1. ELC 347 project management
Day 16

2. 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)

3. Cost Estimation and Budgeting
Chapter 8
© 2007 Pearson Education

5. Big Dig Year Budget (billions) 1983 2.56 1989 4.44 1992 6.44 1996
Year
Budget
(billions)
1983
2.56
1989
4.44
1992
6.44
1996
10.84
2000
14.08
2003
14.63

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

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

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

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

11. Learning Curve

12. 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 =
USE Excel and log(#,base) functions
Curvilinear Handout.doc
Learning curve results.xls

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

14. 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

15. 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

16. Example of ABC

17. Time-Phased budget

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

20. 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

21. 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

22. 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