Effective Project Cost Analysis

My favorite project management tool is the anticipated cost report. After working on dozens of projects, I've seen how teams that diligently manage via an anticipated cost report simply perform better. To start: Every development project needs an anticipated cost report. Period. This isn't optional - it's the industry standard for tracking original contract amounts, change orders, current commitments, and what's actually been billed and paid to date. Think of it as your project's financial heartbeat. Without regular monitoring, you have no idea if you're on track for schedule or budget, and those are ultimately the two project metrics that you have the most control over. Here's what most people miss: your report must include ALL project costs, not just the GC contract. Those soft costs like permits, design fees, legal, and contingencies need equal tracking. They can be the places where the most unexpected surprises hide. I recommend updating the ACR after each pay application is issued. This creates a natural rhythm of financial oversight that keeps you ahead of problems rather than scrambling to react to them. The real value comes in identifying disconnects early. If materials haven't been purchased within lead time windows (which you'll see in the "billed" and "paid" columns), those scopes are already at risk. Flagging them sooner rather than later is the point. Same goes for spending that's outpacing schedule progress. When you see that trend emerging, you still have time to course-correct before the budget is totally blown. We always set clear variance thresholds that trigger action. On my projects, any line item exceeding 5% of budget requires immediate investigation. No exceptions. A well-managed ACR is also the foundation for good cash flow projections. This lets us model various scenarios and take preventive action months before problems manifest on site. Final thought: Make sure the ACR is easy to update, this will ensure it is useful. I've seen too many teams create overly complex tracking systems, to the point where they are useless. Remember: You cannot manage what you do not measure. Everything begins with a comprehensive, consistently updated cost report that records the project and provides data for better decision-making

The Not-so Hidden Cost of Doing Things "On the Cheap" I recently completed my term as an elected local official and chair of the board. It was quite an experience and an enormous struggle convincing board members that life cycle cost analyses outweigh the upfront cost and doing things on the cheap. Choosing the lowest-cost option often seems smart - until hidden costs emerge. Cutting corners may save money upfront but it often leads to much higher expenses over time, especially in maintenance & repairs. Key Insights: 1️⃣ Maintenance Costs Can Match Initial Investment: Cheap initial builds often require costly upkeep. For example, maintenance expenses can equal the original construction cost within a decade. 2️⃣ Life-Cycle Cost Analysis (LCCA) Matters: Evaluating total costs (including construction, operation, and maintenance) helps avoid false economies. Spending more upfront on quality & planning reduces long-term expenses. 3️⃣ Deferred Maintenance & Cost Overruns: Skimping initially leads to deferred repairs & skyrocketing costs later. Many projects exceed budgets because the initial estimates ignore long-term needs & costs. 4️⃣ Ethics & Responsibility: Professionals & policymakers increasingly emphasize sustainable, responsible decisions that prioritize long-term #value over short-term savings. 🌟Here’s the Bottom Line🌟 The cheapest option today often becomes the most expensive tomorrow. Investing wisely upfront through comprehensive cost analysis ensures durability, safety, and financial sustainability. Responsible #management demands thinking beyond the initial cost and to focus on true cost & value over the project’s lifetime/lifecycle. What is your opinion? Engage with me in comments below👇🏼 #TCO #FiscalResponsibility #Budget Town of Dresden #OnTheCheap #LifeCycleCostAnalysis

Estimating costing in projects is a key part of project cost management. It involves forecasting how much money will be required to complete project activities. Here’s a breakdown of how it’s done, including the types, tools, and techniques used: 🔹 1. Cost Estimating – Definition Cost estimating is the process of developing an approximation of the monetary resources needed to complete project activities. It includes direct and indirect costs, such as: Labor Materials Equipment Services Facilities Overheads Contingency reserves 🔹 2. Types of Cost Estimates Estimate Type Description Accuracy Range Used When Rough Order of Magnitude (ROM) Broad estimate for feasibility phase -25% to +75% Early project phases Budget Estimate More refined, used for funding requests -10% to +25% Planning phase Definitive Estimate Most accurate, used for baselines and control -5% to +10% Execution/Pre-construction 🔹 3. Common Cost Estimating Techniques A. Analogous Estimating (Top-Down) Based on historical data from similar projects. Fast but less accurate. ✅ Example: Last bridge project cost $1.2M, so estimate similar cost. B. Parametric Estimating Uses mathematical models based on historical data and variables. ✅ Example: $50 per meter of cable × 1,000 meters = $50,000. C. Bottom-Up Estimating Estimates each activity or work package and sums them up. Most accurate but time-consuming. ✅ Example: Labor (300 hrs × $40/hr) + Materials ($5,000) + Equipment ($2,000). D. Three-Point Estimating Considers uncertainty with three estimates: Optimistic (O), Most likely (M), Pessimistic (P) Expected Cost (PERT) = (O + 4M + P) / 6 ✅ Example: ($10K + 4×$12K + $15K) / 6 = $12.17K E. Expert Judgment Use the knowledge of experienced professionals or SMEs. ✅ Often used in combination with other methods. F. Reserve Analysis Adds contingency for identified risks and management reserve for unknowns. ✅ Example: Add 10% of total cost for contingency. 🔹 4. Outputs of Cost Estimating Process Cost estimates Basis of estimates (assumptions, methodology) Project documents updates (e.g. risk register, schedule) 🔹 5. Tools & Software Microsoft Project, Primavera P6 Spreadsheets (Excel) Cost estimating software like CostX, RSMeans, or specialized ERP tools Would you like an example of a cost estimate worksheet or a template for your type of projects (e.g. construction, electrical, hydraulic)? #costing #estimating

