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initiating the project

Assigned Readings

Attached Files:

Chapter 9-Resourcing Projects.pptx Chapter 9-Resourcing Projects.pptx – Alternative Formats (1.875 MB)
Chapter 10-Budgeting Projects.pptx Chapter 10-Budgeting Projects.pptx – Alternative Formats (1.302 MB)

Chapter 9: Resourcing Projects.This chapter demonstrates how to schedule resources on projects: determining the need for workers, understanding who is available, and assigning people. All of the techniques of resourcing projects are integrated with the behavioral aspects of how to deal effectively and ethically with the people involved. Resource needs are shown on a Gantt chart developed in Chapter 8, the responsibilities are shown as they change over time, conflicts and overloads are identified, and methods for resolving conflicts are introduced. Alternative approaches for creating and compressing schedules are shown. Many of the techniques in this chapter are also shown with MS Project.After completing this chapter, each student should be able to perform the following:Core Objectives:

Show resource assignments on a RACI chart, Gantt chart, and resource histogram.
Develop an effective project schedule, considering resource constraints.
Describe methods of resolving resource overloads.

Behavioral Objectives:

Create a Human Resources Management Plan including role descriptions and staffing management plan.
Assign roles and responsibilities based on strengths.

Technical Objectives:

Compress a project schedule using crashing and fast tracking, and describe the advantages and disadvantages of both.
Compare various alternative scheduling methods.
Using MS Project, assign resources, pinpoint overloads, and describe methods of dealing with them.

Chapter 10: Budgeting Projects.This chapter discusses the project budget, which is dependent on both the schedule and the resource needs developed in the previous two chapters. The project budget is the sum of work package cost estimates, contingency reserve, and management reserve. Cost planning, estimating, budgeting, establishing cost control, and using MS Project for project budgets are all included.After completing this chapter, each student should be able to perform the following:Core Objectives:

Define project cost terms and tell how each is used in estimating project cost.
Compare and contrast analogous, parametric, and bottom-up methods of estimating cost.
Create a time-phased, bottom-up budget for a project.

Technical Objectives:

Show both summary and bottom-up project budget information with cumulative costs using MS Project.

Behavioral Objectives:

Describe issues in project cost estimating and how to deal with each.

Reflection and Discussion Forum Week 5

Reflection and Discussion Forum Week 5Reflect on the assigned readings for the week. Identify what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding.
Also, provide a graduate-level response to each of the following questions:

Describe a potential timing issue that can occur early in a project and a potential timing issue that can occur at the end of a project. How would you address each of these issues in your project?
Compare a project you’ve worked on that was limited mostly by activities with another project you’ve worked on that was limited mostly by resources. Which did you find more challenging? Why?
You are the project manager in charge of construction of a new school building. Give one possible example each of a known known, known unknown, and unknown unknown you might encounter.
Give an example of how a project manager could run into problems with cash flow, even when he is within budget on the overall project.

[Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion]. [Your initial post should be at least 450+ words and in APA format (including Times New Roman with font size 12 and double spaced). Post the actual body of your paper in the discussion thread then attach a Word version of the paper for APA review]

Problem Set #5

Attached Files:
RACI Chart – Types of Cost Exercise x RACI Chart – Types of Cost Exercise x – Alternative Formats (22.497 KB)

RACI Chart.xlsx (12.602 KB)

RACI Chart and Types of Costs ExerciseFor Week 5 you will continue to develop your project documentation by completing a RACI chart based upon the Week 2 Business Case project. The first part of the exercise will be to fill in the chart provided within the attached RACI template Excel file. This should be completed for all six (6) Key Deliverables for any six (6) of the stakeholders you identified in Week 6 exercise.The second part of the exercise will be to copy and paste the chart into the Word template provided. The chart should be formatted so that all information is legible and shown within the document. Then, you will draft and explanation/justification of why you made the selections you did for any one (1) of your Key Deliverables (this includes each of the Activities as well).The third part will be to provide the Types of Costs analysis. Instructions are in the attached document.Submit only the exercise completed in the Word template (not the Excel file).

Sheet1

Stakeholder Stakeholder Stakeholder Stakeholder Stakeholder

RACI Chart
WBS	WORK PACKAGES & ACTIVITIES	Stakeholder
0.0	Project Name
1.0
1.1
1.2
1.3
2.0
2.1
2.2
2.3
3.0
3.1
3.2
3.3
4.0
4.1
4.2
4.3
5.0
5.1
5.2
5.3
6.0
6.1
6.2
6.3

RACI CHART/ TYPES OF COST EXERCISE

When you have completed your RACI Chart in Excel format you will copy and paste it into this document replacing the example below. Follow these steps to complete.

