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Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Day 14
ELC 347/BUS 348/PSA 347
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice HallCh 1 -2
AgendaQuestions? IP Part 3 (Risk Management) DUE IP Part 4 Due Nov 4 (Changed from original date)
Cost estimates and budget Assignment 5 Due Assignment 6 Posted
Problems at end of chapter 8 Due Nov 4
No Class on Oct 31 Use class time for Group Work
Exam 2 will be on Nov. 7 Chaps 6-9, 20 M/c and 4 short essays
Exam 3 Chap 10-14 will be on Finals Day No Class On Nov. 11 Veterans Day.Finish Cost Estimation and Budgeting
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Finals Rescheduling Options Do IP Project presentation on Dec 12
Exam 3 done asynchronously sometime during finals week
Do both presentation and exam 3 Wednesday, Dec 18 (any time)Thursday, Dec 19 after 2PMFriday, Dec 20 (any time)
3
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Chapter 8Cost Estimation and
Budgeting
08-04
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Logarithm Review
6
10X=Y
Given Y , Determine X
Log Y = X
eX=Ye = 2.718281828
Ln Y = X
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Learning Curves
Each doubling of output results in a reduction in time to perform the last iteration.
x
:
Y = time required for the x unit of output
a = time required for the initial unit of output
X = the number of units to be produced
b = learning curve slope = log(learning %)/log(2)
bxY aX
Where
Curvilinear Handout.docLearning curve results.xls
USE Excel and log(#,base) functions
Learning_Curves_Supplement.doc
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Chart of Common “b’s” (solved for specific unit time)
8
units factor (x^b)Learning
Rate b 5 10 15 20 25 30 3595.00% -0.074 0.887720 0.843334 0.818406 0.801167 0.788046 0.777485 0.76866790.00% -0.152 0.782987 0.704688 0.662568 0.634219 0.613068 0.596311 0.58250185.00% -0.23447 0.685671 0.582820 0.529965 0.495397 0.470145 0.450471 0.43448080.00% -0.32193 0.595637 0.476510 0.418199 0.381208 0.354784 0.334559 0.31836275.00% -0.41504 0.512745 0.384559 0.324996 0.288419 0.262907 0.243747 0.22864170.00% -0.51457 0.436846 0.305792 0.248208 0.214055 0.190835 0.173745 0.16049665.00% -0.62149 0.367789 0.239063 0.185812 0.155391 0.135268 0.120778 0.10974460.00% -0.73697 0.305410 0.183246 0.135913 0.109948 0.093275 0.081548 0.07279155.00% -0.8625 0.249540 0.137247 0.096744 0.075486 0.062270 0.053209 0.04658550.00% -1 0.200000 0.100000 0.066667 0.050000 0.040000 0.033333 0.02857145.00% -1.152 0.156597 0.070469 0.044171 0.031711 0.024523 0.019877 0.01664340.00% -1.32193 0.119127 0.047651 0.027880 0.019060 0.014191 0.011152 0.00909635.00% -1.51457 0.087369 0.030579 0.016547 0.010703 0.007633 0.005792 0.00458630.00% -1.73697 0.061082 0.018325 0.009061 0.005497 0.003731 0.002718 0.00208025.00% -2 0.040000 0.010000 0.004444 0.002500 0.001600 0.001111 0.00081620.00% -2.32193 0.023825 0.004765 0.001859 0.000953 0.000568 0.000372 0.00026015.00% -2.73697 0.012216 0.001832 0.000604 0.000275 0.000149 0.000091 0.00005910.00% -3.32193 0.004765 0.000477 0.000124 0.000048 0.000023 0.000012 0.0000075.00% -4.32193 0.000953 0.000048 0.000008 0.000002 0.000001 0.000000 0.000000
Learning Curve Charts.xlsx
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice HallFIGURE 8.4
Unit Learning Curve Log-Linear Model
08-9Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Software Project Estimation – Function PointsFunction Point Analysis is a system for
estimating the size of software projects based on what the software does.
Function points are a standard unit of measure that represents the functional size of a software application.
