Projects - Management of cost

Projects - Management of cost

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The management of the cost of the Project consists, basically, in the costs of the necessary resources to the implementation of the activities of the Project. In many areas of application, to foresee and to analyze the perspective of financial performance of the product of the Project are made outside of the environment of the Project. When these forecasts and analyses are enclosed, the management of the cost of the Project include processes add and to an amount of management techniques such as return of the investment, flow of box, among others. When the costs of the Project are used as component of awarding and of recognition systems, the controlable and not controlable costs must separately be esteem and be calculated, to assure that the prizes reflect the performance real. The PMBOK divides the management of cost of the Project in four processes, namely: planning of the resources; estimate of the costs; orçamentação of the costs and control of the costs. Second still the PMBOK, in small Projects, the three first processes so is joined that they can be seen as an only process (for example, can be carried through by an only individual, during a certain interval of time). We will see therefore, these three processes of joint form

We will see the three processes here already cited: planning of the resources; estimates of the costs and orçamentação of the costs. The planning of the resources involves to determine which physical resources (people, equipment and materials) and which amounts of each must be used for the accomplishment of activities of the Project. The estimate of the costs involves to develop a estimate of the costs of the necessary resources the implementation of the activities of the Project. The estimate of the costs includes to identify and to consider some alternatives of cost. For example: in the majority of the application areas, it is considered widely that the additional work during the phase of Project (design) has the potential of reduction of the cost in the production phase. The process of estimate of the costs must consider if the cost of the additional work in the phase of Project will go to compensate the waited economy. Finally, the orçamentação of the costs involves to place the estimates of individual the global costs to itens of work with the purpose to establish one baseline of cost to measure the performance of the Project. It fits to say that already we study previously in you emend them of target, time and resources most of the tools and techniques presented for the PMBOK for management of cost. Therefore, we will not say in all these tools again, will only cite the ones that will go to add something of excellent specifically in what it says respect to the management of cost.

* Description of the picture of resources

The knowledge of which resources (people, equipment, materials) is potentially available is necessary for the planning of the resources and also of the costs, since the use of each resource has an associated cost.

* Required resources

The exit of the process of planning of the resources is the description of which the types of required resources and which the amount for each element of the EAP.

* Unitary cost of the resources

The individual or group that elaborates the estimate must have the knowledge of the unitárias taxes (for example, hourly cost of staff) of each resource with the purpose to calculate the cost of the Project. If the taxes will not be known, the same ones can be esteem.

* Estimate of duration of the activity

The estimate of duration of the activity will affect the estimates of the costs of any Project where the budget of the Project includes subsidies for the financing costs (for example, taxes of interests).

* Chart of accounts

The chart of accounts describes the structure of codification used for the organization to report the financial information for its general system of accounting. The estimates of the cost of the Project must be placed in the correct countable category.

* Estimates for analogy

In the estimates for analogy, also called estimates top-down, the real costs of similar previous Projects are used as base for the estimate of the cost of the current Project. She is frequently used in the estimate of the total costs of the Project when an limited amount of information detailed on the Project exists (for example, in the initial phases). The analogous estimates are a form of specialized evaluation.

* The estimates for analogy

Techniques are generally less dispendiosas than others, but, also frequently less necessary. They are more trustworthy when (a) the previous Projects are similar in fact and not only in the appearance (b) the individuals or groups that are preparing the estimates possess the experience or necessary skill.

* Estimate of low for top (bottom-up)

This technique involves esteem the individual cost of itens of work, later sumarizar them or adding them to get the total estimate of the Project. The cost and the precision of the estimates of low for top are directed by the individual size of itens of work: itens more detailed of work the precision increases the cost in such a way how much. The team of management of the Project must weigh the increase of the precision against the additional cost.

* Computerized tools

The computerized tools such as softwares of management of Project and spread sheets widely are used in the support to the estimate of the costs. Such products can simplify the use of described tools e above, therefore, speed the considerações of many alternatives of cost.

