for the work actually completed on the schedule activity or WBS component
during a given time period.
Actual cost (AC). AC is the total cost
incurred in accomplishing work on the schedule activity or WBS component during
a given time period. This AC must correspond in definition and coverage to
whatever was budgeted for the PV and the EV (e.g., direct hours only, direct
costs only, or all costs including indirect costs).
Estimate to complete (ETC) and estimate at
completion (EAC). See ETC and EAC development, described in the following
technique on forecasting.
The PV, EV, and AC values are used in combination to provide
performance measures of whether or not work is being accomplished as planned at
any given point in time. The most commonly used measures are cost variance (CV)
and schedule variance (SV). The amount of variance of the CV and SV values tend
to decrease as the project reaches completion due to the compensating effect of
more work being accomplished. Predetermined acceptable variance values that will
decrease over time as the project progresses towards completion can be
established in the cost management plan.
Cost variance (CV). CV equals earned value
(EV) minus actual cost (AC). The cost variance at the end of the project will be
the difference between the budget at completion (BAC) and the actual amount
spent. Formula: CV= EV - AC
Schedule variance (SV). SV equals earned
value (EV) minus planned value (PV). Schedule variance will ultimately equal
zero when the project is completed because all of the planned values will have
been earned. Formula: SV = EV - PV
These two values, the CV and SV, can be converted to efficiency
indicators to reflect the cost and schedule performance of any project.
Cost performance index (CPI). A CPI value
less than 1.0 indicates a cost overrun of the estimates. A CPI value greater
than 1.0 indicates a cost underrun of the estimates. CPI equals the ratio of the
EV to the AC. The CPI is the most commonly used cost-efficiency indicator.
Formula: CPI = EV/AC
Cumulative CPI (CPIC). The cumulative CPI
is widely used to forecast project costs at completion.
CPIC equals the sum of the periodic earned values
(EVC) divided by the sum of the individual actual costs
(ACC). Formula: CPIC = EVC/ACC
Schedule performance index (SPI). The SPI
is used, in addition to the schedule status (Section 184.108.40.206), to predict the
completion date and is sometimes used in conjunction with the CPI to forecast
the project completion estimates. SPI equals the ratio of the EV to the PV.
Formula: SPI = EV/PV
Figure 7-7 uses
S-curves to display cumulative EV data for a project that is over budget and
behind the work plan.
Figure 7-7. Illustrative
Graphic Performance Report
The earned value technique in its various forms is a commonly used
method of performance measurement. It integrates project scope, cost (or
resource) and schedule measures to help the project management team assess
Forecasting includes making estimates or predictions of conditions
in the project's future based on information and knowledge available at the time
of the forecast. Forecasts are generated, updated, and reissued based on work
performance information (Section 220.127.116.11) provided as the project is executed and
progressed. The work performance information is about the project's past
performance and any information that could impact the project in the future, for
example, estimate at completion and estimate to complete.
The earned value technique parameters of BAC, actual cost
(ACC) to date, and the cumulative CPIC efficiency indicator are used
to calculate ETC and EAC, where the BAC is equal to the total PV at completion
for a schedule activity, work package, control account, or other WBS component.
Formula: BAC = total cumulative PV at completion
Forecasting techniques help to assess the cost or the amount of
work to complete schedule activities, which is called the EAC. Forecasting
techniques also help to determine the ETC, which is the estimate for completing
the remaining work for a schedule activity, work package, or control account.
While the earned value technique of determining EAC and ETC is quick and
automatic, it is not as valuable or accurate as a manual forecasting of the
remaining work to be done by the project team. The ETC forecasting technique
based upon the performing organization providing the estimate to complete is:
ETC based on new estimate. ETC equals the
revised estimate for the work remaining, as determined by the performing
organization. This more accurate and comprehensive completion estimate is an
independent, non-calculated estimate to complete for all the work remaining, and
considers the performance or production of the resource(s) to date.