08-10
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FIGURE 8.5
Software Project Development Activities as a Function of Size
08-11Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Complexity Weighting Table for Function Point Analysis
08-12
Complexity Weighting
Function Low Medium High Total
Number of Inputs 2 x _____ = 4 x _____ = 6 x _____ =
Number of Outputs 4 x _____ = 6 x _____ = 10 x _____ =
Number of Interfaces 3 x _____ = 7 x _____ = 12 x _____ =
Number of Queries 5 x _____ = 10 x _____ = 15 x _____ =
Number of Files 2 x _____ = 4 x _____ = 8 x _____ =
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Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Function Point Calculations for Restaurant Reorder System
08-13
Complexity Weighting
Function Low Medium High Total
Number of Inputs 4 x 15 = 60
Number of Outputs 10 x 20 = 200
Number of Interfaces 3 x 3 = 9
Number of Queries 10 x 6 = 60
Number of Files 2 x 40 = 80
Total 409
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Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Problems with Cost Estimation
Low initial estimates
Unexpected technical difficulties
Lack of definition
Specification changes
External factors
08-14
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Creating a Project Budget
Top-downBottom-upActivity-based costing
(ABC)
Project Plan
WBS
Scheduling
Budgeting
The budget is a plan that identifies the resources, goals and schedule that allows a firm to achieve those goals
08-15
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Activity-Based CostingProjects 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
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Sample Project Budget
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Activity Direct Costs Budget Overhead Total Cost
Survey 3,500 500 4,000
Design 7,000 1,000 8,000
Clear Site 3,500 500 4,000
Foundation 6,750 750 7,500
Framing 8,000 2,000 10,000
Plumb and Wire 3,750 1,250 5,000
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Table 8.6
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Sample Budget Tracking Planned and Actual Activity Costs
08-18
Activity Planned Budget Actual Variance
Survey 4,000 4,250 250
Design 8,000 8,000 - 0 -
Clear Site 4,000 3,500 (500)
Foundation 7,500 8,500 1,000
Framing 10,000 11,250 1,250
Plumb and Wire 5,000 5,150 150
Total 38,500 40,650 2,150
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Table 8.7
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Example of a Time-Phased Budget
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Months
Activity January February March April May
Total by
Activity
Survey 4,000 4,000
Design 5,000 3,000 8,000
Clear Site 4,000 4,000
Foundation 7,500 7,500
Framing 8,000 2,000 10,000
Plumb and Wire 1,000 4,000 5,000
Monthly Planned 4,000 9,000 10,500 9,000 6,000
Cumulative 4,000 13,000 23,500 32,500 38,500 38,500
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Table 8.8
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Cumulative Budgeted Cost of the Project
Figure 8.7
08-20Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Budget ContingenciesThe allocation of extra funds to cover uncertainties and improve the chance of finishing on time.
Contingencies are needed becauseProject scope may changeMurphy’s Law is presentCost estimation must anticipate interaction
costsNormal conditions are rarely encountered
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Tony’s View of Cost Estimates Much more of an art than a science
Experience counts Cost estimates usually turn into actual budgets used for cost
control Things you should discover prior to developing a budget
What is the highest possible budget you can get away with What the customer/sponsor/management will bear
What is the cheapest budget possible All things work out perfectly
All budgets must be between these two numbers for the project to be successful
Watch Variances! It is the most important part of cost control! Going over in one part of the project is fine if you have banked enough
positive variance Example estimate budget
csrd budget.xls
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ExamplesSolved problems on page 267 (1, 2& 3)
6-24
Name Hours Needed Overhead Charge
Personal Time Rate
Hourly Rate Total Direct Labor Cost
John 40 1.80 1.12 $21/hr.
Bill 40 1.80 1.12 $40/hr.
J.P. 60 1.35 1.05 $10/hr.
Sonny 25 1.80 1.12 $32/hr.
Total Direct Labor Cost =
Software Function Point AnalysisLow Medium High Total
Inputs 3 6 9 0outputs 2 6 10 0Interfaces 1 3 5 0Queries 4 8 12 0Files 4 6 8 0
total function point 0
Functon Point.xlsx
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Examples
25
14 iterations, learning rate is 0.90, 15 hours to complete the first a = 51 , X = 14 , b = (log 0.90)/(log 2)
Yx =aXb where b = log2 (learning rate) log X / log2 == Log2Xlearning curve estimates.xls
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Summary1. Understand the various types of common
project costs.2. Recognize the difference between various
forms of project costs.3. Apply common forms of cost estimation for
project work, including ballpark estimates and definitive estimates.
4. Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.
08-26
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Summary5. Discern the various reasons why project
cost estimation is often done poorly.6. Apply both top-down and bottom-up
budgeting procedures for cost management.7. Understand the uses of activity-based
budgeting and time-phased budgets for cost estimation and control.
8. Recognize the appropriateness of applying contingency funds for cost estimation.
08-27
08-28Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall