how much will this project...

Cost Management

How Much Will This Project Cost?

Janelle Abaoag

Project Insight

Marketing, Public Relations

[email protected]

www.projectinsight.net

Moderator

mailto:[email protected]

http://www.projectinsight.net/

Things to Know…

All participants will be on mute

Questions are welcome

Please use the questions box to ask

questions

The moderator will select questions

All questions will be answered today or

by email at [email protected]

Webinar recording available in the PI Community


Goals of the Fundamentals Series

Deepen your understanding of fundamental project management

concepts

Identify tools and techniques that can be implemented to manage

projects more effectively

Discover practical applications for your existing projects

Use project management software more effectively

© 2014 Core Performance Concepts Inc.

Linda Iovinelli, PMP

Program Manager for a major financial institution

Training in IT project management, risk

management and PMP Preparation.

[email protected]

Presenter

PMP® is a registered trademark of the Project Management Institute


Objectives of This Webinar

Differentiate between estimates and budgets

Identify influences on estimating cost

Compare types of estimates

List the steps to good cost estimating

Define best practices to implement within Project Insight


Poll: Cost Management

What is YOUR biggest issue in estimating cost?

Unclear or incomplete scope definition

Poor time estimates for labor costs

Lack of understanding of resource capability

Wrong people doing the estimate

Wishful thinking or optimistic biases


Distinction in PMBOK® Guide

External contracts with buyer & seller

Internal projects – no real distinction

Estimates vs. Budgets


Establish a realistic plan for using resources

Create a workable project budget

Identify cost-related risks

Highlight the complexity of the project

Develop a realistic schedule

Provide a meaningful plan to management and clients

Build confidence and credibility

Make better decisions

Benefits of Good Estimating


Quote

As you move up the organizational chart, the easier,

faster and cheaper the job looks to the senior manager

than to the project team member who must do the work. Robert Gilbreath

Project Management Guru


Influences on Estimating Cost

Strategic concerns

Ability to prioritize effectively

Understanding of scope complexity

Resource availability

Resource capability

Clients, Customers, End Users Management

Technical knowledge

Strength of desire for specific outcomes

Time desired

Clarity of performance criteria

Level of detail in scope definition

Scope Other


Influences on Estimating Cost (cont.)

Degree of new technology

Resource availability

Resource capability

Priorities

Overly optimistic schedules

Risk & unknowns

Scope Other

Clarity of performance criteria

Level of detail in scope definition

Omissions in scope

Accuracy of WBS

Size & length of project

Complexity and technical sophistication


Analogous Parametric Bottom up

Use similar past project as basis for estimate; Should be scalable

Use when there is a mathematical relationship between variables; Should be scalable

Use when you have time to prepare detailed WBS and activity list;

Adjust for differences between current and prior projects, e.g. • Scope • Labor cost or mix • Technology • Equipment • Materials • Inflation

Computer model based on statistical parameter, e.g. • $/sq ft • $/lb • $/component • $/kilowatt • $/unit

Estimate cost of each activity or work package, including, e.g. • Materials • Labor • Outsourced labor • Hardware, software • Travel • Training

Comparison of Estimating Types


Questions for You

What are the advantages of top

down estimates?

What are the disadvantages?


Questions for You

What are the advantages of

bottom up estimates?

What are the disadvantages?


1. Start with project plans

Clarify scope definition

Decompose work into activities

Understand the components of the activities

Determine activity sequence

2. Identify resources required

3. Establish estimating assumptions

4. Gather information

5. Review effort & duration estimates

6. Forecast quantity of resources

required

7. Apply costs to quantities

8. Create time-phased budget

Steps to Good Estimating


Busy Foods, Inc. – Case Study

Customer Needs

Organizational Needs

Project Charter


Factors Affecting Busy Foods Inc.

Overview

• BUSY FOODS services over 200 clients world-wide.

• Most of BUSY FOOD’S clients are large restaurant venues who can serve thousands in a single day

Situation

• In recent years, long-term clients have started to leave for a competitor who promises overnight delivery of restaurant equipment without a minimum order.

Goal

• BUSY FOODS would like to improve their distribution process to match the competition


Deliverable

Improve the time from order intake to shipping restaurant equipment) to less than 8 hours

Deliverable

Develop and launch a marketing campaign to clients to educate them on the new equipment shipping process

Deliverable

Train all internal staff affected by the new business process

Project Statement of Work


Step 1: Our Project Schedule


Project schedule and Gantt chart in Project Insight

Step 2: Identify Resources Required

Labor

Contractors

Consultants

Scope Costs Time Costs

Materials

Software

Hardware

Equipment

Travel & living

Training

Facilities

Prototypes

Etc.