EVM analysis, or Earned Value Management analysis, is a project management methodology for measuring and forecasting project performance by integrating cost, schedule, and scope. It uses quantitative metrics like Earned Value (EV), Planned Value (PV), and Actual Cost (AC) to compare planned work against actual progress, revealing variances and enabling managers to make informed, timely decisions to keep projects on track.

How important it is to gain a comprehensive understanding of the price offered, validate its fairness, and negotiate effectively to achieve the best possible value for the organization? However there is a different approach to price and cost analysis in different situations. We apply different models in different situations. 1.Price Analysis ✔️ When purchasing standard or readily available items. ✔️ When market data is readily accessible. ✔️ When there are multiple suppliers offering comparable products/services. 2. Cost Analysis ✔️ When purchasing complex or customized items. ✔️ When the buyer has access to cost data or expertise. ✔️ When negotiating high-value contracts. 3.Total Cost of Ownership Analysis ✔️ When making long-term investments or purchasing assets with ongoing costs. ✔️ When comparing products/services with different lifespans or operating expenses. ✔️ When sustainability and environmental impact are important considerations. 4. Value Analysis: ✔️ Identifying the key features and benefits. ✔️ Understanding the buyer's needs and priorities. ✔️ Comparing the value offered by different suppliers. 5. Benchmarking: ✔️ When using industry surveys or benchmarking studies. ✔️ Analyzing publicly available data on competitor performance.

🚀 𝑲𝒆𝒚 𝑰𝒏𝒔𝒊𝒈𝒉𝒕𝒔 𝒇𝒓𝒐𝒎 𝑷𝑴𝑷 𝑺𝒆𝒔𝒔𝒊𝒐𝒏 11 🌟 Hello, everyone!   Alhamdulillah! Attended free PMP Training Session 11 on Performance Measurement. here’s a concise breakdown::  ✳️ Why Performance Measurement Matters ✅ Helps identify risks early. ✅ Ensures budget and timeline adherence. ✅ Enables data-driven decision-making. 🌟 A strong PM doesn’t just manage projects—they measure, track, and optimize them! 🎯 Key Concepts & Metrics 📌 SMART Goals → Specific, Measurable, Achievable, Relevant, and Time-bound objectives 👉 Example: Instead of “Improve customer satisfaction,” define it as “Increase customer satisfaction by 15% within six months.” *️⃣ Key Performance Indicators (KPIs) → Measure project health across: 🔹 Time : Schedule Variance (SV), Schedule Performance Index (SPI). 🔹 Cost : Cost Variance (CV), Cost Performance Index (CPI). 🔹 Quality : Defect density, customer satisfaction score. ✴️ Earned Value Management (EVM)→ A powerful tool for measuring cost & schedule performance: 🔸 Cost Variance (CV) = EV - AC → Are we over/under budget? 🔸 Schedule Variance (SV) = EV - PV → Are we ahead/behind schedule? 🔸 CPI = EV / AC → How efficiently are we spending? 🔸 SPI = EV / PV → How efficiently are we progressing? *️⃣ Forecasting Tools: 🔹 Estimate at Completion (EAC): Predicts final project cost. 🔹 To-Complete Performance Index (TCPI): Measures efficiency needed to meet the budget. ✳️ S-Curve & Trend Analysis → Helps visualize cost/time progress and predict future trends. *️⃣ Business Performance Metrics for strategic decisions: 🔹 Benefit-Cost Ratio (BCR): Expected benefits vs. costs. 🔹 Return on Investment (ROI): Measures profitability. 🔹 Net Present Value (NPV): Future cash flow value. 🔹 Payback Period: Time required to recover investment. ❇️ Corrective Actions & Reporting: ✅ Always conduct a Root Cause Analysis before making decisions. ✅ Effective status reports must include budget, schedule, risks, and next steps—tailored for different stakeholders. 🏗 Real-Life Example: Earned Value Calculation Let's analyze a sample project with a budget of $120,000: 📍 Planned Progress (PV): $90,000 📍 Work Completed (EV): $60,000 (50% done) 📍 Actual Cost (AC): $70,000 🔍 Performance Analysis: ❌ Over budget: CV = EV - AC = -$10,000 ❌ Behind schedule: SV = EV - PV = -$30,000 ⚠️ Cost inefficiency: CPI = 0.86 (Below 1 = overspending) ⚠️ Schedule delays: SPI = 0.67 (Below 1 = behind schedule) 🔹 Next Steps? Early tracking helps identify root causes and apply corrective actions like fast-tracking, resource reallocation, or scope adjustments to prevent costly delays and overruns. 📢 𝐄𝐱𝐜𝐢𝐭𝐞𝐝 𝐟𝐨𝐫 𝐒𝐞𝐬𝐬𝐢𝐨𝐧 12 : PMP Exam Tips & Tricks! 🔥 Biggest takeaway from this session? Drop a comment! 🙏 Huge thanks to Ahmed Ben Hamouda, PMP®, SCT®, SAFe®, and the team! ✨ Like | Share | Follow for more #PMPMindset insights! ✨ #ProjectManagement #ProjectPerformence #FreeTraining #PMI #EVM #KPI #ContinuousLearning

