1. Chapter 4: Schedule, cost, and situation analysis (pt. 2) ISE 443 / ETM 543 Fall 2013

2. Using the schedule and the TRM, build a detailed budget The largest cost in the budget will be labor  Direct labor cost  Fringe benefits  Overhead  General & Administrative  Profit/Fee  Other Direct Costs (ODC) – supplies, software, etc. The PM generally is concerned with fringe, overhead, and G&A, and a shortcut calculation might be...  CF = (1+FR)*(1+OH)*(1+GA)  Total Labor Cost = DLC*CF  NOTE: this doesn’t take the effect of ODC on G&A 2 443/543– 4.2

3. Let’s work through an example... See Table 3.3, pg. 86 3 443/543– 4.2

4. 4 Use the weekly or hourly rate for each person or labor category For our example, assume –  Senior software engineer = $1,000 / week  Software engineer = $700 / week  Documentation specialist = $500 / week  Training specialist = $600 / week Also assume –  Fringe benefits (FR) = 30%  Overhead (OH) = 70%  General & administrative = 15% Develop the cost factor (CF) and Total Labor Cost for the project.

5. Add the ODC Assume ODC = $8000 Add ODC to the total labor costs – this is the Total Cost for the project. Compare this to the total cost in Table 3.4, pg. 87.  What is the difference? Why?  What does this say about whether or not ODC is included in G&A cost? Note that the profit or fee is added to determine the total price for the contract, but the PM only controls total cost. 5 443/543– 4.2

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7. 7 In addition to the total cost, the PM must also develop a weekly budget for the project Sometimes, the customer may ask for a budget breakdown by period (weekly, monthly, etc.) or by task (especially when payments are based on task completion)

8. Ongoing cost monitoring is based on the weekly cost budget For example, let’s say we have a cost report for the first 4 weeks of the project... Note that we can calculate the weekly and cumulative differences and percent deviation  If the weekly and (especially) cumulative differences are negative, the PM will investigate. 8 443/543– 4.2 X (2.3)

9. It’s important to predict and control for future budget & schedule problems Earned Value Analysis (EVA)  An integrated project management system based on the earned value concept that uses a time-phased budget baseline to compare actual and planned schedule and costs 3 cost curves illustrate the concept  Budgeted Cost of Work Scheduled (BCWS)  Budgeted Cost of Work Performed (BCWP)  Actual Cost of Work Performed (ACWP) Cost Variance (CV) compares the actual vs budgeted cost at each point in time, while the Schedule Variance (SV) compares the budgeted amount scheduled vs the budgeted amount performed, i.e.  CV = BCWP – ACWP  SV = BCWP – BCWS 9 443/543– 4.2

10. We can also extrapolate from these to predict … Estimated Cost at Completion (ECAC) and Estimated Time at Completion (ETAC)  Where BAC is the original budget at completion and TAC is the original time at completion. 10 443/543– 4.2

11. Let’s look at the example on pg. 111 See figure 4.3 11 443/543– 4.2