1) Hover your cursor over the blank template below. You will see a small square with crossed arrows inside appear above the upper left-hand corner of the chart. Right click on this square and click Delete Table on the menu that will appear.

2) Go to your Excel file and highlight the full area of the complete RACI Chart. Right click within the selected area and click Copy in the menu.

3) Return to this template. Click the top line of page two previously occupied by the blank template. Then, right click to get the action menu. Under Paste Options you will see several icons. Hover your cursor over the second icon (which should appear as a clipboard) and you should see the words Use Destination Styles (S) appear. Click on this icon to paste your RACI Chart into this document.

4) Make any additional formatting edits needed to ensure that the entire RACI Chart is visible and that the text is legible. This may require manual adjustment of cell, row or text sizes. Table may span several pages if necessary.

Select one (1) of your Key Deliverables and Associated Activities. Provide an explanation of why you assigned the roles that you did for each of the Stakeholders within the three (3) Activities.

Stakeholder

RACI Chart
WBS	WORK PACKAGES & ACTIVITIES	Stakeholder
0.0	Project Name
1. 0
1.1
1.2
1.3
2. 0
2.1
2.2
2.3
3. 0
3.1
3.2
3.3
4.0
4.1
4.2
4.3
5.0
5.1
5.2
5.3
6.0
6.1
6.2
6.3

Explanation/Justification for selected Key Deliverable and Activities

Identify one of your Key Deliverables:

Explanation for roles assigned for each of the Associates Activities:

Instructions: This exercise will provide you the opportunity to provide an analysis of types of costs within the Week 2 Business Case project you selected.

For this assignment, you will fill in each of the sections in the table below. For each cell provide (with associated number in cell):

1) a brief definition of the type of cost (must reference weekly readings/textbook),

2) identify a
specific
resource cost within your project that fits this type of cost and then,

3) explain why this cost fits the definition.

Fixed:

1. (define)

2. (example)

3. (explain)

Variable:

1.
2.
3.

Direct:

1.
2.
3.

Indirect:

1.
2.
3.

Recurring:

1.
2.
3.

Nonrecurring:

1.
2.
3.

Regular:

1.
2.
3.

Expedited:

1.
2.
3.

Internal:

1.
2.
3.

External:

1.
2.
3.

Lease:

1.
2.
3.

Purchase:

1.
2.
3.

Labor:

1.
2.
3.

Material:

1.
2.
3.

Estimate:

1.
2.
3.

Reserve:

1.
2.
3.

CONTEMPORARY PROJECT MANAGEMENT, 4E

Timothy J. Kloppenborg

Vittal Anantatmula

Kathryn N. Wells

© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

‹#›

Resourcing Projects

Chapter 9

‹#›

Chapter 9 Core Objectives:
Show resource assignments on a RACI chart, Gantt chart, & resource histogram
Develop an effective project schedule, considering resource constraints
Describe methods of resolving resource overloads
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter 9 Behavioral Objectives:
Create a Human Resources Management Plan including role descriptions & staffing management plan
Assign roles & responsibilities based on strengths
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Chapter 9 Technical Objectives:
Compress a project schedule using crashing and fast tracking & describe advantages and disadvantages of each
Compare various alternative scheduling methods
Using MS Project, assign resources, pinpoint overloads, & describe methods of dealing with them
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

From manufacturer to service provider
Patti A. Soldavini, director, Corporate Marketing, Schawk, Inc.
“We identify and help remove process bottlenecks, offer online collaborative project management tools, and provide knowledgeable human talent to deliver what we call brand point management. Brand point management helps companies create compelling and consistent brand experiences across brand touch points.”
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Successful projects balance…
Technical
Abilities
Behavioral
Abilities
Must complement each other to develop a workable resource-based schedule that people will accept
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Technical Abilities Needed when Resourcing Projects
Identify person(s) with work overloads
Estimate resource demands
Compress a project schedule
Assign person(s) to each activity
Create a staffing management plan
Schedule a project with limited resources
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Behavioral Abilities Needed when Resourcing Projects
Select the right people
Identify needs to be accomplished
Ensure performance capability
Deal with work schedules
Schedule overtime
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Behavioral Abilities Needed when Resourcing Projects
Estimate amount of work per activity
Assemble effective team
Deal with people from diverse backgrounds
Decide where each person will work
Establish effective virtual relationships
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Key Resourcing Considerations
Project tradeoffs and priorities
Resource limitations
Personnel skill development
People cost
Project cost
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Activity vs. Resource Dominated Schedule Basis Comparison
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Use when client does not understand their needs
Rapid rate of change expected on projects
Team members should remain on project for at least one iteration
Budget is set based on people, and product is produced at pace team can maintain
Agile team is cross-functional with general expertise
Develop skills as needed
Work flows to the team rather than vice versa

