Cost Management

In the double-declining-balance method, you depreciate double this percentage from the balance of the asset. In an asset that had a book life of 10 years, we would depreciate 20% every year from the balance. So in an asset that had a value of $500,000 the first year we would depreciate 20% of $500,000. That is a $100,000 depreciation, and we have $400,000 left. In the second year, we would depreciate 20% of the balance of 400,000. That would be $80,000 and we are left with a balance of $320,000.

Here is a very brief summary of the most important estimating best practices:

Compare actuals to estimates. After the work has been done, compare the actual time the work took to the original estimate. Track the percent off (either under or over) and report that information back to the team members. The best way to improve estimating accuracy is by paying attention. The best way to pay attention is by tracking metrics.

Use more than one approach or more than one person, or both. After you have one estimate, compare the logic using either another approach or another person’s perspective.

Clearly write out what makes this work complete. Many times there are unknown needed revisions, quality acceptance criteria, and a level of completeness that has not been clearly thought out, not to mention communicated to the person doing the estimating.

Present estimates in either a range or by indicating your level of confidence. For example, our project team estimates this will cost $100,000, and we have a confidence level of -20% to +60% (meaning it could very possibly fall between $80,000 and $160,000).

Understand the definition of an estimate. In many knowledge projects (such as engineering, research, IT, creative, etc) the time work takes to create unique deliverables can be extremely difficult to accurately estimate. And eventually, the estimation discussion turns into a risk tolerance question. It generally needs to be agreed that without seriously inflating estimates to turn them into guarantees, that schedules are best planned with some flexibility and contingency for going over. There are diminishing returns in over-analyzing the project.

Ask SMEs. Subject matter experts (SMEs) can be a big help, especially in informing project managers what the commonly overlooked work or costs are. There are very common estimation omissions. You will benefit from questioning what they are.

Contingency reserves are allowances for unplanned but potentially required changes that can result from realized risks identified in the risk register.

Management reserves, on the other hand, are budgets reserved for unplanned changes to project scope and cost.

The Project Manager may be required to obtain approval before obligating or spending the management reserve, but gen,erally this approval is not needed from the sponsor for the contingency reserve.

Management reserves are not part of the project cost baseline, but they may be included in the total budget for the project. Contingency reserves are ideally included in the cost baseline and budget.

Start writing down your Earned Value formulas by putting these things in a vertical column on your sheet:

SV

SPI

CV

CPI

Then add the equals sign to each row, so it looks like this:

SV=

SPI=

CV=

CPI=

Then add the EV part of the equation to each row, so it looks like this:

SV=EV

SPI=EV

CV=EV

CPI=EV

Then in the last step you have to remember a bit about what each thing is, but the previous steps got the logic all set up for you to complete the formulas based on what the relative information is. There are two divide formulas and two subtraction formulas. The indexes use the divide formulas. That goes as follows:

SV=EV-PV

SPI=EV/PV

CV=EV-AC

CPI=EV/AC

Mean: The average.

Median: Sort the values from smallest to largest. If there is an even number of values, the median is the average of the two middle numbers. If there is an odd number of values, the median is the one in the middle of the pack.

Mode: The value that occurs most often.

Calculator for Mean Median Mode and Range 

And another term that often is used along with these is standard deviation, which is represented by the symbol σ and it basically shows how much variation there is from the mean.

Fully Burdened Rates

Develop a project budget because it helps to make sure you’re all on the same page, it enables you to recognize project performance issues sooner, and it better prepares you for risk management and the questions are going to pop up later.