7.4.1 Inputs to Cost Control

.1 Cost baseline. The cost baseline is described in Section 7.3.3.1.

.2 Performance reports. Performance reports (discussed in Section 10.3.3.1) provide information on project scope and cost performance, such as which budgets have been met and which have not. Performance reports may also alert the project team to issues that may cause problems in the future.

.3 Change requests. Change requests may occur in many forms—oral or written, direct or indirect, externally or internally initiated, and legally mandated or optional. Changes may require increasing the budget or may allow decreasing it.

.4 Cost management plan. The cost management plan is described in Section 7.2.3.3.

7.4.2 Tools and Techniques for Cost Control

.1 Cost change control system. A cost change control system defines the procedures by which the cost baseline may be changed. It includes the paperwork, tracking systems, and approval levels necessary for authorizing changes. The cost change control system should be integrated with the integrated change control system discussed in Section 4.3.

.2 Performance measurement. Performance measurement techniques, described in Section 10.3.2, help to assess the magnitude of any variations that do occur. Earned Value Management (EVM), described in Sections 7.4.2.3 and 10.3.2.4, is especially useful for cost control. An important part of cost control is to determine what is causing the variance and to decide if the variance requires corrective action.

.3 Earned value management (EVM). All EVM Control Account Plans (CAPs) must continuously measure project performance by relating three independent variables: 1) The Planned Value, the physical work scheduled to be performed, including the estimated value of this work (previously called the Budgeted Costs for Work Scheduled [BCWS]),as compared against the 2) The Earned Value, physical work actually accomplished, including the estimated value of this work (previously called the Budgeted Costs for Work Performed [BCWP]), and to the 3) Actual Costs incurred to accomplish the Earned Value. The relationship of 2) Earned Value less 1) Planned Value constitutes the Schedule Variance (SV). The relationship of 2) Earned Value less 3) Actual Costs constitutes the Costs Variance (CV) for the project. See also Section 10.3.2.4.

.4 Additional planning. Few projects run exactly according to plan. Prospective changes may require new or revised cost estimates or analysis of alternative approaches.

.5 Computerized tools. Computerized tools such as project management software and spreadsheets are often used to track planned costs vs. actual costs, and to forecast the effects of cost changes.

7.4.3 Outputs from Cost Control

.1 Revised cost estimates. Revised cost estimates are modifications to the cost information used to manage the project. Appropriate stakeholders must be notified as needed. Revised cost estimates may or may not require adjustments to other aspects of the project plan.

.2 Budget updates. Budget updates are a special category of revised cost estimates. Budget updates are changes to an approved cost baseline. These numbers are generally revised only in response to scope changes. In some cases, cost variances may be so severe that rebaselining is needed to provide a realistic measure of performance.

.3 Corrective action. Corrective action is anything done to bring expected future project performance in line with the project plan.

.4 Estimate at completion. An Estimate at Completion (EAC) is a forecast of most likely total project costs based on project performance and risk quantification, described in Section 11.4.3. The most common forecasting techniques are some variation of:

   EAC = Actuals to date plus a new estimate for all remaining work. This approach is most often used when past performance shows that the original estimating assumptions were fundamentally flawed, or that they are no longer relevant to a change in conditions. Formula: EAC = AC + ETC.

   EAC = Actuals to date plus the remaining budget (BAC - 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 = AC + BAC - EV.

   EAC = Actuals to date plus the remaining budget (BAC-EV) modified by a performance factor, often the cost performance index (CPI). This approach is most often used when current variances are seen as typical of future variances. Formula: EAC = (AC + (BAC - EV) / CPI)—this CPI is the cumulative CPI.

  Each of the above approaches may be the correct approach for any given project and will provide the project mangement team with a signal if the EAC forecasts go beyond aceptable tolerances.

.5 Project closeout. Processes and procedures should be developed for the closing or canceling of projects. For example, the Statement of Position (SOP 98-1 issued by the American Institute of Certified Public Accountants—AICPA) requires that all the costs for a failed information technology be written off in the quarter that the project is canceled.

.6 Lessons learned. The causes of variances, the reasoning behind the corrective action chosen, and other types of lessons learned from cost control should be documented so that they become part of the historical database for both this project and other projects of the performing organization (see Section 4.3.3.3).