Should-cost methodology is emerging as one of the most reliable solutions to help #upstream players address their current challenges, providing the granular cost transparency needed to deal with the changing landscape. So how does it work? After breaking down the total cost of a project, product, or service into granular components and assessing the #cost drivers for each, companies can determine the reasonable should-cost of a service or product based on its constituent elements. Compared to traditional solutions (which limit the benchmark to a finite number of past projects), should-cost can estimate the costs associated with any combination of design, geographic footprint, and commercial agreement. Initially developed, fine-tuned, and deployed at scale in the automotive sector, the #shouldcost methodology uses bottom-up modeling of all supply chain costs through a four-step approach: ➡️Step 1: Analyzing the design choices and 2D or 3D drawings of the project to derive a bill of quantities for raw and bulk materials. ➡️Step 2: Mapping the end-to-end value chain to identify all the manufacturing steps required to produce each component. ➡️Step 3: Costing the required quantities and value chains to calculate direct costs, leveraging proprietary databases and productivity models tailored to each country, technology, and sector. ➡️Step 4: Completing the bottom-up should-cost calculations to define should-cost components, including all elements of suppliers’ cost structures. Through its flexible, unbiased, and fact-based methodology, a should-cost analysis can, therefore, provide up-to-date, end-to-end transparency on the entire supply chain cost structure for an upstream project’s tenancy in common (TIC) investment. To illustrate, we performed a deep dive should-cost analysis for #LNG tanks, providing full transparency on key cost drivers for further negotiation with the supplier. This analysis enabled a fact-based negotiation with the supplier and led to an 8% cost reduction on the final negotiated price compared to the initial bid. #capitalexcellence #mckinsey #lngtanks #oilandgas #procurement #projectmanagement #labor #materials

10 tactics to control costs A guide which provides you the tools for cost reduction When I was head of finance, we were facing a challenge: → How to reduce our hourly rate to stay competitive This became my number one priority to help the business And we succeeded to decrease our hourly rate by 3% while inflation was up! Today I am sharing the tactics to reduce costs: 1. Budgeting and Forecasting: • Importance: Plan and estimate costs, revenue, and expenses. This is where you can get your team to commit on cost reduction. • Focus: Use accurate data and update budgets regularly. 2. Variance Analysis: • Importance: Compare actual performance with budgets to identify deviations. If you found a variation, there is a big chance that you have a topic to explore to reduce costs. • Focus: Investigate significant variances for improved accuracy. 3. Cost Allocation: • Importance: Distribute indirect costs for accurate pricing and control. • Focus: Maintain fair and updated allocation methods. 4. Activity-Based Costing: • Importance: Assign costs to specific activities for better resource allocation. • Focus: Identify and measure cost-driving activities accurately. 5. Zero-Based Budgeting: • Importance: Justify every expense to optimize resource allocation. • Focus: Balance rigor with operational continuity. 6. Cost-Benefit Analysis: • Importance: Compare project costs with expected benefits. • Focus: Consider tangible and intangible factors. 7. Cost-Volume-Profit Analysis: • Importance: Understand how sales, costs, and pricing impact profitability. • Focus: Validate fixed and variable cost assumptions. 8. Inventory Management: • Importance: Optimize inventory levels to reduce costs. • Focus: Use EOQ and JIT techniques for efficiency. 9. Vendor Management: • Importance: Evaluate and maintain supplier relationships. • Focus: Assess performance and diversify suppliers. 10. Procurement Management: • Importance: Acquire goods at the best cost with quality. • Focus: Establish clear procurement processes and collaboration. 👉 What is your favorite method to find cost reductions?

