From the course: Project Management Simplified

How to forecast future cost

From the course: Project Management Simplified

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How to forecast future cost

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- [Instructor] So far we've been looking at interpreting where we are now. Are we under budget, or are we behind schedule? Are we over budget, or are we ahead? But continuing from here, of course what we really want to know is where are we likely to end up? What is the forecast cost at completion of our project, and the forecast date of completion? In order to do this, we need to know one more thing. Are the problems going to continue, or was it a one-off problem that is now behind us? Accountants can't possibly know this. Only the project manager knows the nature of the problems and can make this judgment. Let me show you an example of how you would do this. It's the same process for both time and money. So I'll just show you how you would do it if you wanted to forecast the final cost at completion. Suppose our project is meant to cost 100. And halfway through we've spent 55 instead of 50. The question is whether we will get back on track for the second half and come in at 105, or will we continue over-spending at the same rate as we did in the first half and end up at 110? Usually you'll know whether the problems you've had in the first half are likely to repeat or not. Clearly if it's wages or exchange rates that are higher, then you know it'll carry on. But what if it's a collection of small problems which seem to be all behind you now? I think you can assume that there will be other, different small problems in the second half. So if in doubt, assume the same amount of over-spending and lateness in the second half. Generally, it's safest to assume the worst. That if you over-spent in the first half, it'll carry on like that. And if you're under-spend at the halfway point, then you'll probably just go back onto the plan for the second half. Only if it's definitely a one-off, like for example the start of the project was delayed, or the specification was changed during the first half. Only then can you assume that you'll get back onto plan for the second half. So that's how you forecast future cost and time scale. Do you think that your current project is going to have a better second half? Or will it carry on the same?

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