* Estimate of cost

The estimates of cost are quantitative evaluations of the probable costs of the resources required for the implementation of the activities. They can be presented at great length or sumarizadas. The costs must be esteem for all the resources that will be pledged in the Project. This includes, but it is not limited the man power, materials, suppliments and categories special such as inflation or reserve of cost.

The estimates of costs are generally express in monetary units (dollar, Franc, yen, Real etc.) with the purpose to facilitate comparisons in such a way inside or are of the Projects. Other units such as hours of staff or days of staff can be used, since that its use does not adulterate the costs of the Project. In some cases, the estimates will have that to be supplied using some units of measure with the purpose to facilitate the appropriate control of the management. The estimates of cost can be benefited by refinements occurred during the course of the Project as reflected of the details you add available.

* Baseline of the cost

Baseline of the cost is the referencial budget that will be used to measure and to monitor the performance of the cost of the Project. It is developed through the totalling of the estimates of cost for period and, usually, it is presented in the form of Curve.

Many Projects, especially the greaters, can have several baselines of cost to measure different aspects of the cost performance. For example, a plan of expenses or a forecast of box flow is baselines to measure outlay.

Control of the Costs

The control of the costs is associated the (a) to influence the factors that create the changes in the goal of form cost to guarantee that these changes are beneficial, (b) to determine that the cost goal was modified, and (c) to manage the real changes when and of the form that they to appear. The control of the costs includes:

* To monitor the performance of the cost to detect the variations of the plan.
* To assure that all the adequate changes are registered correctly in baseline of cost.
* To hinder that incorrect, not appropriate or not authorized changes are enclosed in baseline of cost.
* To adequately inform the involved parts of the authorized changes.

The cost control includes to discover the “reason” of the variations, positive how much in such a way negative. It must be strong integrated with the other processes of control (the control of target change, the control of the cronograma and the control of the quality). For example, a not appropriate reply for variations of the cost it can cause cronograma or quality problems, or produce, more ahead in the Project, a level of unacceptable risk.

The process of control of the costs

* Reports of performance

The performance reports supply to information on the performance of the cost such as which budgets are being reached and which are not. The performance reports can, also, alert the team of the Project for questions that can cause problems in the future.

* Solicitations of change

The change solicitations can occur of many forms - verbal or written, directly or indirectly, external initiate or internally, and legally imposed or optional. The changes can require an increase in the budget or allow that it is reduced.

* System of control of change of the cost

The system of control of change of the cost defines the procedures by which baseline of the cost can be modified. It includes manuals, systems of accompaniment and the levels of approval necessary to authorize changes. The system of control of changes of the cost must be integrated with the system of the general control of changes.

* Additional planning

Few Projects if develop as the planned one accurately. Changes perspective can demand a new estimate or a revision of the cost or, still, demand analysis of alternative boardings.

* Computerized tools

The computerized tools, such as softwares of management of Projects and spread sheets frequently are used to follow the cost planned versus the real cost, and to foresee the effect of the changes of the cost.

* Estimate of cost revised

The revised estimates of cost are modifications in the information of cost used to manage the Project. Appropriate the involved parts must be informed, if necessary. The esteem cost revised can or not require adjustments in other aspects of the general plan of the Project.

* Updates of the budget

The updates of the budget are a special category of the revised estimates of cost. The updates of the budget are changes in baseline approved. These numbers generally are revised only in reply the changes in the target. In some cases, variations of cost they can be so severe that a replanejamento (rebaselining) either necessary with the purpose to supply a realistic evaluation of the performance.

* Estimate of conclusion

The estimate of conclusion is a forecast (EAC) of the total cost of the Project based on the performance of the Project. The forecast techniques most common are some variations of:

* EAC = real cost until the date, more the remaining budget of the Project modified for a performance factor, frequently the index of cost performance. This boarding is used with more frequency when the current variations are seen as typical for future variations.

* EAC = real cost until the date, plus a new estimate for all the remaining work. This boarding is used with more frequency when the last performance sample that the premises of the original estimate were sufficiently imperfect, or that they are not more so excellent, had the changes in the conditions.

* EAC = real cost until the date, more the remaining budget. This boarding is used with more frequency when the current variations are seen as atypical and the expectation of the team of management of the Project is that similar variations will not be happened again in the future.