Estimate Resource Needs
How many resources of each type & skill or knowledge level are needed?
Consider support needs such as information systems & human resources
Consider constraints placed upon how people are hired, scheduled, & released
Estimating activity resources– a process of assessing all types of resources—people, materials, tools, & equipment (along with quantities)—required for each activity to complete it as specified in project scope.
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Plan Resource Management

Identify potential resources
Determine resource availability
Decide timing issues
Staffing management plan – a proposal focused on acquiring, developing, and retaining human resources for as long as you need them on the project.
Plan Resource Management – the process of identifying resources and required skills for a project, defining and assigning roles and responsibilities to all resources, developing a reporting hierarchy, and communicating expectations.
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Plan Resource Management
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Identify Potential Resources

Work functions
Professional discipline
Skill level
Physical location
Organizational/administrative unit
job titles and range of
responsibilities
degrees and professional
certifications
experience and performance ratings
willingness to relocate and travel
costs & contractual issues
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Identify Potential Resources
Identify an adequate number and mix of people
Core team should participate in chartering the project
Available People
Resource needs
Available vs. needed
Specific skill gaps
Resource Breakdown structure (RBS)– grouping all resources into main categories in level one and populating each main category with resources based on either function or skill level….see Exhibit 9.3 in textbook
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Identify Potential Resources
Key subject matter experts (SMEs)
Diversity allows for more perspectives
Make opportunities equally available to qualified candidates
You may not get the specific people you want for your project, so it makes sense to identify all possible resources!
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Determine Resource Availability
Identify availability of desired people
Secure commitment
Full and part time resources
Internal vs. external resources
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Decide Timing Issues when Resourcing Projects
When to bring people on board
Get team functioning effectively
Plan for keeping team motivated & on schedule
When to reward & recognize the project team
When & how to release project participants
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Staffing Management Plan Issues
How will they deal with timing issues of building up & then releasing the project workforce?
How will project planners identify potential people for the project?
How will they determine which people are available & secure their services?
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Project Team Composition Issues
Cross-functional?
Co-located?
Virtual?
Outsourced?
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Assign a Resource to each Activity
Show resource responsibilities on RACI chart
Show resource assignments on Gantt Chart
Summarize resource responsibilities with histogram
WBS Activity Who 1? Who 2?
The work breakdown structure Project activities that correspond to the WBS Who will be involved May be more than one person

Show Resource Responsibilities on RACI Chart
RACI is a form of RAM

Agile team members decide among themselves who will do each work activity; when finished, they begin next- highest-priority work
Responsibility assignment matrix (RAM) – a matrix depicting work packages & assigned resources for completing activities required to produce work packages
RACI – a popular form of RAM that presents roles of key stakeholders and their roles defined as responsible (R), accountable (A), consult (C), and inform (I) for project activities in a matrix form
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Partial RACI Chart Example
Only one person accountable for each task
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Breakout session!
Create a RACI chart for your project. Each row may have several people involved, but be sure there in only 1 person Accountable (A) for each task
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Show Resource Assignments on Gantt Chart
Person responsible for each activity is listed next to the activity in the Gantt Chart Schedule
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Summarize Resource Responsibilities by Time Period With Histogram
Add up demands for each worker at each time period
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Dealing with Resource Overloads
Identify which activities are involved
Compare resource histogram to Gantt Chart Schedule
Project scheduling software pinpoints when overloads occur for each worker
Management decisions required to solve the problem
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Partial Schedule and Resource Histogram Example
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Methods of Resolving Resource Overloads

Reorder activities
Acquire or borrow additional resources
Reduce project scope or extend project schedule
Inform sponsor of severe overloads
Resource- level the overloaded person’s schedule
Assign certain activities to other workers
Split an activity into two activities
Perform 1st part as scheduled
Delay 2nd part of activity
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Resource Leveling
Delay activities so person doesn’t perform as many activities at the same time (most common)
Delay noncritical activities by an amount no more than their slack
Allow project to slip
If non-critical activities must be completed at rate of effort in original schedule, reassign activities to another worker
Resource leveling is a combination of art & science

Resource Leveling – a project execution technique of adjusting the use of resources based on availability and the amount of float on activities to accomplish work as soon as possible, given the limited resource availability.
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Resource Leveling Example
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Partially Leveled Resource Schedule
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Breakout session!
Practice Scheduling & Resource Leveling by hand (without software), using either Exercise 5 or another provided by your instructor
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Compress the Project Schedule
Actions to reduce the critical path
Crashing
Fast tracking
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Actions to Reduce the Critical Path
Reduce project scope and/or quality.
Overlap sequential activities
Partially overlap sequential activities
Increase number of work hours/days
Schedule activities at same time.
Shorten activities by assigning more resources.
Shorten activities that cost least to speed up.

Compress the project schedule
Crashing may cost more money to speed up the schedule
Fast tracking may increase the risk to speed up the schedule

In agile, crashing is called “swarming,” since team members swarm on a problem to help get back on track
Crashing – speeding up the critical path often by adding additional resources or employing existing resources for longer hours and/or more days per week
Fast Tracking – a method to expedite a project by executing activities at the same time that would ordinarily be done one after the other
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Crashing
Certain activities are performed at a faster than normal pace
Which activities are on the critical path?
Which critical path activity costs the least on a per day basis to speed up?
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Crashing
The enumeration method was used to identify each path and its duration.

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Crashing
Activity B on the critical path is the least expensive choice

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Crashing
After 2 rounds, both critical paths are 23 days.

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Crashing – “All-Crash” Mode
Continuing to crash activities until it is not worthwhile
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If there is a bonus of $225 per day for finishing early, what would I crash and how fast would I get done?
Crashing Consideration Questions
How fast can the project be completed?
To crash the project one day, what activity would be crashed and what would it cost?
To crash the project two days, what activities would be crashed and what would it cost in total?
If there is a bonus of $125 per day for finishing early, what would I crash and how fast would I get done?
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Breakout session!
Practice Crashing, using Exercise 2 at the end of this chapter in your textbook
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Fast tracking
Activities normally performed in series are performed at the same time

Alternative Scheduling Methods
Critical Chain Project Management (CCPM)
Reverse Phase Schedules
Rolling Wave Planning
Agile Project Planning
Auto/Manual Scheduling
Methods are not mutually exclusive!
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Critical Chain Project Management (CCPM)
Incorporates calculations on resource availability
The resource most in demand is identified
Keep that resource appropriately busy on critical chain activities
Critical chain method – an alternative scheduling technique that modifies project schedule by taking resource constraints into account…allows the project team to place buffers on any project schedule path to account for uncertainty and limited resources
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CCPM Components
Avoid multitasking
Estimate aggressively activity completion time
Feed time buffer in front of critical chain activities
Put time reserved for uncertainty at project end
Finish activities early if possible
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Reverse Phase Schedules
a.k.a. Last Planner System
Developed by people closest to the work
Start with final project deliverables
Ask what needs to be completed prior to starting work on this deliverable
Think from end of the project to the beginning
Often used in construction projects
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Rolling Wave Planning
Plan first part of project in detail
Plan later parts at a high level/ use placeholders
Focus on the near term
Extreme of rolling wave planning is Agile
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Agile Project Planning
Collaborative approach with workers and stakeholders
Stakeholders want cost, schedule, & functionality data before approving a project
Avoid stringent change control
Projects planned in short increments called sprints
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Auto/Manual Scheduling
MS Project now allows manual scheduling
Enables users to emulate MS Excel
When showing few milestones without dates (i.e. during Chartering), manual scheduling may be good option
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Using MS Project for Resource Allocation
Defining resources
Set up a Resource Calendar
Assigning resources
Finding Over-allocated resources
Dealing with Over-allocations
Crashing a Critical Path Activity
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1. Defining Resources
Describe available resources in the MS Project data base
As a single unit or a pool of like units
Resources include:
People
Buildings
Materials
Facilities
Supplies
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1. Defining Resources
Enter resource information before time of assignment to a task
Minimum field requirements for defining resources
Name
Max Units
If costs are to be modeled, must provide:
Rates
Cost per Use
Accrue At values

1. Defining Resources
Max Units Field
Determined before resource is assigned to activities
Defines availability of a resource for project work
Default 100%, but individual resources not usually 100% available
Considerations:
What is considered project work?
What is not considered project work?
Organizational holidays accounted for in the Standard (Project) calendar.
Vacation days accounted for in each resource calendar.

1. Defining Resources
On View tab>> Resource Views group, click Resource Sheet.
In first blank row, enter resource name in Resource Name cell.
In Initials cell, enter initials of the resource.
Click Max Units cell and enter resource’s maximum availability.
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2. Set up a Resource Calendar
View Tab>>Resource Sheet
Double-click row of resource to activate dialog
Click Change Working Time…
Make Revisions

Use to block out vacation days and other resource-specific non-working days
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3. Assigning Resources
Allocate resources to an activity
MS Project generates assignment information using default or modified settings
See detailed instructions, pp.312-315 in textbook
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3. Assigning Resources

3. Assigning Resources
Data for creating assignments
Time units between the activity start & end
Availability of a resource for work each day
Multiply Duration by Units
Switch determines which value changes.
Duration
Units
Work
Task type
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Basic Assignment Calculation with Fixed Units Selected (Default)
Activity with no prior resource assignments – Uses Duration and Units values & sums into Work field
Activity with one or more resources already assigned – MS Project holds Duration value constant & adjusts activity Work value.
Removal of resources works in reverse.
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Modifying an Assignment
MS Project maintains relationship among the Duration, Units, & Work values.
If you don’t like MS Project adjusting Duration automatically based on resources, switch “Task type” to “Fixed Work”
See detailed instructions p.315 of textbook
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4. Finding Over-Allocated Resources
Occurs when a resource is assigned to 2+ activities whose start & finish dates overlap
Also occurs if an assignment Units value is greater than resource’s Max Units value
Will display a red stick figure if over-allocated
Click Resource Tab>> Level Resources to resolve over-allocations
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Resource Allocation View
See Detailed instructions on p.316 of textbook
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4. Finding Over Allocated Resources
To analyze over-allocated resources in Resource Allocation View:
Set timescale to the start of the schedule.
Slowly scroll timescale toward the end of the schedule.
Analyze each instance of cell values displayed in red for cause & severity.
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5. Dealing with Over- Allocations
MS Project good at identifying over-allocations, but PM is responsible for deciding how to deal with them
Each action has risks and may “break” something down the line
Protect your critical path!!!
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Some choices for dealing with Over-Allocations:
Replace over-allocated resource with one that has time for assignment
Reduce Units assignment, extending activity duration
Lessen scope of one or more activities
Ignore overload if resource impact is temporary
Try Resource Tab>>Level Group>>Level Resource or Level All & see how timeline is affected
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6. Crashing a Critical Path Activity
Crashing adds resources to a task to shorten time
Only makes sense to “crash” tasks on critical path
Crashing is just one option & not appropriate in all cases
See Detailed instructions pp.317-318 in textbook
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Summary
PM needs to look at listed activities & estimate resources needed to perform each.
Resource assignments often posted directly on a Gantt Chart schedule.
RACI charts depict work activities on a vertical scale
Use responsibility histograms to determine overloads
Use critical path schedule, resource assignments, & the resource histogram to determine who is overloaded, when, & by what activities.
Use resource leveling to reduce peak demands by postponing non-critical activities
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Summary
Look for methods of accelerating (compressing) the project schedule.
Crashing—decision to pay extra money to speed up certain activities on critical path
Fast tracking—allows activities normally conducted in sequence to be performed in parallel
Alternative scheduling methods:
Critical chain
Reverse phase
Rolling wave
Agile
Auto/manual
Project scheduling software such as Microsoft Project 2016 is useful when determining resources for a project.
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Managing Software Development with Agile Methods and Scrum
Holistic approach to managing new product development (scrum)
Attempt to minimize risk via Sprints
Time boxes are from 1-4 weeks
Benefits:
Scalability
Ability to re-evaluate priorities incrementally
Scrum master organizes project – acts as a productivity buffer
PM IN ACTION
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Scrum Elements
Dynamic backlog of prioritized work to be accomplished
Use of short iterations of Sprints
Daily Scrum sessions
Brief planning session to prioritize backlog of items
Brief retrospective for reflections about the Sprint
PM IN ACTION
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Managing Software Development with Agile Methods
Teams include all resources necessary to complete tasks & finish software product
Metric for progress is working software
Schedules based on accomplishing Sprints
Produce very little written documentation
Reduce development time, foster innovation, & reduce development risk
PM IN ACTION
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The Scrum Approach
PM IN ACTION
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PMBOK Exams
Resourcing questions will be mostly hands-on
Keep in mind how resourcing relates to other project work (i.e. scheduling, budgeting, risk management, etc.)
Use WBS to identify all resource needs
Know as much as possible about the critical path & how to maintain it
Be familiar with all steps of Plan Resource Management
Understand the staffing management plan & resource breakdown structure
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Casa de Paz Development Project
At this point, this project is staffed entirely by volunteers.
How do you suggest reducing the risk of this project being late?
Project planners “eyeball” the amount of work instead of looking at detail to estimate if there are severe overloads.
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CONTEMPORARY PROJECT MANAGEMENT, 4E

