1. Information Technology Project Management, Six th Edition Kathy Schwalbe Copyright 20091 Disampaikan Oleh : Wiwid Dolianto S.Kom, MT Universitas Muhammadiyah Jakarta Fakultas Teknik

2. High Profit Low Cost

3.  The Importance : The Standish Group’s CHAOS studies reported an average ‘Overrun’ – the additional percentage or Dollar amount by which actual costs exceed estimates

4.  Resource planning involves determining what resources (people, equipment, and materials) a project team should use to perform project activities and the quantities of each resource.  The main output of the resource planning process is a list of resource requirements, including people, equipment, and materials.  The nature of the project and the organization will affect resource planning.  Expert judgment and the availability of alternatives are the only real tools available to assist in resource planning.  The people who help determine what resources are necessary include people who have experience and expertise in similar projects and with the organization performing the project. Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

5.  Project cost management includes the process required to ensure that a project team completes a project within an approved budget. Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

6.  There are three project cost management processes: ◦ Estimating Cost ◦ Determining the Budget / Cost ◦ Controlling Cost Estimating CostDetermining CostControlling Cost

8.  Profits  Life Cycle Costing  Cash flow analysis  Tangible Cost  Intangible Cost / benefits  Direct Cost  Indirect Cost  Sunk Cost  Learning Curve Theory  Reserves/ Contingency reserves

9.  Cost estimating involves developing an approximation or estimate of the costs of the resources needed to complete a project.  The main outputs of the cost estimating process are: ◦ Cost estimates; ◦ Supporting detail; and ◦ A cost management plan  Types of cost estimates are: ◦ Rough order of magnitude (ROM) estimate; ◦ Budgetary estimate ◦ Definitive estimate Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

10.  Rough order of magnitude (ROM) Estimate ◦ ROM estimate provides a rough idea of what a project will cost. ◦ This type of estimate is done very early in a project or even before a project is officially started. ◦ Project managers and top management use this estimate to help make project selection decisions. ◦ The time frame for this type of estimate is often three or more years prior to project completion. ◦ A ROM estimate’s accuracy is typically - 50 percent to + 100 percent. ◦ Many IT people automatically double estimates for software development because of the history of cost overruns on IT projects. Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

11.  Budgetary estimate ◦ A budgetary estimate is used to allocate money into an organization’s budget. ◦ Many organizations develop budgets at least two years into the future. ◦ Budgetary estimates are made one to two years prior to project completion. ◦ The accuracy of budgetary estimates is typically –10 percent to +25 percent. Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

12.  Definitive estimate ◦ A definitive estimate provides an accurate estimate of project costs. ◦ Definitive estimates are used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs. ◦ Definitive estimates are made one year or less prior to project completion. ◦ A definitive estimate should be the most accurate of the three types of estimates. ◦ The accuracy of this type of estimate is normally -5 percent to +10 percent. Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

14.  Supporting detail ◦ It is very important to include supporting details with all cost estimates because it would make it easier to prepare an updated estimate or similar estimate as needed. ◦ The supporting details include:  The ground rules and assumptions used in creating the estimate;  A description of the project (scope statement, WBS, and so on) used as a basis for the estimate; and  Details on the cost estimation tools and techniques used to create the estimate.  A cost management plan is a document that describes how the organization will manage cost variances on the project. Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

15.  Top-down estimates ◦ Using the actual cost of a previous, similar project as the basis for estimating the cost of the current project ◦ Requiring much of expert judgment ◦ Being generally less costly but less accurate than others are  Bottom-up estimating ◦ Involving estimating individual work items and summing them to get a project total ◦ Being more accurate with smaller work items ◦ Being usually time-intensive and therefore expensive to develop  Parametric modeling ◦ Using project characteristics (parameters) in a mathematical model to estimate project costs ◦ Being most reliable when:  The historical info. that was used to create the model is accurate;  The parameters are readily quantifiable; and  The model is flexible in terms of the size of the project Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

16.  Estimates done too quickly  Lack of estimating experience  Human being are biased toward underestimation  Management desires accuracy