Question for You

What are resources for the

Busy Foods project that you

might need to estimate?


Who is the end user of the estimate?

Internal

External bid for contract

Marketing proposal

What constraints do you face?

Time

Budget

Resources

Step 3. Establish Estimating Assumptions


Question for You

If you were to develop and launch a

marketing campaign to existing

clients and past clients, what

assumptions are you likely to make?


Rely on experience

Use prior project plans

Interview project professionals

Hire consultants

Use templates or checklists

Use commercial databases

Step 4. Gather Information


Quote

The same work under the same conditions will be

estimated differently by ten different estimators

OR

by one estimator in ten different ways. PM Proverb


Use scope statement and activity list

Many projects have a large labor component

Estimate effort & duration

Effort is actual work time spent; used to create the

budget

Duration is calendar time needed: used to create

the schedule

Step 5. Review Effort & Duration Estimates


Sample Time Estimate Activity Effort Duration

A – Project kick-off 1 hour 1 day

B – Analyze current business process 12 hours 10 days

C – Marketing Plan 5 hours 5 days

D – Create Marketing Message 20 hours 8 days

E – Determine areas for improvement 3 days 5 days

F – Review improvement opportunities with Management 8 hours 2 days

G – Approval on improvements 2 hours 1 day

H – Design training materials 24 hours 8 days

I – Deliver training to staff 3 days 3 days

J – Deliver marketing message through several modes 2 hours per day for 2 weeks

10 days

K – Implement Improvements 25 days 25 days

L – Test improvements as a prototype 24 hours 5 days

M – Approve improvements 10 hours 2 days

N – Go-Live 1 day 1 day


Labor quantities may be estimated by:

Standard staff hours

Head count

Labor hours

Materials, equipment, software, hardware and other scope

quantities are determined by:

RFQ

Procurement estimates

Published price lists

Step 6. Forecast Resource Quantities


Question for You

How do you measure your

labor costs?

Standard staff hours

Head count

Labor hours

Or????


Apply cost estimates to

estimated quantities to

determine budget

Step 7. Apply Costs to Quantities


Spread costs over the life of the project based on when

they are spent

Show the cumulative costs as well as periodic costs

Step 8. Create Time-Phased Budget


Project Insight Time-Phased Budget


Task report in Project Insight

1. Start with project plans

Clarify scope definition

Decompose work into activities

Understand the components of the

activities

Determine activity sequence

2. Identify resources required

3. Establish estimating assumptions

4. Gather information

5. Review effort & duration estimates

6. Forecast quantity of resources

required

7. Apply costs to quantities

8. Create time-phased budget

Steps to Good Estimating


Challenges in Managing Cost

It’s difficult to manage project costs because…

Too much time between the end of the reporting

period and the report

Accounting systems set up for financial statements,

not projects.

People enter time incorrectly

Disconnect between the level of detail in planning

and reporting


Poll: Sample Exam Questions

A. Cost estimates, work breakdown structure,

and project organization charts B. Cost

estimates, scope baseline, and appropriate

estimating techniques

C. Activity cost estimates, project schedule,

and reserve analysis

D. Cost estimates, risk contingency plans, and

cost performance baseline

Question Answers

In planning to manage project

cost, you must develop a

budget. Which of the following

are critical inputs for

developing your budget?


Review

Differentiate between estimates and budgets

Identify influences on estimating cost

Compare types of estimates

List the steps to good cost estimating

Define best practices to implement within Project Insight

Questions & Answers ???


Use this link and answer 10 questions about Cost Management

CPC will send out the results to all participants

• https://coreperformanceconcepts.testcraft.com/assess.aspx?aid=WEBINAR-COSTMANAGEMENT&apass=webinar

THIS LINK WILL BE DISTRIBUTED on Monday, March 17th.


Compare Yourself to Others

https://coreperformanceconcepts.testcraft.com/assess.aspx?aid=WEBINAR-COSTMANAGEMENT&apass=webinar



2014 Fundamentals Webinar Series The 2nd Wednesday of Every Month

8:00 am Pacific Time Topics

Jan 8 – Estimating Time

Feb 12 – Conducting Meetings with Virtual Teams (NEW!)

Mar 12 – Estimating Cost

April 9 – Business Process Improvement Basics (NEW!)

May 14 – Techniques to Identify & Assess Risks

June 11 – Earned Value Basics

Topics

July 9 – Delivering Quality in Projects

Aug 13 – Troubleshooting 101 (NEW!)

Sept 10 – Influencing 101 (NEW!)

Oct 8 – Lessons Learned Basics (NEW!)

Nov 12 – Requirements Tools & Techniques (NEW!)

Dec 10 – Difficult Conversations


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