Alternatively, to calculate ETC using earned value data, one of
two formulas is typically used:
ETC based on atypical variances. This
approach is most often used when current variances are seen as atypical and the
project management team expectations are that similar variances will not occur
in the future. ETC equals the BAC minus the cumulative earned value to date
(EVC). Formula: ETC = (BAC - EVC)
ETC based on typical variances. This
approach is most often used when current variances are seen as typical of future
variances. ETC equals the BAC minus the cumulative EVC (the remaining
PV) divided by the cumulative cost performance index (CPIC). Formula:
ETC = (BAC - EVC) / CPIC
An EAC is a forecast of the most likely total value based on
project performance (Section 4.4) and risk quantification (Section 11.4). EAC is the projected
or anticipated total final value for a schedule activity, WBS component, or
project when the defined work of the project is completed. One EAC forecasting
technique is based upon the performing organization providing an estimate at
The two most common forecasting techniques for calculating EAC
using earned value data are some variation of:
EAC using remaining budget. EAC equals
ACC plus the budget required to complete the remaining work, which is
the budget at completion (BAC) minus the earned value (EV). This approach is
most often used when current variances are seen as atypical and the project
management team expectations are that similar variances will not occur in the
future. Formula: EAC = ACC + BAC - EV
EAC using CPIC. EAC equals actual costs to
date (ACC) plus the budget required to complete the remaining project
work, which is the BAC minus the EV, modified by a performance factor (often the
CPIC). This approach is most often used when current variances are
seen as typical of future variances. Formula: EAC = ACC + ((BAC - EV)
Each of these approaches can be the correct approach for any given
project and will provide the project management team with a signal if the EAC
forecasts are not within acceptable tolerances.
.4 Project Performance Reviews
Performance reviews compare cost performance over time, schedule
activities or work packages overrunning and underrunning budget (planned value),
milestones due, and milestones met.
Performance reviews are meetings held to assess schedule activity,
work package, or cost account status and progress, and are typically used in
conjunction with one or more of the following performance-reporting techniques:
Variance analysis. Variance analysis
involves comparing actual project performance to planned or expected
performance. Cost and schedule variances are the most frequently analyzed, but
variances from plan in the areas of project scope, resource, quality, and risk
are often of equal or greater importance.
Trend analysis. Trend analysis involves
examining project performance over time to determine if performance is improving
Earned value technique. The earned value
technique compares planned performance to actual performance.
.5 Project Management Software
Project management software, such as computerized spreadsheets, is
often used to monitor PV versus AC, and to forecast the effects of changes or
.6 Variance Management
The cost management plan (Section 18.104.22.168) describes how cost
variances will be managed, for example, having different responses to major or
minor problems. The amount of variance tends to decrease as more work is
accomplished. The larger variances allowed at the start of the project can be
decreased as the project nears completion.
7.3.3 Cost Control: Outputs
.1 Cost Estimates (Updates)
Revised schedule activity cost estimates are modifications to the
cost information used to manage the project. Appropriate stakeholders are
notified as needed. Revised cost estimates may require adjustments to other
aspects of the project management plan.
.2 Cost Baseline (Updates)
Budget updates are changes to an approved cost baseline. These
values are generally revised only in response to approved changes in project
scope. However, in some cases, cost variances can be so severe that a revised
cost baseline is needed to provide a realistic basis for performance
.3 Performance Measurements
The calculated CV, SV, CPI, and SPI values for WBS components, in
particular the work packages and control accounts, are documented and
communicated (Section 10.3.3.1) to stakeholders.
.4 Forecasted Completion
Either a calculated EAC value or a performing
organization-reported EAC value is documented and the value communicated (Section 10.3.3.1)
to stakeholders. Either a calculated ETC value or a reported ETC value provided
by the performing organization is documented and the value communicated to
.5 Requested Changes
Analysis of project performance can generate a request for a
change to some aspect of the project. Identified changes can require increasing
or decreasing the budget. Requested changes (Section 22.214.171.124) are processed for
review and disposition through the Integrated Change Control process (Section 4.6).
.6 Recommended Corrective Actions
A corrective action is anything done to bring expected future
performance of the project in line with the project management plan. Corrective
action in the area of cost management often involves adjusting schedule activity
budgets, such as special actions taken to balance cost variances.
.7 Organizational Process Assets (Updates)
Lessons learned are documented so they can become part of the
historical databases for both the project and the performing organization.
Lessons learned documentation includes the root causes of variances, the
reasoning behind the corrective action chosen, and other types of lessons
learned from cost, resource, or resource production control.
.8 Project Management Plan (Updates)
Schedule activity, work package, or planning package cost
7 introductory material), as well as the cost baseline (Section 126.96.36.199), cost management
plan, and project budget documents are components of the project management
plan. All approved change requests (Section 188.8.131.52) affecting those documents are incorporated
as updates to those documents.