1. © SYBEX Inc. 2005. All Rights Reserved. Session 6 Cost Planning: How Much Is This Going to Cost?

2. © SYBEX Inc. 2005. All Rights Reserved. Learning Objectives Understand resource planning and the three types of resources Be able to define a project’s resource requirements Understand cost-estimating and resource loading Be able to develop a project budget

3. © SYBEX Inc. 2005. All Rights Reserved. There are three basic types of resources we consider in any given project planning scenario: –Human Resources –Equipment –Materials What are Resources?

4. © SYBEX Inc. 2005. All Rights Reserved. You Decide You are the PM for a highway-construction project. Decide which of the following are human resources, materials and equipment: –Backhoes –Concrete –Paint –Porta-potties –Earth-moving equipment operators –Guard-rail

5. © SYBEX Inc. 2005. All Rights Reserved. A Resource Requirement Document included in your Scope Statement can help you denote the resources needed for a given requirement. Consider the example right. Creating a Resource Requirement Document

6. © SYBEX Inc. 2005. All Rights Reserved. Resource Pool Description Consider creating a resource pool description that: –Consists of all job titles within company and is –Derived from HR data or a corporate org chart (NOTE: For large companies, isolate only to pertinent sections of the company) –Use the job descriptions from your pool description that you think you need for your project

7. © SYBEX Inc. 2005. All Rights Reserved. Resource Requirement Definition - You Practice From the requirements document to the right, what human resources do you think you will require?

8. © SYBEX Inc. 2005. All Rights Reserved. Responsibility Assignment Matrix Consider our porch- painting project and associated RAM for this project to the right Task CarpenterPainterRooferConcrete Installer Pour footers 2 Build porch 2 Paint porch 2 Install roofing 2

9. © SYBEX Inc. 2005. All Rights Reserved. Cost-Estimating There are three better known types of cost- estimating techniques: –Analogous – Similar tasks in earlier projects –Parametric modeling – Mathematic modeling –Definitive estimates – Bottom-up actual estimates (including 5% - 10% overrun buffer) for each task

10. © SYBEX Inc. 2005. All Rights Reserved. Resource Rates Time-based (hourly or daily) –Used for labor resources or leased equipment Per-use rate –Applies to any resource in which the project incurs a charge, such as access to a centralized database Fixed-rate –Applies to the purchase of materials or equipment such as a new server

11. © SYBEX Inc. 2005. All Rights Reserved. Definitive Estimate Worksheet Consider the porch-painting definitive estimate worksheet below: TaskCarpenterPainterRooferConcrete installerRate ($/day/person) Estimate Pour footers275150 Build porch275150 Paint porch250100 Install roofing265130 Posthole digger 150/day150 Concrete50/yard50 LumberStock quote1350 Paint30/gal60 Roofing100/square200 Permits75 TOTAL2415

12. © SYBEX Inc. 2005. All Rights Reserved. Resource Loading Applying a salary figure to a work effort means we’re resource loading the project Use average salary figures (not the highest, not the lowest) Figure in a 5%- 10% overrun buffer

13. © SYBEX Inc. 2005. All Rights Reserved. Estimating Tips Brainstorm with the team to make sure you don’t miss any resource details Communicate to stakeholders the type of cost estimates you are providing. Make use of any available templates that have already been developed to help you in your estimating. PMOs often have pre-developed templates for such work. Get your estimates from the people that are going to do the work. Document any assumptions you have made. OPTIONAL: Include some money in your budget for team recognition.

14. © SYBEX Inc. 2005. All Rights Reserved. Cost Budgeting Cost budgeting is the process of allocating your approved project funding across the activities, using your cost estimates, your WBS, and the schedule. A project budget is used to communicate what amounts will be spent on categories of resources within a given time period. Generally speaking, most budgets are broken down by month. It’s important to make sure that you understand budget codes that your company uses and how they’ll be charged against during project execution.

15. © SYBEX Inc. 2005. All Rights Reserved. Budgeting Elements to Check There are some nebulous issues you should ask about as well: –Are all project expenses submitted to the project manager for approval? If not, then you’ll need to somehow track those expenses if they impact the project budget. –Does the project manager approve timesheets for project team members? If not, how will you get the time worked on tasks so that you can apply the numbers to the work effort estimates? –Does the project manager receive weekly reports on the labor hours charged to your project? Else, how do you reconcile the charged time with the reported project time? –Are there categories of cost or amount that require approval from the sponsor or client? Often a given category of manager has a certain spending threshold that she cannot go over without approval.

16. © SYBEX Inc. 2005. All Rights Reserved. Creating the Budget Discretionary funds –Contingency fund –Managerial reserve Cost baseline Budget targets

17. © SYBEX Inc. 2005. All Rights Reserved. Chaptal Winery Case Study Examine the Chaptal budget line items –Do you agree? –How were the line items derived?

18. © SYBEX Inc. 2005. All Rights Reserved. End of Chapter Review Q&A Instructor Hand-out Q&A Go over end-of-chapter review questions Instructor to hand out additional questions (POP QUIZ TIME!)

19. © SYBEX Inc. 2005. All Rights Reserved. Next Steps For this session: –Know the three types of resources used on a project –Understand how to create a Responsibility Assignment Matrix –Understand the different types of resource rates and how they’re used –Know the difference between analogous, parametric modeling, and definitive estimating techniques –Know the discretionary funding allocations a project may receive –Explain the purpose of a cost baseline –Understand how, why and when you’d use resource loading in a project plan –Understand your company’s financing model

20. © SYBEX Inc. 2005. All Rights Reserved. Next Steps, con’t For next session: –Read Chapter 6 and complete the end of chapter review questions. –Work through the continuation of the Chaptal Winery case study found at the end of Chapter 6