Question

What is cost forecasting and how is it utilized in project management? What are some methods and how is it calculated?

Answer 1

What is cost forecasting?

managing the cost of the project needs careful planning in order to avoid the conflicts that may be effect the payment schedule and which may cause damage to the stakeholder reputation. Cost forecasting is a method used to determine the required expenditure at the various payment levels of the business.

How cost forecasting is utilized in project management?

• Efficient management of the project income is having major role in making timely payment to the different stake holder involved in the project.
• Cost forecasting helps to understand the payment system for projects which are based on the contractual provisions & it will help to retrieve the information from the project schedule- it helps to map the budget required during the execution of the project.
• it takes the current project spending and extra charges that rate of spending till the end of the project.
• it improves the decision making process, and also enhance the accuracy in the project, it helps to maintain the good business image, increase the job satisfaction for the employee in the organization.
• Cost forecasting helps to increase the speed of processing, access to the information more timely basis than it was earlier.

Methods to calculated the cost forecasting?

To calculate the cost forecasting the universal formula is used and the formula is :

cost Estimate at the completion (EAT)=The spent money on the project (AC)+the required amount to complete the project (ETC)

i.e EAC = AC + ETC

The AC,actual cost can obtain from the Time system.

To calculate the ETC,Estimated cost to complete is :

by subtracting the total budget by earned value gives the left out budget to complete the project ( BAC-EV) and also the performance factor will come into picture while complete the project . The necessity of this factor to decide the performance of the project which moves in the good or bad direction to decide the cost .

Hence ETC= (BAC-EV) / Performance factor