1. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-1 Cost Estimation and Budgeting

2. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-2 Common Sources of Project Cost  Labor  Materials  Subcontractors  Equipment & facilities  Travel

3. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-3 Types of Costs  Direct Vs. Indirect  Recurring Vs. Nonrecurring  Fixed Vs. Variable  Normal Vs. Expedited

4. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-4 Cost Classifications Direct LaborXXXX Building LeaseXXXX ExpediteXXXX MaterialXXXX Non-recurring Direct Indirect Fixed Recurring Variable Normal Expedited Costs

5. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-5 Cost Estimation  Ballpark (order of magnitude) ±30%  Comparative ±15%  Feasibility ±10%  Definitive ±5%

6. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-6 Learning Curves Each doubling of output results in a reduction in time to perform the last iteration.

7. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-7 Problems with Cost Estimation Low initial estimates Unexpected technical difficulties Lack of definition Specification changes External factors

8. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-8 Creating a Project Budget Top-down Bottom-up Activity-based costing (ABC) Project Plan WBS SchedulingBudgeting The budget is a plan that identifies the resources, goals and schedule that allows a firm to achieve those goals

9. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-9 Activity-Based Costing Projects use activities & activities use resources 1.Assign costs to activities that use resources 2.Identify cost drivers associated with this activity 3.Compute a cost rate per cost driver unit or transaction 4.Multiply the cost driver rate times the volume of cost driver units used by the project

10. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall8-10 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

11. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-11 Project Scheduling: Networks, Duration Estimation, and Critical Path

12. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-12 Project Scheduling Terms Successors Predecessors Network diagram Serial activities Concurrent activities E D C B A F

13. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-13 Project Scheduling Terms E D C B A F Merge activities Burst activities Node Path Critical Path

14. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-14 Network Diagrams Show interdependence Facilitate communication Help schedule resources Identify critical activities Determine project completion Show start & finish dates

15. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-15 AOA Vs. AON The same mini-project is shown with activities on arc… C E D B F E C D B F …and activities on node.

16. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-16 Node Labels Early Start Activity Float Activity Descriptor Late Start ID Number Activity Duration Late Finish Early Finish

17. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-17 Duration Estimation Methods Past experience Expert opinion Mathematical derivation – Beta distribution –Most likely (m) –Most pessimistic (b) –Most optimistic (a)

18. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-18 TaskPredecessorabc Z--7815 YZ131619 XZ141822 WY, X121416 VW1413 TW61014 ST, V111419 1.Sketch the network described in the table. 2.Determine the expected duration and variance of each activity.

19. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-19 Constructing the Critical Path Forward pass – an additive move through the network from start to finish Backward pass – a subtractive move through the network from finish to start Critical path – the longest path from end to end which determines the shortest project length

20. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-20 Rules for Forward/Backward Pass Forward Pass Rules (ES & EF) –ES + Duration = EF –EF of predecessor = ES of successor –Largest preceding EF at a merge point becomes EF for successor Backward Pass Rules (LS & LF) –LF – Duration = LS –LS of successor = LF of predecessor –Smallest succeeding LS at a burst point becomes LF for predecessor

21. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-21 TaskPredecessorTime A--4 BA9 CA11 DB5 EB3 FC7 GD, F3 HE, G2 KH1 1.Sketch the network described in the table. 2.Determine the ES, LS, EF, LF, and slack of each activity

22. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-22 Laddering Activities Project ABC can be completed more efficiently if subtasks are used A(3)B(6)C(9) ABC=18 days Laddered ABC=12 days A 1 (1)A 2 (1)A 3 (1) B 1 (2)B 2 (2)B 3 (2) C 1 (3)C 2 (3)C 3 (3)

23. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-23 Hammock Activities Used as summaries for subsets of activities 0 A5 0 55 5 B15 5 1015 15 C18 15 318 0 Hammock18 01818 Useful with a complex project or one that has a shared budget

24. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-24 Reducing the Critical Path Eliminate tasks on the CP Convert serial paths to parallel when possible Overlap sequential tasks Shorten the duration on critical path tasks Shorten –early tasks –longest tasks –easiest tasks –tasks that cost the least to speed up