Tools Used to Monitor and Control Costs in Projects

Written by: Rupen Sharma, PMP • Edited by: Michele McDonough
Published Nov 26, 2009 • Related Guides: Project Budget | Project Managers

In the Control Costs process of the Project Cost Management knowledge area, there are some tools and techniques recommended by the Project Management Institute (PMI). In this article, we’ll explore each one.

Introduction

Having accurate project estimates and a robust project budget is necessary to deliver within the project budget. Both Estimate Costs and Determine Budget are project planning processes. Without keeping an eye on the actual costs while the project is being implemented, the project will most likely never be delivered on-budget. There are several techniques as stated in the PMBOK used to monitor and control the cost of a project:

Earned Value Management
Forecasting
To-Complete Performance Index (TCPI)
Variance Analysis
Performance Reviews

Earned Value Management or Analysis

Earned Value Management (EVM) is a mathematical method by which you can measure the actual performance of a project. You will use EVM

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to monitor your project in terms of schedule and cost. For example, suppose your project is on track as per the schedule. Through EVM, you will be able to understand whether the project is also on-budget. If it is not, you can take corrective action. EVM principles can be extended to Forecasting, TCPI, and Variance Analysis. EVM is an input to project performance reviews. Therefore, it is critical for you to understand EVM formulae so that you can use them as inputs to other cost control techniques.

Forecasting

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EVM provides formulae to forecast the future performance of a project. The forecast is based on the current actual performance. As a project manager, having the ability to tell whether your project will be delivered on-time and on-budget is critical. Let’s take an example to understand this.

Suppose you have completed 25% of your project. As per the schedule you are on track. However, after completing 50% of the project, you realize your project is delayed. By using forecasting formulae you can determine the degree of delay. This will also enable you to investigate the cause of delay and the corrective action, such as Crashing, required to get the project back on track. In addition, to the schedule delay you can use EVM Forecasting formulae to determine the actual cost of the project on completion and take measures to rectify any anomaly before it is too late.

To-Complete Performance Index (TCPI)

If the project is delayed or over-budget, you can use TCPI to determine the project performance required to complete the project as budgeted or estimated. TCPI also leverages the EVM formulae.

Variance Analysis

Variance analysis is the comparison of expected project performance to the actual cost performance. This analysis helps you understand the causes of variance, if any. Preventative and corrective actions are determined based on the variance analysis.

Performance Review

Performance reviews in projects are required to check the health of a project. This usually involves Cost and Schedule as the main parameters to assess. However, other parameters, such as Scope, Quality, Team Morale, may be used. Reviews may include the client, Product Owner, other Project Managers or ScrumMasters.

Tip: You should evaluate your project’s performance at the end of every iteration, assuming an iteration is less than two weeks long. The length of an iteration is critical in Agile projects.