ELC 347 project management Day 16

Agenda Next Class we will be covering MS Projects Integrative Project Part 3 due today Part 4 Due Nov 8 (page 256) Any of the first five sections can be resubmitted for rescoring prior to finals week. The recorded score will the average of the original score and the score on the resubmitted section. Assignment 5 corrected 5 A’s, 7 B’s and 2 C’s Assignment 6 Posted Problems 1-7 on Page 251 Due Nov 1, 2010 Next Class we will be covering MS Projects Nov 4 will be group work for part 4 of IP project Exam 2 Nov 22 Cost Estimations and Budgeting (Chap 8)

Cost Estimation and Budgeting Chapter 8 © 2007 Pearson Education

Big Dig Year Budget (billions) 1983 2.56 1989 4.44 1992 6.44 1996 http://www.masspike.com/bigdig/index.html Year Budget (billions) 1983 2.56 1989 4.44 1992 6.44 1996 10.84 2000 14.08 2003 14.63

Common Sources of Project Cost Labor Materials Subcontractors Equipment & facilities Travel

Types of Costs Direct Vs. Indirect Recurring Vs. Nonrecurring Fixed Vs. Variable Normal Vs. Expedited

Cost Classifications Direct Indirect Fixed Recurring Variable Normal Expedited Costs Non-recurring Direct Labor X Building Lease Expedite Material

Cost Estimation Ballpark (order of magnitude) ±30% Comparative ±15% Parametric estimation Feasibility ±10% Definitive ±5%

Learning Curve

Learning Curves Curvilinear Handout.doc Each doubling of output results in a reduction in time to perform the last iteration. Examples in Page 239 of Text Book is WRONG! Author used natural Logarithms. ln(2)=0.693 Correct  Log 2 = 0.30103 USE Excel and log(#,base) functions Curvilinear Handout.doc Learning curve results.xls

Problems with Cost Estimation Low initial estimates Unexpected technical difficulties Lack of definition Specification changes External factors

Creating a Project Budget The budget is a plan that identifies the resources, goals and schedule that allows a firm to achieve those goals Project Plan WBS Scheduling Budgeting Top-down Bottom-up

Activity-Based Costing Projects use activities & activities use resources Assign costs to activities that use resources Identify cost drivers associated with this activity Compute a cost rate per cost driver unit or transaction Multiply the cost driver rate times the volume of cost driver units used by the project

Example of ABC

Time-Phased budget

Budget Process 3 phases Planning Execution Completions Estimate Budget Track Control Report Completions Reconcile Document

Contingencies are needed because Budget Contingencies The allocation of extra funds to cover uncertainties and improve the chance of finishing on time. Contingencies are needed because Project scope may change Murphy’s Law is present Cost estimation must anticipate interaction costs Normal conditions are rarely encountered

Tony’s View of Cost Estimates Much more of an art than a science Experience counts Cost estimates usually turn into actual budgets used for cost controls Things you should discover prior to developing a budget What is the highest possible budget you can get away with What the customer/sponsor/management will bear What is the cheapest budget possible All things work out perfectly All budgets must be between these two numbers for the project to be successful Watch Variances! It is the mosty important part of cost control! Going over in one part of the project is fine if you have banked enough positive variance Example estimate budget csrd budget.xls

Examples Solved problems on page 250 Name Hours Needed Overhead Charge Personal Time Rate Hourly Rate Total Direct Labor Cost John 40 1.80 1.12 $21/hr. Bill $40/hr. J.P. 60 1.35 1.05 $10/hr. Sonny 25 $32/hr. Total Direct Labor Cost = 14 iterations, learning rate is 0.90, 15 hours to complete the first Yx =aXb where b = log2 (learning rate) log X / log2 == Log2X learning curve estimates.xls