19. Controlling Cost Determining Cost Estimating Cost

20.  Main Goal : “Produce a cost baseline for measuring project performance and project funding requirements”.  It may also result in project document updates, such as items being added, removed, or modified to the scope statement or project schedule

21.  Cost budgeting involves allocating the overall project cost estimate to individual work items to prepare budgetary estimates and to establish a cost baseline for measuring project performance.  These work items are based on the WBS (a required input to the cost budgeting process) for the project.  The main output of the cost budgeting process is a cost baseline.  A cost baseline is a time-phased budget that project managers use to measure and monitor cost performance. Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

23.  Controlling Cost includes ◦ Monitoring cost performance, ◦ Ensuring that only appropriate project changes are includes in a revised cost baseline, and ◦ Informing project stakeholders of authorized changes to the project that will affect costs

24.  Cost control involves controlling changes to the project budget.  Project cost control includes: ◦ Monitoring cost performance; ◦ Ensuring that only appropriate project changes are included in a revised cost baseline; and ◦ Informing project stakeholders of authorized changes to the project that will affect costs.  The inputs to the cost control process are the cost baseline, performance reports, change requests, and the cost management plan.  The main outputs of the cost control process are revised cost estimates, budget updates, corrective action, revised estimates for project completion, and lessons learned. Information Technology Project Management (3 rd Edition) Chapter 7 Project Cost Management

25. Earned Value Management Planned Value (PV) Actual Cost (AC) Earned Value (EV)

26.  Earned Value Management EVM ◦ Is a project performance measurement technique that integrates Scope, Time and Cost Data ◦ Involves calculating three values from Project’s WBS 1.Planned Value (PV) : also called Budget is portion of the approved total cost estimated planned to be spent on an activity during a given period 2.Actual Cost (AC) : total direct and indirect cost incurred in accomplishing work on an activity during a given period. 3.Earned Value (EV) : an estimate of the value of the physical work actually completed

27. 4. Rate of Performance (RP) : Ratio of actual work completed to the percentage of work planned 5. Cost Variance (CV) : Earned Value – Actual Cost 6. Schedule Variance (SV) : Earned Value – Planned Value 7. Cost Performance Index (CPI) : Ratio of earned Value to Actual Cost and can be used to estimatethe projected cost of completing the project

29.  If the Cost Performance Index is equal to 1 or 100%, then the planned and actual cost are equal or the Cost are exactly Budgetted  If the Cost Performance Index is less than one or less than 100%, the project is over budget  If the Cost Performace Index is greater than one or more than 100%, the project is under budget

30.  CPI = 100% : Exactly Budget  CPI < 100% : OVER Budget  CPI > 100% : Under Budget

31.  Is the ratio of Earned Value to Planned Value and can be used to estimate the projected time to complete the project ◦ If Schedule Performance Index is one or 100%, means the project is on schedule. ◦ If Schedule Performance Index is greater than one or 100%, then the project is ahead of schedule. ◦ If Schedule Performance Index is less than 0ne or 100%, the project is behind schedule

32. Schedule Performance Index = 100% : On Schedule Schedule Performance Index > 100% : A Head of Schedule Schedule Performance Index < 100 % : Behind Schedule

33.  In General, negative numbers for cost and shcedule variance indicate problems in those areas. Negative numbers mean the project is costing more than planned or taking longer than planned.  Like wise CPI and SPI less than one or less than 100% also indicate problems

34.  Example case : Supposed that the server installation was half way completed by the end of Week-1. The Rate of Performance would be 50% (50/100) because by the end of Week-1, the planned schedule reflects that the task should be 100% complete and only 50 percent of that work has been completed.  The Earned Value estimate after one week is therefore $5,000.

35. The Earned Value calculations are carried out as follows EV : 10,000 * 50% = 5,000 CV : 5,000 – 15,000 = - 10,000 SV : 5000 – 10,000 = - 5,000 CPI : 5,000 /15,000 = 33% SPI : 5,000/10,000 = 50%

36.  Prepare Yourself for Mid Semester  Be Ready  Be Prepared