Each one of the boardings above can be correct for an item of given work any.

* Lições learned

The causes of the variations, the reasons for backwards of the corrective actions taking and other types of lições learned during the control of the cost, must be registered of form in such a way to become part of the historical database to be used in the current Project as in other Projects of the organization.

Methods of budgetary composition

The PMBOK only cites, however it does not detail the methods of budgetary composition. Therefore, we now go to consider in details the methods of budgetary composition used by the companies. Some referring problems to the estimate of costs will be boarded also, with attention to the details and possible errors. We take in consideration some referring requirements and concerns to the budgetary composition of a Project.

* Elaborating a budget from top to bottom

This strategy if bases on the judgment and high controlling experience of and average step, as well as data gotten in the past regarding similar activities. Such controlling are responsible for esteem the total cost of a Project, as well as the cost of the main subProjetos that understand the main Project. This estimate of cost then is directed to the controlling of lower step, that will have to give sequence to the division of the budget in estimates for specific tasks, as well as packages of tasks that form the subProjetos. This process goes until the step lowest. In this process the budgetary composition, as well as the Project, is divided in successive parts, to more start of the top, or level aggregate, being followed the EAP. However, the quarrels that appear, instead of generating a healthful debate, many times lead to the distanciamento and the lack of communication. When the senior management insists on keeping its position regarding a budget - on the basis of “significant last experiences” - the controlling Júnior if they feel forced to accept what they judge to be a insufficient allocation of resources to reach the objectives that they had committed themselves to reach. Quarrels between the authors and a great controlling number demonstrate that the controlling of lower step frequently consider all a process of budgetary composition as if they nothing represented. The competition between the controlling Júnior is frequently sufficiently intense. The advantage of the budget process from top to bottom is that aggregate budgets can frequently be developed in sufficiently necessary way, even so some individual elements can be elaborated in significantly incorrect way. Another advantage of a budget process from top to bottom is that less significant tasks individually do not need to be identified, not even is necessary to be worried about the fact that a small but important aspect was forgotten. The experience and the opinion of the executive are presumed automatically to give to form to all these elements in the total estimate of costs.

* Elaborating a budget of low for top

In this method, common tasks, its respective cronogramas and its individual budgets are elaborated, again, in observance the EAP. The responsible individuals for the accomplishment of the works are consulted regarding the times and budgets for the tasks they assigneds person, of form to assure optimum level of precision. Initially the estimates are made in terms of resources, such as man power and materials, that are, later, converted for its equivalents into current currency. The aggregate tasks to the budget direct provide then the total cost of the Project. The manager of Project classifies then the indirect costs as general and administrative costs, arriving itself in such a way at the end of the budgetary composition of the Project. Budgets of low for top would have to be, and normally they are, more necessary of what in the detailed tasks, however the inclusion of all the elements is a critical factor. It is much more difficult to develop a complete list of tasks constructing itself same it of low for top of what from top to bottom. As well as the method from top to bottom it will be able to cause a game of situations, the method of low for top also presents its exclusive games. For example, the involved people esteem in surplus its necessities of resources because they suspect that the high management probably will go to promote cuts in all the budgets. Its suspicion is of course sufficiently justifiable. Controlling with particularly good capacity of persuasion some times if leave winners. The advantages of a process of low for top are those associates generally with the participativa management. Individuals that participate of the works are more apt to have a more necessary idea of necessities of resources of what its superiors or others not directly involved. Moreover, the direct controlling envolvement of lower steps in the elaboration of a budget increases the possibilities of the budget to be approved without plea on the part of the same ones. The envolvement is also an excellent technique of managemental training, providing to the controlling juniores a valuable experience in the preparation of budgets, as well as the knowledge of the operations necessary to generate a budget. The controlling seniores relutam in transferring to the control of the budget its subordinate whose experience can be questionable and such fact is perfectly understandable. Such attitude is taken to the extremity in a great company who develops sets of ten of Projects simultaneously, being able each one of them to last of five the eight years and to consume dollar millions.

