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Q.1 Describe the types of tools and techniques used in cost management

June 05, 2012 By: Meliza Category: 1st SEM

Types of Tools and Techniques used in cost management:

 

  • Cost aggregation
  • Reserve analysis
  • Expert judgment
  • Historical relationships
  • Funding limit reconciliation
  • Cost performance baseline
  • Project funding baseline

Cost aggregation: Individual costs are aggregated in many different ways for budgeting purposes, including at the deliverable, work package, summary activity, or other classification levels.

 

Reserve analysis: Reserves are time or cost buffers in the project schedule or budget that help the project counter or respond to uncertainties. Reserve analysis monitors these buffers and will reduce, use, or eliminate them based on the current situation.

 

Expert judgment: Expert judgment is based upon the experience and knowledge of subject matter experts. It is used to assess and evaluate the inputs and the information the experts contain.

 

Historical relationships: A historical relationship refers to the characteristics of the current and past projects that can be used to develop models that aid in budgeting.

 

Funding limit reconciliation: Funding limit reconciliation matches the project’s planned need for funding with the organisation’s ability to provide that funding. It can be thought of as “resource levelling” for finances because it reschedules activities to make sure that the budget for the scheduled activities does not exceed the available budget for that period. For instance, if the estimated cost for scheduled activities in the second month of a project is estimated to be Rs 50,000, but the organisation can only provide funding for Rs 40,000 then there is Rs 10,000 of work that has to be rescheduled to another month.

Cost performance baseline: The cost performance baseline is a duration-phased budget that is used for project cost management, monitoring, and reporting. Though they are both derived from the same source, the project budget and project cost baseline are not interchangeable terms. The cost baseline is a component of the project performance baseline.

In addition to knowing the project funding requirements, the performing organisation needs to know when the project will need money.

The project cost baseline can effectively show many different views of project performance. A project will have several different cost-related baselines that will focus on specific cost categories, such as labour costs, raw material costs, or any other cost classification that is necessary for monitoring. Just as with all other baselines, the cost baseline reflects all approved changes.

Project funding baseline: Project funding baseline refers to the entire estimated cost of the budget, including any contingency or managementreserves.

The performing organisation needs to know the financial costs of the project so that it can compute appropriate money. The entire estimated cost of the budget, including any contingency or management reserves, is the project funding requirements. When we are referring to the project’s budget, we are usually talking about project’s base costs.

Every organisation will each have different requirements and terminology for the contents and categorisation of the project budget, but a budget is usually classified in the same categories as what was used by the resource breakdown structure. At a broad level, the budgetary classifications aregenerally:

  • Reserves
  • Labour/Personnel
  • Professional, Contracted, or Outside Services
  • Supplies, Materials
  • Equipment, Hardware, and Software
  • Training, Travel
  • Licenses, fees
  • Indirect Costs

 

The performing organisation will also need to know when it can expect project costs to be incurred, so the project’s budget is also shown by calendar periods. When the project cost is broken down into a time-phased budget, it serves as the project cost performance baseline.

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