𝐏𝐫𝐢𝐜𝐞 𝐚𝐧𝐝 𝐂𝐨𝐬𝐭 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬 𝐢𝐧 𝐏𝐫𝐨𝐜𝐮𝐫𝐞𝐦𝐞𝐧𝐭 In procurement, cost analysis and price analysis are two distinct evaluation methods used to assess the value of a product or service. Here's a breakdown of each: 𝐂𝐨𝐬𝐭 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬 1. It evaluates the total cost of ownership, including:  a) Acquisition cost  b) Operating costs  c) Maintenance costs  d) Replacement costs  e) Life-cycle costs 2. Considers both tangible and intangible costs 3. Helps determine the overall value for money 𝐏𝐫𝐢𝐜𝐞 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬 1. Focuses solely on the purchase price or bid price 2. Compares prices from different suppliers or bids 3. Evaluates the reasonableness of the price of the market 4. Does not consider other costs beyond the purchase price 𝐓𝐡𝐞 𝐤𝐞𝐲 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐜𝐞 1. Cost analysis looks at the broader picture, considering all costs associated with the product or service over its life cycle. 2. Price analysis is a narrower evaluation, focusing only on the upfront cost. 𝐂𝐨𝐧𝐜𝐥𝐮𝐬𝐢𝐨𝐧: - By conducting both cost and price analyses, procurement professionals can make informed decisions that balance cost-effectiveness with overall value.

Cost Estimation * Cost estimation is the process of forecasting the financial resources required to complete a project within its defined scope and timeframe.    Purpose: To provide an approximate budget for the project. To determine the feasibility and economic viability of the project. To assist in project planning and decision-making. Stages: Initial Estimation: Broad estimates made during the early stages of the project based on limited information. Refined Estimation: More detailed and accurate estimates made as the project scope becomes clearer and more information is available. Techniques: Analogous Estimating: Using historical data from similar projects. Parametric Estimating: Using statistical relationships between historical data and other variables. Bottom-Up Estimating: Breaking down the project into smaller components and estimating the cost of each component. Expert Judgment: Consulting with experts who have experience with similar projects. Output: A detailed cost estimate document that outlines the expected financial requirements for the project. Cost Control *Cost control is the process of monitoring and managing project expenditures to ensure that the project stays within the approved budget. Purpose: To manage and reduce cost overruns. To ensure the project is completed within the approved financial resources. To provide data for financial reporting and project decision-making. Stages: Budget Baseline: Establishing a baseline budget based on the cost estimation. Monitoring: Continuously tracking actual costs against the budget. Controlling: Taking corrective actions to address any deviations from the budget. Techniques: Earned Value Management (EVM): Measuring project performance and progress in an objective manner. Variance Analysis: Identifying and analyzing differences between planned and actual costs. Trend Analysis: Using historical data to predict future performance. Change Control: Managing changes to the project scope that may affect costs. Output: Regular cost reports and updates. Corrective action plans to address any deviations. Final cost performance assessment at project completion. Key Differences Focus: Cost estimation focuses on predicting the financial resources needed before the project starts. Cost control focuses on managing and adjusting the project budget during execution. Timing: Cost estimation is primarily a pre-project activity. Cost control is an ongoing activity throughout the project lifecycle. Objective:  The objective of cost estimation is to create a financial plan.  The objective of cost control is to adhere to the financial plan and mitigate deviations. Both cost estimation and cost control are crucial for effective project management. Accurate cost estimation sets the foundation for a realistic budget, while diligent cost control ensures that the project stays on track financially, ultimately contributing to the project's success. #Cost_Estimation #Cost_control #Safeek #LinkedIn