PRJ566: Project Planning and Management Cost Benefit Analysis

Agenda  Project Management Review  What is cost benefit analysis?  The process  Examples – identifying costs and benefits

Project Management  Project has to be: 3 Define/Initiated…. Recognize the need for a project: strategic plan/tactical plan/client change request Planned…. Define Scope; Create WBS; cost/benefit estimates Executed…. Build project Monitored & Controlled…. Track costs/benefits/WBS/change requests/project status reports/meeting minutes Closed…. Implement phase

Project Management  Project has to be (in PRJ566): 4 Define/Initiated…. Recognize the need for a project: client request Planned…. Define Scope, Create WBS Executed…. Build project: use case diagram ; use case specs; domain class diagram ; sequence diagrams; data base design; user interface design Monitored & Controlled…. Track WBS/change requests/project status reports/meeting minutes Closed…. Complete PRJ566

Agenda  Project Management Review  What is cost benefit analysis?  The process  Examples – identifying costs and benefits

What is cost benefit analysis?  Shows the benefit or return the project will bring to the business  Helps a company decide which projects are most important to the business  Helps the project manager prove how important their project is

Why is it important?  Project success is defined by a project that comes in on-time and on-budget and for the agreed-to scope Registry Registry

Costs  The costs that your project will incur Hardware Software People Ongoing maintenance  These are usually tangible because they are easy to identify and to attribute a $ value to

Benefits  The benefits that your project will incur Tangible:  People costs saved  Increase in sales to the company Intangible:  i.e. Improving employee moral

Agenda  Project Management Review  What is a cost benefit analysis?  The process  Examples – identifying costs and benefits

The Process  Determine costs, both one-time and on-going, of all solutions being investigated  Determine and quantify all benefits of all solutions being investigated

The secrets  Effective estimates  Measures that reflect business value  Good organization

Costs--one time  Development costs – wages, contract fees  Initial Training costs  Initial equipment costs – hardware, software, network

Costs--ongoing  Overhead - facilities, office space, etc.  Web site costs--domain name renewal, Web hosting  Communication costs--phone, Internet, and so on  Maintenance of software and hardware  “Maintenance” of staff (ongoing training, and so on)

Benefits-can come from  Cost savings People (use less), time (get work done faster), equipment (eliminate), mistakes (make less)  New services to clients - revenue  Mandatory changes  Strategic advantage Make more money!  Technical reasons

Cost Benefit Analysis  Place all costs and benefits in a table (spreadsheet)  Table has costs/benefits in first column on left One time costs are reflected once in the table Ongoing costs occur over time (i.e. software maintenance goes on forever!) Benefits occur over time  Top row is the time-frame for the project

Cost Benefit Analysis Cumulative means add in total from previous column Include previous column total into next column Project timeframe: months or years, etc Note: be sure all costs are consistent to fit your timeframe. i.e. if your timeframe is months, each cost amount must be a monthly cost

Agenda  Project Management Review  What is a cost benefit analysis?  The process  Examples – identifying costs and benefits

Example 1  You are implementing a software package called SAP for Seneca College. This software package provides Human Resources (HR) functionality. The software costs $275,000 and it will take approximately 2 weeks (10 days) to implement it and a week (5 days) to train HR on it’s functionality. 3 IT employees will be installing it and 1 IT employee will conduct the training. Cost for an employee is $175/day.

Example 1  Seneca estimates they can save the equivalent of 2 employees per year. Cost of each employee is $23,000 per year  Identify the costs and benefits

Example 2  You have decided to create a company that will provide driver education training to students. You will need to develop materials for in-class training, market your company and then arrange both the in-class training classes and the in-car driving instruction.

Example 2  Some information about this business: Each in-class training session must last 24 hours which can be split over 3 Saturdays (8 hours per day), or 8 evenings (3 hours per evening). Each student will have 10 hours in-car instruction. Students will pay $1150 which will cover both the in-class and in-car instruction. A class will only run when it’s full and can have 20 students.

Example 2  More information about this business: It costs $50 per hour to rent the room for classes. It will cost about $300 to develop the advertising. It will take about 150 hours to develop the materials and the employee who develops the materials charges $20 per hour. You will mail out 5000 postcards and it costs $.50 to mail out each postcard.  Identify the costs and benefits to put a course on for the first time