Timothy J. Kloppenborg

Vittal Anantatmula

Kathryn N. Wells

‹#›

Budgeting Projects

Chapter 10

‹#›

Chapter 10 Core Objectives:
Define project cost terms & tell how each is used in estimating project cost.
Compare and contrast analogous, parametric, & bottom-up methods of estimating cost.
Create a time-phased, bottom-up budget for a project.
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Chapter 10 Technical Objectives:
Show both summary & bottom-up project budget information with cumulative costs, using MS Project 2016.
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Chapter 10 Behavioral Objectives:
Describe issues in project cost estimating and how to deal with each.
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Methods of Estimating Costs
Timothy J. Kloppenborg
“I worked for the same company in both cities…. Both [methods] made sense where they were used. In Denver, if we wanted to bid every job (and you cannot win the job if you do not bid on it), we needed a fast method. In Kansas City, we had the time to develop detailed cost estimates, and so we took the time. There are many methods of estimating project costs and each has its place.”
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Plan Cost Management
Involves developing a cost management plan for a project
Cost & schedule are closely related
Plan cost management – the process to determine how to plan, estimate, & control project costs.
Cost management plan – a living, evolving plan that involves forecasting & refining cost estimates throughout the life of the project.
Costs included
Activity resource estimating
Cost estimating
Budget determination
Cost control
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Purposes of Cost Management Plan
Way to develop & share relevant, accurate and timely info for decision making
Provides feedback, linking project to business objectives
Provides detail & summary information
Helps project stakeholders focus on schedule & cost performance
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Estimate Cost
Linked to scope, schedule, & resource planning
Never lie to yourself or anyone else
You must understand what project costs really are
Avoid shading the truth to secure necessary funding
Cost estimating – “the process of developing an approximation of monetary resources needed to complete project activities.” ~Practice Standard for Project Estimating (PMI)
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Estimate Cost
Types of costs
Timing & accuracy of cost estimates
Methods used to estimate costs
Cost estimating issues
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Types of Costs
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Fixed vs. Variable Cost
Fixed costs remain the same
Variable costs vary directly with volume of use
Cost curve reflects as low a total cost as possible at current project size
Fixed & variable costs involve consideration of project scope
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Project cost and volume curve
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Direct vs. Indirect Costs
Direct costs only occur because of project
Direct labor
Other direct costs – material, travel, consultants, subcontracts, purchased parts, computer time
Indirect costs – not associated with one specific project
Salaries, buildings, utilities, insurance…
Costs are allocated across projects
PM needs to understand how these costs are allocated

Direct Versus Indirect Costs
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Recurring vs. Nonrecurring Costs
Recurring costs repeat as project work continues
i.e. Cost of writing code or laying bricks
Occur most during project execution
Nonrecurring costs happen only once during a project
Design development
Generally occur during project planning & closing
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Regular vs. Expedited Costs
Regular costs preferred
Expedited costs occur when the project must be sped up
Overtime, expedited shipping, etc.
Vital to understand schedule pressures & resource demands when estimating costs
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Other Cost Classifications
Project estimates need to be aggressive
But add a reserve to cover activities that run over estimates
Estimate – “a quantified assessment of the likely amount…It should always include an indication of accuracy.” ~Practice Standard for Project Estimating (PMI)
Reserve – extra money in project budget to be used if necessary—usually if a risk event occurs…classified as either management reserve or contingency reserve.
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Two types of Reserve Costs
Management reserve – money assigned to the project for unknown possible costs & money that senior management controls.
Contingency reserve – money assigned to the project & allocated for identified risks for which contingency responses are developed.
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Accuracy & Timing of Cost Estimates

