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Monday 15th March 2010 a.m.

pierre@bonnal.eu

Pierre Bonnal

Professor and head of the Business Administration DepartmentHaute cole de gestion de Genve

Costing Workshop for Future Neutrino Facilities

Project Cost ManagementWhats all about ?

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Agenda for this morning

Review best practices

related to project costing ;

Evaluate their suitability for the costing

of future neutrino facilities.

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Best practices

PMBoK

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Best practices

Typology of projects

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Best practices

Project Life Cycle

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Process #1

Cost Estimating

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Question #1Which costs to consider ?

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Cost Estimating

Which costs to consider ?

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Cost Estimating

Which costs to consider ?

Only chargeable costs must be considered !(marginal approach or differential approach)

cash flows that are distorded (suppressed or modified)

cash flows that are generated by the project.

Cash flowsof the project

Cash flows

of the organizationwith the project

Cash flows

of the organizationwithout the project

Past or irrecoverable costs NO !Whatever the decision, they will exists !

Renunciation costs YES!The renunciation to a project can cut out the organizationof possible incomes.

Unquantifiable costs NO !In some contexts, projects do not generate incomes, but benefits.

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Cost Estimating

Which costs to consider ? Marginal costs !

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Question #2

Which resources to consider ?

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Cost Estimating

Which resources to consider ?

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Cost Estimating

Which resources to consider ? Marginal approach !

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Cost Estimating

Which resources to consider ? PM approach !

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Question #3

How to estimate ?

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Cost Estimating

How to estimate ?

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Estimating approach #1

Intuitive approach

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Estimating approach #2

Global approach

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Cost Estimating

Global approach

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Cost Estimating

Global approach | Local search

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Cost Estimating

Global approach | Neighbourhood search

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Cost Estimating

Global approach | Neighbourhood search

Linear regressions on various sizing parameters.

So-called Chilton law for total cost :

Cost a p Size q b andCost

Costref

Size

Sizeref

r

0.3 0.7s

a and b from tables.

So-called Freiman principle :

Cost a bk

Size 1

1{

k

k : a coefficient depicting the complexity of the project (2 k 10)a and b from tables.

Distance weighing.

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Cost Estimating

Global approach | Full search

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Cost Estimating

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Cost Estimating

Costnow Costpast

n

i 1

i

EIi now

EIi past

Where :

i weighing coefficients so that : n

i

1i 1

EIi t appropriate economical indices.

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Cost Estimating

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Cost Estimating

Resources for indices and coefficients

www.bfs.admin.ch (Swiss Federal Ofce for Statistics)

www.statistics.gov.uk (UK Ofce for National Statistics)

indicepro.insee.fr (French National Institute for Statistics)

BOPS/BOCCRF (Bulletin Ofciel de la Concurrence, de la Consommation et de la Rpression des Fraudes)

www.bls.gov (US Bureau of Labor Statistics)

www.che.com/pci (Chemical Eng. magazines Plant Cost Index)

www.marshallswift.com (Marchall & Swift cost index)

www.ogj.com (Oil & Gas Journals Nelson-Farrar Cost Index)www.costdataonline.com(Richardson Construction Estimating Standards).

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Cost Estimating

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Cost Estimating

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Estimating approach #3

Modular approach

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Cost Estimating

Modular approaches

Project cost as a function of several sizing parameters :

Cost fp p1,p2, . . . ,pn q

p1,p2, . . . ,pn : sizing parameters.

Software :

TruePlanning [PRICE System] (www.pricesystems.com)

Cost+ [3f] (www.3f-fr.com)

COCOMO for IT projects (csse.usc.edu).

Handbook :

ISPA (International Society of Parametric Analysts)Parametric Estimating Handbook www.ispa-cost.org.

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Cost Estimating

Modular approaches | COCOMO (IT projects)

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Cost Estimating

Modular approaches | COCOMO (IT projects)

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Cost Estimating

Modular approaches | COCOMO (IT projects)

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Cost Estimating

Modular approaches | COCOMO (IT projects)

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Cost Estimating

Modular approaches | COCOMO (IT projects)

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Estimating approach #4

Detailed approach

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C t E ti ti

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Cost Estimating

Detailed approaches

How to proceed so that no itemis forgotten ?

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C t E ti ti

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Cost Estimating

Detailed approaches

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C t E ti ti

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Cost Estimating

Analytical approach to WBS making

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Cost Estimating

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Cost Estimating

Analytical approach to WBS making

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Cost Estimating

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Cost Estimating

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Cost Estimating

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Cost Estimating

Analytical approach to WBS making

Several software :

SEER-DFM [Golorath] (www.golorath.com)

DFMA [Boothroyd Dewhurst Inc.] (www.dfma.com)

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Cost Estimating

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Cost Estimating

Analytical approach | SEER-DFM

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Cost Estimating

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Cost Estimating

Analytical approach | DFMA

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Cost Estimating

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Cost Estimating

Analytical approach | DFMA

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Cost Estimating

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Cost Estimating

Analytical approach to WBS making

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Cost Estimating

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Cost Estimating

Analytical approach to WBS making

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Project Life Cycle

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j y

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Process #2

Project Evaluation

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Project Evaluation

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j

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Project Evaluation

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Net Present Value

NPV

n

t 0

i PCi p tq

p1

i

q

t

n

t 1

i OIi p tq

p1

i

q

t

n

t 1

i OCi p tq

p1

i

q

t

DC&SOp

nq

p1

i

q

n

Where :

i PCi p tq project costs investment (end of period t)

i OIi p tq operating incomes (end of period t)

i OCi p tq operating costs (end of period t)

DC&SOp

nq

dism. costs and selling out (end of period n)

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Project Evaluation

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Multi-criteria Decision Analysis

alternatives (potential actions)

evaluation (judgements)

weighing coefficients

criteria

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Project Life Cycle

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Process #3

Cost Budgeting

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Cost Budgeting

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Cost Budgeting

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Cost Budgeting

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Project Life Cycle

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Process #4

Cost Control

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Cost Control

$ EACEAC

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t

$

tR

PlannedValue PV(t)PV(t)

BAC

ActualCosts AC(t)AC(t)

Earned ValueEV(t)= BAC%(tR)EV(t)= BAC%(tR)

EACtEACt

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Thank you.

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