* Process of iterative budget - the negotiation in action

One recommended technique is the elaboration of a process of iterative planning with subordinate with the development of plans of action for the tasks that they have responsibility to execute. The superiors proceed to a revision of these plans, perhaps suggesting alterations to the same ones. The strong point of this technique is in the fact of that the responsibility most important for the assignment of a task is delegated to a responsible person for its execution, what it implies the use of the technique of participativa management (or envolvement of the employee). If made correctly, the esteem use of resources and cronogramas if become integrant part of the process of planning in all its levels. Therefore, the individual in charge more elaborating a plan of action in its raised level would esteem the necessities of resources and the duration of each referring step to the plan. In an ideal situation, the amount of resources and the time necessary to execute one definitive task esteem for the superior and the subordinate would be the same one. However we do not live ideal situations. By the way the relation most likely enters the original estimates amongst those carried through in different levels is that the amount of resources esteem by the superior is minor who the amount of resources esteem by the subordinate, what truth is due the diverse reasons, three of which is practically universal. Initially, the more long somebody will be able to go up in a company, distanciando itself of the responsibility to execute definitive work, the cited work will seem each more easy time, fast cheap e of if executing to the eyes of the superior of what to the eyes of that it has the responsibility to execute it. This if must to the fact of that or the superior does not have knowledge of the details of the work to be executed, or, for proper convenience, he forgot the details the same, as well as which will be the duration of the work and as diverse problems can appear. In according to place, the superior will go to subestimar costs (and time), a time that it has a parcel of responsibility in presenting the Project next to the high management as a lucrative enterprise. In third place, the subordinate tends to include some level of protection against imperfections, with a forecast against the “Law of Murphy”. Breaking itself of the premise of that the superior and the subordinate are honest with one another (any another premise will go to compromise a negotiation win-win, where both the parts if benefit of the reached result), the two evaluate the plan of action elaborated for this last one. Normally, he is the superior who gives the initial step in the direction of if reducing the differences in the estimate of costs, which “was instructed” by the subordinate regarding the realities of the work to be developed. The result is the increase of the estimate made for the superior. The next step is typically of responsibility of the subordinate. Motivated for the favorable reply of its head so that he continues in its reasoning, the subordinate discards some of the available protections for “by-products” of the budget and, in consequence the amount of resources esteem by the subordinate diminishes. The estimate of costs elaborated by the subordinate still can be bigger of what of the superior, however the difference consideravelmente was diminished. The negotiation process continues until if it arrives at a definitive budget.

* Determining the cost of each element:

The true process of if from top to bottom elaborating a budget for a Project, being able to be or of low for top, or a combination of both, tend to be a direct, however sufficiently tedious process. Each element of work in the plan of action or EAP is evaluated in accordance with its necessities of resources, being then esteem the cost for each type of resource. We go to assume that definitive element needs 25 working hours of one technician. The assigned technician to execute this task will be remunerated in US$17,50 for the moment. The appropriate cost seems to be the following one:

25 hours X R$17,50/hora = R$437,50

Referring costs the equipment and schemes is debited directly in the Project. If the use of determined machine in the Project will be necessary and this machine will be of property of determined functional department, the Project will be able “to pay” for it, through the transference of deep of the budget of the Project for the budget of the functional department. The referring expenditure to such machine will be of an operational cost ($ for the moment or $ for operational cycle), increased of a tax of established depreciation or in time or the amount of operational cycles. Beyond these, it also has the general and administrative incubencies. These incubencies are formed by the costs of the superior management, of the diverse functions of the body of assistants and other expenditures. The general incubencies right-handers or of the total of all the costs indirect right-handers and. Therefore, elements of cost total entered would include the costs right-handers (man power, resources and machineries special), beyond the general and administrative costs. We advise the manager of Projects to prepare two budgets, one of them including the costs of administrative generalities/and the other without the inclusion of these costs. The total budget will be used by the accounting with the objective of if esteem the profit to be gotten by the Project. The budget that only includes the costs right-handers provides to the manager of Projects information enough to manage the Project that do not come if to confuse with costs on which the manager of Projects does not possess no type of control.

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