1. Project Management Cost and Resources
Minder Chen, Ph.D.
CSU Channel Islands

2. Cost
You might think of cost simply in monetary terms, but project cost has a broader meaning.
Costs include all of the resources required to carry out the project.
Costs include the people and equipment that do the work, the materials they use, and all of the other events and issues that require money or someone’s attention in a project.
For virtually all projects, cost is ultimately a limiting constraint; few projects could go over budget without eventually requiring corrective action.

3. Sample Cost Constraints
You have signed a fixed-price contract to deliver an inventory-tracking software system to a client. If your costs exceed the agreed-upon price, your customer might be sympathetic but probably won’t be willing to renegotiate the contract.
The president of your organization has directed you to carry out a customer research project using only the staff and equipment in your department.
You have received a $5,000 grant to create a public art installation. You have no other funds.

4. Project Cost Management
Project Cost Management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget.
Estimate Costs—The process of developing an approximation of the monetary resources needed to complete project activities.
Determine Budget—The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
Control Costs—The process of monitoring the status of the project to update the project budget and managing changes to the cost baseline.
The ability to influence cost is greatest at the early stages of the project, making early scope definition critical

5. Project Cost Management

6. Project Cost Management

7. Estimate Costs

8. Cost Estimation
Cost estimates are a prediction that is based on the information known at a given point in time. Cost estimates include the identification and consideration of costing alternatives to initiate and complete the project.
Cost tradeoffs and risks should be considered, such as make versus buy, buy versus lease, and the sharing of resources in order to achieve optimal costs for the project.
Cost estimates are generally expressed in units of some currency (i.e., dollars, euros, yen, etc.), although in some instances other units of measure, such as staff hours or staff days, are used to facilitate comparisons by eliminating the effects of currency fluctuations.
Cost estimates should be reviewed and refined during the course of the project to reflect additional detail as it becomes available and assumptions are tested.

9. Cost Estimation
The accuracy of a project estimate will increase as the project progresses through the project life cycle.
For example, a project in the initiation phase may have a rough order of magnitude (ROM) estimate in the range of −25% to +75%.
Later in the project, as more information is known, definitive estimates could narrow the range of accuracy to -5% to +10%.
In some organizations, there are guidelines for when such refinements can be made and the degree of confidence or accuracy that is expected.

10. Cost Estimate
Costs are estimated for all resources that will be charged to the project.
This includes, but is not limited to, labor, materials, equipment, services, and facilities, as well as special categories such as an inflation allowance, cost of financing, or contingency costs.
A cost estimate is a quantitative assessment of the likely costs for resources required to complete the activity.
Cost estimates may be presented at the activity level or in summary form.

11. Cost Estimate Example

12. Parametric Estimate for a Moving Project
To estimate the size of the truck needed for a move, the parameter used by a truck rental company is the number of bedrooms.

13. Cost Management Plan Defines
Level of accuracy: May also include an amount for contingencies.
Units of measure.
Organizational procedures links. The WBS component used for the project cost accounting is called the control account (CA).
Control thresholds. Thresholds are typically expressed as percentage deviations from the baseline plan.
Rules of performance measurement. Earned value management rules of performance measurement are set.
Reporting formats.
Process descriptions. Descriptions of each of the three cost management processes are documented.

14. Contract Types
Cost-plus pricing is often used on government contracts (cost-plus contracts), and has been criticized as promoting wasteful expenditures. 
Fixed-Price Contracts: Provide for a firm price, or, in appropriate cases, an adjustable price.

15. Resource Scheduling Problem
Use the precedence diagram for project scheduling, the start and sequence of activities has been based solely on technical or logical steps.
These networks assume that the people and equipment are available to perform the required work.
Absence or shortage of resources can drastically change the technical constraints.

16. Resource Scheduling Problem
Parallel activities have the potential for resource conflict. In this example, planning a wedding reception includes these activities:
This parallel network likely assumes that there is a resource available for each of the parallel tasks. But what if the same resource is responsible for all of these tasks?

17. Resource-constrained Scheduling
Only one person performing all these activities now requires that the activities now be performed in sequence:
As a result, the duration has now been extended due to lack of resources.
When resources are not available to meet peak demands, the late start of some activities must be delayed and duration of the project increased. This is called resource-constrained scheduling.

18. Resources and Priorities
Project precedence diagram (network times) are not a final schedule until resources have been assigned (and secured).
The implicit assumption while creating project precedence diagram is that resources will be available in the required amounts when needed.
Finalizing project schedule requires making realistic judgments of resource availability/constraints and project durations.
Cost estimates are not a budget until they have been time-phased.

19. The Resource Problem
Resource-Constrained Scheduling  Resource Leveling
The duration of a project may be increased by delaying the late start of some of its activities if critical resources are not adequate to meet peak demands.
Resource Smoothing
Involves attempting to even out varying demands on resources by using slack (delaying noncritical activities) to manage resource utilization when resources are adequate over the life of the project.

20. Types of Project Constraints
Technical or Logic Constraints
Constraints related to the networked sequence in which project activities must occur.
Physical Constraints
Activities that cannot occur in parallel or are affected by contractual or environmental conditions.
Resource Constraints
The absence, shortage, or unique interrelationship and interaction characteristics of resources that require a particular sequencing of project activities
Kinds of Resource Constraints
People, materials, equipment

21. Classification of A Scheduling Problem
Classification of Problem
Using a priority matrix will help determine if the project is time or resource constrained.
Time-Constrained Project
Must be completed by an imposed date.
Time is fixed, resources are flexible: additional resources are required to ensure project meets schedule.
Resource-Constrained Project
Is one in which the level of resources available cannot be exceeded.
Resources are fixed, time is flexible: inadequate resources will delay the project.
Trade-off between Time and Resource

22. Resource Allocation Methods
Limiting Assumptions
Splitting activities is not allowed—once an activity is start, it is carried to completion. E.g., high set-up cost
Level of resources used for an activity cannot be changed.
Risk Assumptions
Activities with the most slack pose the least risk.
Reduction of flexibility does not increase risk.
The nature of an activity (easy, complex) doesn’t increase risk.