When should cost estimates be developed?
How accurate do cost estimates need to be?
How will cost estimates be used?
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Different Cost Estimates
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Order of Magnitude Estimates
Created when limited project detail is available
Enough information for “go” or “no go” decision (screen out impractical projects)

Ball park
Conceptual
Initial
Level one
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Budget and Definitive Estimates
More accurate cost estimates at each project stage
After planning stage, cost estimates should be good enough to use for budgeting
Rolling wave planning
Definitive estimate for the 1st stage
Order of magnitude for the remainder

Methods of estimating costs
Analogous estimating
Parametric estimating
Bottom-up estimating
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Methods of Estimating Costs
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Analogous Estimating
A similar project a starting point
Experience performing similar projects
Actual costs of similar projects
Knowledge of how project differs
Experience with methods used to perform the project
Analogous estimating – “an estimating technique that uses the values of parameters on a scale, such as scope, cost, budget, & duration or measures of scale such as size, weight, & complexity from a previous and similar activity or project as the basis for estimating the same parameter or measure for a future activity or project respectively.” ~Practice Standard for Project Estimating (PMI)
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Parametric Estimating
Involves finding more information regarding the project
Relies on statistical relationships
Parametric estimating – “an estimating technique that uses a statistical relationship between historical data and other variables (e.g., square footage in construction, lines of code in software development) to calculate an estimate for….scope, cost, & duration.”
~Practice Standard for Project Estimating (PMI)
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Bottom-Up Estimating
Most detailed – specifications need to be very clear
Time consuming
Most accurate form of estimating
Ensure every item is included
Bottom-up estimating – “method of estimating …what is needed to meet the requirements of each of the lower, more detailed pieces of work, preferably the lowest level of WBS work elements, and these estimates are then aggregated into a total quality.” ~Practice Standard for Project Estimating (PMI)
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Cost Estimating Method Comparison
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Project Cost Estimating Issues
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Supporting Detail
Scope
Estimating Method(s) used
Assumptions
Constraints
Range of possible outcomes

