Project Cost Management
Domain 6 combines cost-estimating concepts with earned value management, which is the most reliably examined calculation on the paper. You must know which reserves sit inside the cost baseline, how to compute variances and indices, and which EAC formula to apply given a described pattern of deviation.
Estimating and budgeting
- Estimating methods: analogous (fast, low accuracy), parametric, bottom-up (accurate, costly), three-point.
- Cost types: variable and fixed, direct and indirect, sunk and opportunity cost.
- Contingency reserve covers known-unknowns and sits inside the cost baseline. Management reserve covers unknown-unknowns, sits outside the baseline, and needs senior approval. Cost baseline = project budget − management reserve.
- Sunk cost must be excluded from go/no-go decisions.
Earned value core
- PV planned value, EV earned value, AC actual cost.
- SV = EV − PV; CV = EV − AC.
- SPI = EV / PV; CPI = EV / AC.
- ETC = EAC − AC; VAC = BAC − EAC; TCPI = (BAC − EV) / (BAC − AC).
- Forecasts: atypical variance EAC = AC + (BAC − EV); typical variance EAC = BAC / CPI; mixed EAC = AC + (BAC − EV) / (CPI × SPI).
- Depreciation: straight-line, double-declining balance (ignore salvage, switch to straight-line in the final two years), sum-of-years-digits.
Worked example
BAC = 100万元; at month 6, PV = 40, EV = 35, AC = 45. SV = −5万元, CV = −10万元, SPI = 0.875, CPI = 0.778. The project is behind schedule and over budget. Because the deviation looks systemic, use the typical formula: EAC = 100 / 0.778 = 128.6万元, and VAC = 100 − 128.6 = −28.6万元. If the stem states the overrun was a one-off event, use the atypical formula instead.
Traps that cost marks
- Placing management reserve inside the cost baseline.
- Using SPI = 1 to conclude the project is healthy while CPI < 1.
- Choosing the EAC formula without reading whether the deviation is typical.
- Letting sunk cost influence the decision.
- Computing CV as EV − AC but reporting it as a percentage without the base.