23. Botanical Garden Example
Project uses only one resource (backhoes) and all backhoes are interchangeable.
This bar chart shows activities on a time scale. dependencies=vertical arrows; horizontal arrows=activity slack.

24. Botanical Garden Example
This is a resource profile showing when a backhoe is needed and during which periods of the project.
The resource profile shows the use of 4 backhoes during periods 4 thru 10.

25. Botanical Garden Example
The goal of this project is to reduce the resource demand on the backhoes. Notice the slack on Irrigation and Fence & Walls activities. These are the only two activities that have slack. How can the project manager reduce demand and level this resource?

26. Botanical Garden Example
The project manager centered on the activity having the least risk of being late: Fence and walls. By delaying this one activity and starting it in period 10 instead of 4, the number of backhoes needed over the life of the project had been reduced from 4 down to 3 (25%).

27. Time-Constrained Projects
Must be completed by an imposed date.
Require use of leveling techniques that focus on balancing or smoothing resource demands.
Use positive slack (delaying noncritical activities) to manage resource utilization over the duration of the project.
Peak resource demands are reduced.
Resources over the life of the project are reduced.
Fluctuation in resource demand is minimized.

28. Resource Allocation Methods (cont’d)
Resource Demand Leveling Techniques for Time-Constrained Projects
Advantages
Peak resource demands are reduced.
Resources over the life of the project are reduced.
Fluctuation in resource demand is minimized.
Disadvantages
Loss of flexibility that occurs from reducing slack.
Increases in the criticality of all activities.

29. Resource Allocation Methods
Resource-Constrained Projects
Resources are limited in quantity or availability.
Activities are scheduled using heuristics (rules-of-thumb) that focus on (based on the following priority:
Minimum slack
Smallest (least) duration
Lowest activity identification number
The parallel method is used to apply heuristics
An iterative process starting at the first time period of the project and scheduling period-by-period the start of any activities using the three priority rules.

30. The Impacts of Resource-Constrained Scheduling
Reduces delay but reduces flexibility.
Increases criticality of events.
Increases scheduling complexity.
May make the traditional critical path no longer meaningful.
Can break sequence of events.
May cause parallel activities to become sequential and critical activities with slack to become noncritical.

31. Splitting
A scheduling technique use to get a better project schedule and/or increase resource utilization.
Involves interrupting work on an activity to employ the resource on another activity, then returning the resource to finish the interrupted work.
Is feasible when startup and shutdown costs are low.
Is considered the major reason why projects fail to meet schedule.

32. Multiproject Resource Schedules
Multiproject Scheduling Problems
Overall project slippage
Delay on one project create delays for other projects
Inefficient resource application
The peaks and valleys of resource demands create scheduling problems and delays for projects.
Resource bottlenecks
Shortages of critical resources required for multiple projects cause delays and schedule extensions.

33. Multiproject Resource Schedules (cont’d)
Managing Multiproject Scheduling:
Create project offices or departments to oversee the scheduling of resources across projects.
Use a project priority queuing system: first come, first served for resources.
Centralize project management: treat all projects as a part of a “megaproject.”
Outsource projects to reduce the number of projects handled internally.

34. Budget http://pm-foundations.com/tag/project-budgeting/
The following explains each of the components of the process of building up to the overall cost budget:
Activity Costs: Represents the cost associated with specific activities in the project schedule. For labor related activities the activity cost is derived from the activity hours times the labor rate for resources assigned to the activity. For material related activities the activity cost represents the material cost assigned to the activity (e.g., purchase of software, infrastructure).
Work Package Costs: Costs associated with a work package represents the roll-up of the activity costs for a specific deliverable. Generally this cost can be viewed in the project schedule in the form of a summary task for the deliverable (work package).
Control Account: A control account is another name for cost categories that are reported on in the project budget. Control accounts are generally either types of costs (internal labor, external labor, software, infrastructure), or costs associated with major work efforts (project phases or work streams). Control accounts are also where the breakdown between capital and expense amounts are captured. Control account amounts are reflected in the project budget summary, and are derived from the sources for labor and non-labor costs (see previous slides).
Project Estimate: Represents the sum of the Control Account amounts (without the project contingency, unless the contingency is included in a control account).
Contingency Reserve: Represents the project budget reserve required to mitigate known project risks. Generally the contingency is derived as a percent (%) of specific control accounts or work packages with the associated risk. The best practice is to report contingency as an explicit number either separated on the budget summary, or as a separate control account.
Cost Baseline: Represents the total project budget, including the project contingency reserve. This is the amount that the project manager reports against throughout the project life cycle.
Management Reserve: Represents the amount that is included in the project funding to account for unknown risks. The management reserve is reflected in capital plans and/or departmental budgets.
Cost Budget (Project Funding): Represents the total amount funded for the project, including management reserves. This is the amount that the departmental budget managers are reporting against throughout the financial reporting lifecycle (with input from the project manager). This is also the amount that is reduced when the organization needs to impact the amount spent on a project during a specific time period.

36. Project Expenditures Pattern
Most project expenditures follow this pattern, resulting in a graphical representation that resembles an "S". Knowing the timing of expenditures on a project will assist management in planning appropriately.