Project Management: Cost

Transcription

1 Project Management: Cost

2 Cost Management the processes required to ensure that a project is completed within the approved budget Estimating cost of resources Forecasting: quantity when they are required how much they will cost 2

3 Why estimate cost? Assessing viability of a project Obtaining funding for a project As a basis for project control Manage cashflow during execution 3

4 Factors Factors Influencing Influencing the the Quality Quality of of Estimates Estimates Planning PlanningHorizon Horizon Other Other (Nonproject) (Nonproject) Factors Factors Organization Organization Culture Culture Padding Padding Estimates Estimates Project Project Duration Duration Quality Qualityof of Estimates Estimates People People Project ProjectStructure Structure and andorganization Organization 4

5 Types of Estimates Macro or top-down using previous experience or information Micro or bottom-up estimations from lowest WBS level In practice, make rough macro estimate, develop WBS, make micro estimate, develop budgets, and then reconcile 5

6 Macro versus Micro Estimating Conditions for Preferring Top-Down or Bottom-Up Time and Cost Estimates Condition Strategic decision making Macro Estimates Micro Estimates X Cost and time important X High uncertainty X Internal, small project X Fixed-price contract X Customer wants details X Unstable scope X 6

7 Macro Methods Ratio method: e.g., cost/m2 Apportioning: cost to deliverables Function Point: software estimates based on key parameters Learning Curve & Economies of Scale: predict reductions in time and cost 7

8 Allocating Costs 8

9 Micro Methods Template method: adjust costs from past projects to reflect differences Parametric procedures: Use unit costs of detailed parameters e.g., hourly wages Detailed estimates using WBS: ask people responsible to cost activities triangulation for accuracy 9

10 10

11 Phase Estimating Hybrid method with flexible approach to budgeting Ideal if there is a lot of uncertainty in the resources required to achieve a specific level of performance Detailed estimate generated only one phase at a time, as the project is implemented Macro estimate for the remainder 11

12 12

13 Types of Costs Direct Costs: directly linked to specific Work Packages, with cash outflows Labour Material Equipment Services Others 13

14 Overhead Costs Direct overhead costs due to organisational resources Linked to deliverables Typically ratio of $ value General and Administrative (G&A) overhead costs Not directly linked to project Often % of total direct cost or specific direct cost to work package 14

15 Guidelines Responsibility who is most familiar? Use several people triangulation Estimate costs for normal conditions Murphy s laws work overtime on projects Risk assessment and contingencies Budget Reserve 15

16 Guidelines Cost estimates miss interaction costs Scope creep through better understanding Adjusting estimates, using contingency and changing baseline schedule and budget 16

17 Tracking of Cost An integrated cost/schedule system shows cost and schedule variance and helps estimate the cost to completion 17

18 Earned Value System Systems that compare actual costs against budgets fail to measure work done against money spent Need to focus on getting stuff done not just spending the money! 18

19 Terminology BCWS Budgeted cost of work scheduled BCWP Budgeted cost of work performed ACWP Actual cost of work performed CV Cost Variance (BCWP-ACWP) SV Schedule Variance (BCWP-BCWS) BAC Budgeted cost to complete EAC Estimated cost to complete VAC Variance at completion (BAC-EAC) 19

20 The S Curve 20

21 21

22 Project accounts Difference between financial, management and project accounting Cash flow Invoicing Cost to complete Cash flow envelope S curve Response Retention Benefits of using cash flow 22

23 Group Project What information do I need to estimate the costs for my project? What's the best way to make a detailed cost estimate? How will cost monitoring and control be implemented? 23