The Project Schedule and Budget Chapter 7 Copyright 2012 John Wiley & Sons, Inc.

Critical Chain Project Management (CCPM) Introduced in 1997 in a book called Critical Chain by Eliyahu Goldratt Based on his previous work called the Theory of Constraints CCPM is based on the idea that people often inflate or add cushioning to their estimates to create a form of “safety” to compensate for uncertainty or risk because … Your work is dependent upon the work of someone else, and you believe that starting your work will be delayed Your pessimism from previous experience where things did not go as planned Your belief that the project sponsor or customer will cut your project schedule or budget so you inflate your estimates to guard against this cut

CCPM Assumptions Begins by asking each person or team working on a task to provide an estimate that would have a 50% chance of being completed as planned Instead of adding safety to each task, put that safety in the form of buffers where it is needed most

The Critical Chain Project Schedule

Critical Chain Project Management

The Importance of Project Cost Management IT projects have a poor track record for meeting budget goals A 2011 Harvard Business Review study reported an average cost overrun of 27 percent. The most important finding was the discovery of a large number of gigantic overages or “black swans”

Examples of how not to mange costs The U.S. government (e.g. IRS) The United Kingdom’s National Health Service IT http://www.bbc.co.uk/news/uk-15014288 http://www.bbc.co.uk/news/uk-politics-24130684 http://www.hsj.co.uk/news/technology/rising-cost-of-nhs-it-fiasco/5063357.article#.UlbD8NKsh8E

Project Cost Management Processes Process Group Cost Management Process Major Output Planning CP1: Planning Cost Mgmt Cost Management Plan CP2: Estimating Costs Activity Cost Estimates CP3: Determining the Budget Cost Performance Baseline Monitoring and Controlling MC1: Controlling Costs Work Perf. Measurements Budget Forecasts

What is Cost and Project Cost Management?

Project Cost Management Processes Scope Baseline Schedule Baseline Estimate bases Project Funding Req. Determine Budget Control Costs Estimate Costs Activity Cost Estimates Cost Baseline

PMBOK® Project Cost Management Estimate Costs Focuses on the processes to estimate the monetary resources needed to complete the project work or activities. Determine Budget Aggregating the individual cost for each of the project activities or work package components to determine the cost baseline or overall project budget. Control Costs Updating the project’s status while monitoring the project’s budget and managing any changes to the baseline plan.

Developing the Project Budget

Types of Costs and Benefits

Other Costs

Planning Cost Management The project team uses expert judgment, analytical techniques, and meetings to develop the cost management plan A cost management plan includes: Level of accuracy and units of measure Organizational procedure links Control thresholds Rules of performance measurement Reporting formats Process descriptions

Determining the Budget Cost budgeting involves allocating the project cost estimate to individual work items over time The WBS is a required input to the cost budgeting process since it defines the work items Reserve analysis must occur

Figure 7-4. Surveyor Pro Project Cost Baseline

Project Management Software Tools

Finalizing the Project Schedule and Budget

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