Project Cost Management Plan For Perth Stadium Case

Introduction: Cost Planning and Control Strategy for Perth Stadium

1. Plan Cost Management

The Plan Cost Management for Perth Stadium is a plan that outlines how cost estimating, cost budgeting, cost controlling and cost monitoring activities are to be done (Love & Ika, 2021). Such processes include cost estimating, which involves the identification of all the key expenses that are expected to be incurred, and cost controlling, which entails the aggregation of the above estimates into a single financial package known as a cost budget (Hendrickson et al., 2024). Expenditure control is carried out based on the sums spent during the year compared to the approved budget, which allows for correcting the situation if needed.

More components like the Work Breakdown Structure (WBS) will subdivide the project into project phases, and therefore the cost Blue will be more easily assigned to the respective phases (Farag, 2021). Applications such as MS Project will help in developing and managing the costs and Earned Value Management (EVM) will help in evaluating the delivery of the project against the budget.

2. Define Cost Elements

The cost for Perth Stadium can be described by three types: labour costs, material costs and other expenses. They include construction labour, engineering labour, managerial labour and any other costs incurred by labour, such as overtime and other incidental expenses associated with labour. Thus, material costs include raw materials for construction such as steel, concrete and glass, the cost of transportation and even storage. Variable costs cover areas such as the cost of electricity and water, rental and maintenance of construction equipment, among others.

3. Identify Types of Costs

These costs are broken down into direct costs, indirect costs, fixed costs, and variable costs (Feinberg & Zanardi, 2022). These are the costs that can be easily explained about a particular activity and also in relation to specific projects,t s such as labour and material costs. On the other hand, there are indirect costs of production which are not easily associated with a certain activity, examples being overheads and administrative costs. The costs are fixed throughout the project duration, like human resources for permanent employees, while the costs that relate to the project activity, like utility bills and rental of equipment, vary (Rodríguez-Sánchez et al., 2020).

4. Determine Estimating Method (s)

Two primary methods will be used for cost estimation: Two of the most used approaches are called Top-Down and Bottom-Up (Caspari et al., 2020). Top-down estimating offers an initial project cost without a detailed work breakdown, similar projects, which are beneficial at the early stage. This is accompanied by Bottom-Up Estimating, which employs projections of various components that make up a project and arrives at the cumulative costs.

5. Use Estimating Techniques

Phase 1 (Planning and Design): 10% of total cost = $3,878,500

Phase 2 (Foundation and Structural Work): 30% of total cost = $11,635,500

Phase 3 (Main Construction): 40% of total cost = $15,514,000

Phase 4 (Finishing and Commissioning): 20% of total cost = $7,757,000

• Planned Value (PV): The budgeted cost for work scheduled at a given point.
• Earned Value (EV): The budgeted cost for work performed.
• Actual Cost (AC): The actual cost incurred for work performed.
• Cost Variance (CV): EV - AC; A negative CV indicates cost overruns.
• Cost Performance Index (CPI): EV/AC; A CPI < 1 means the project is over budget.

For example, if the project is 50% complete:

• PV = $19,392,500 (50% of $38,785,000)
• EV = $18,000,000 (actual earned value based on work completed)
• AC = $20,000,000 (actual cost incurred)

CV = $18,000,000 - $20,000,000 = -$2,000,000

CPI = $18,000,000 / $20,000,000 = 0.9

A time-phased budget will spread out the expenses according to the actual schedule of the project so that a claimed amount is spent only when it is required (Mlotha, 2022). The budget is subdivided into phases, with planning and design given 10 per cent, foundation and structural works at 30 per cent, the main construction at 40 per cent and the final touch-up and commissioning at 20 per cent. This is instrumental in planning the cash flows and ensures that financial resources are available at all project phases.

6. Establish Time-Phased Budget

To control costs, earned value management will be employed to compare project accomplishments with the established costs (Narváez et al., 2020). These comprise Cost Variance (CV), which compares budgeted and actual costs, and also Cost Performance Index (CPI), which evaluates the cost realisation efficiency. The EA, C, which is based on the current conditions and performance, will assist in estimating the total amount that the project will likely cost (Dastgheib et al., 2021).

Variance analysis will be provided routinely in an attempt to compare actual costs with the budget to be set and solve problems (Nguyen et al., 2022). Predictions are going to be adjusted regularly based on the shifts in the scale of the project or additional expenses that have not been considered earlier in the same manner.

7. Monitoring and Controlling Cost

Cost control is very important to mitigate the risk of straying from the budget while implementing the Perth Stadium project (Mjiyako, 2021). The most common approach is Earned Value Management or EVM, which is a systematic approach to measuring project performance in terms of cost and achievement against planned timelines.

Earned Value Analysis (EVA) will be utilized to assess the planned amount of money allocated for the work accomplished (Earned Value or EV) with the actual amount of money spent or planned for similar work (Actual Cost or AC) and the planned amount of money expected to be spent on the accomplished work (Planned Value or PV) (Savas & Duran, 2021).

Cost Variance (CV): It indicates how much more or less the project costs in comparison to the project’s planned budget through the use of the formula: EV/AC. When completing the evaluation, a negative CV means that there has been an expenditure control problem.

Estimate at Completion (EAC): This forecast estimates total project cost based on the current evaluation and estimation of cost performance. It is computed by essentially applying the formula of BAC divided by the CPI (Mohammed et al., 2021). This helps the project team to be in a position to know whether the project is going to transgress the budget or not, as well as the degree of transgression.

1. Establish a Cost Baseline

Total Budget: It is the total of all cost estimates, which includes all direct cost estimates for labour, material, equipment, and indirect costs (Hashemi et al., 2020). There are also contingencies for other expenses that may occur during the process of a project.

Time-Phased Allocation: The project funds will be budgeted on a time basis, in that the money for each part of the project will be providedatn the right time. The mentioned time-phased budgeting will be organised with the project schedule, a plan of expenditure for certain phases according to the defined project schedule.

Formal Approval: The cost baseline needs to be sanctioned by stakeholders who are the project sponsor, finance controllers, and any other institution that regulates such a project (Miller, 2022). This approval is beneficial in that all the stakeholders have to agree with the set budget and the general financial prospects of the project.

Change Control Process: If there is any form of alteration in the cost baseline, then this triggers a change of control process. This particular activity entails writing down the change that has been proposed, the assessment of the change on the total cost of the entire project and the authorisation for the change from the individuals concerned before implementing it.