Direct Labor Assumptions
Examples:
Workers will be paid $14 per hour
Workers already familiar in general with technology being used on project
Workers paid for 40 hours/week, whether there is that much work for them or not
Overtime will never be authorized
Project schedule can be delayed if the only alternative is to pay overtime.
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Supporting Detail – Constraints
Examples:
Only in-house workers will be used
No extra space will be provided
No extra budget will be allowed
The current version of the XYZ software will be incorporated into the design
Constraints often dictate methods available for performing the work
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Causes of Variation
Understanding types of variation helps explain & reduce it.
Statisticians classify variation as coming from either normal or special causes
Phone calls
Instant messages
In-person interruptions
Lightning strikes
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Normal and Special Cause Variation
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Vendor Bid Analysis
Use to determine whether price is reasonable
Assume the lowest responsible offer is fair
Prices may be determined in the marketplace
Develop a “should cost estimate”
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Value Engineering
Double-checking all chosen methods
A separate stage may be incorporated late in project planning to ensure time is spent on value engineering
Value engineering – a formal process of dividing total project scope into pieces and examining each for alternatives that may offer benefits in order to meet or exceed overall project objectives without making quality tradeoffs
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Activity-Based Costing (ABC)
More modern method for allocating indirect costs
Yields more accurate cost information
Cost Drivers:
Number of units produced
Number of batches run
Number of product variations
Amount of facility utilized
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Life Cycle Costing
Total costs of creating and using the project’s results during its useful life
Consider disposal costs of product after its useful life is complete
Becoming more and more common, as environmental concerns grow
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Time Value of Money
Discount value of future revenue & cost streams
Discount future dollars by appropriate factor
Finance department may provide appropriate rate
Rate depends on inflation rate plus cost of capital
For global projects, plan for international currency fluctuations
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Determine Budget
Aggregating costs
Analyzing reserve needs
Determining cash flow
Determine budget – “the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.”~Practice Standard for Project Estimating (PMI)
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Aggregating Costs
Direct and indirect costs add up to the cost baseline
Cost performance baseline – the approved version of the project budget, including how much money is expected to be spent and when; the cost baseline will be compared to actual project results for monitoring and controlling purposes.
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Aggregating Costs
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Breakout Session!
Complete Exercise 10.2 or 10.3 at the end of this chapter, using Exhibit 10.9 as a reference. Complete the following steps, in order:
Construct a project schedule with a network
Show the schedule on a Gantt chart, front-loaded
Delay a task if there is a conflict
Identify the cost per time period for that worker
Show cumulative costs for that worker & how they grow through the project
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Analyzing Reserve Needs
Known knowns—definite; estimate directly
Known unknowns—may/may not occur; covered by contingency reserves
Unknown unknowns (unk unks)—totally unexpected occurrences; covered by management reserve, which is authorized by company executives
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Analyzing Reserve Needs
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Analyzing Reserve Needs
Contingency reserve (calculated during risk analysis)
Management reserve ($ amount based on degree of uncertainty)
Cost baseline +
Contingency reserve +
Management reserve
= Sufficient funds?
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Determining Cash Flow
Expenses applied to individual activities
Revenue tracked for availability
Cash inflow may occur in increments, while expenses are incurred continuously & un-evenly
Cumulative cash >/= demands?
PROFIT = REVENUE – COST
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Project Cumulative Cash and Revenue
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Establishing Cost Control
Budget  baseline for project control
Milestones  good measuring points
Cash flow projections  expected funding needed to reach each milestone
Control cost – the process of monitoring project costs & managing changes to the cost baseline
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Using MS Project for Project Budgets
Develop Bottom-Up Project Budget
Assignment costs
Task costs
View Costs from a different perspective
Develop Summary Project Budget
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Assignment Costs
Required data:
Assignment work hours
Resource Standard Rate
Resource Overtime Rate
COST = HOURS * STANDARD RATE
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Task Costs
Task cost =
assignment cost + task fixed cost
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View Costs from a different perspective
To activate Resource Usage View:
View Tab>>Split View>> Uncheck Details
View Tab>>Resource Views Group>>Resource Usage
Insert a Cost column in left pane
In right pane, right-click >>choose Cost
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View costs from a different perspective

Resource Usage view—assignment costs are summarized at the resource level
“Unassigned” set represents activities with no assigned resources.
Resources with no show/hide control have no assignments
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Develop Summary Project Budget
Add a dummy activity under each phase summary
Estimate phase duration & phase cost
Duration estimate dummy activity’s duration field
Cost estimate dummy activity’s Cost field
Remove each dummy activity when detail is added
Use dummy activity to summarize work for future iterations
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Dummy Activity for Late Phase
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Summary
Cost management plan outlines how to structure & control project costs
Cost estimating can be challenging because of activity variation
Many methods are available to assist in cost estimating.
Cost budgeting
Aggregating individual costs
Analyzing needs for cost reserves
Determining cash inflow & outflow.
Establishing cost controls includes establishing cost reporting systems.
MS Project can assist in developing bottom-up project budgets or summary project budgets.
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Value of Budget Optimization
A three-year capital project portfolio is developed for implementation & budgeted.
Budgeting process conducted year-round to balance multiple competing objectives
Utility adopted a project portfolio optimization process to create, analyze, & refine the budget for the portfolio
A computer-based mathematical algorithm is used to optimize all possible spending portfolios to maximize value and minimize risk at specified budget levels
PM IN ACTION
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Value of Budget Optimization Benefits
Budget strategy understood & communicated
Budget optimized
Consistent organizational strategy ensured
Risk thresholds & tolerance understood
Planning horizon & purchasing power expanded
Project dynamics accounted for

PM IN ACTION
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

PMBOK Exams
Be able to identify parametric, analogous, & bottom-up estimating by description or via example. Make sure you know the relative benefits & weaknesses of using each.
Budgeting for projects is different in several ways from budgeting for ongoing operations. Familiarize yourself with the “S curve” of project expenditures & predict and answer questions about cash-flow problems that may result.
Know the difference between contingency & management reserves, as well as who controls each.
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Casa de Paz Development Project
Some donations are arriving, but more are needed.
The amount needed to start depends on which building is purchased.
Securing enough funds to hire a part-time project coordinator would help reduce overloads placed on volunteers discussed in last chapter.
© 2019 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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