Project Management Cost and Resources Minder Chen, Ph.D. CSU Channel Islands [email protected].

Project ManagementCost and Resources

Minder Chen, Ph.D.CSU Channel Islands

[email protected]

PM: Cost & Resource - 2 © Minder Chen, 2012-2015

Cost

• You might think of cost simply in monetary terms, but project cost has a broader meaning.

• Costs include all of the resources required to carry out the project.

• Costs include the people and equipment that do the work, the materials they use, and all of the other events and issues that require money or someone’s attention in a project.

• For virtually all projects, cost is ultimately a limiting constraint; few projects could go over budget without eventually requiring corrective action.


Sample Cost Constraints

• You have signed a fixed-price contract to deliver an inventory-tracking software system to a client. If your costs exceed the agreed-upon price, your customer might be sympathetic but probably won’t be willing to renegotiate the contract.

• The president of your organization has directed you to carry out a customer research project using only the staff and equipment in your department.

• You have received a $5,000 grant to create a public art installation. You have no other funds.


Project Cost Management

• Project Cost Management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget.

– Estimate Costs—The process of developing an approximation of the monetary resources needed to complete project activities.

– Determine Budget—The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

– Control Costs—The process of monitoring the status of the project to update the project budget and managing changes to the cost baseline.

• The ability to influence cost is greatest at the early stages of the project, making early scope definition critical






Estimate Costs


Cost Estimation• Cost estimates are a prediction that is based on the information

known at a given point in time. Cost estimates include the identification and consideration of costing alternatives to initiate and complete the project.

• Cost tradeoffs and risks should be considered, such as make versus buy, buy versus lease, and the sharing of resources in order to achieve optimal costs for the project.

• Cost estimates are generally expressed in units of some currency (i.e., dollars, euros, yen, etc.), although in some instances other units of measure, such as staff hours or staff days, are used to facilitate comparisons by eliminating the effects of currency fluctuations.

• Cost estimates should be reviewed and refined during the course of the project to reflect additional detail as it becomes available and assumptions are tested.


Cost Estimation

• The accuracy of a project estimate will increase as the project progresses through the project life cycle.

• For example, a project in the initiation phase may have a rough order of magnitude (ROM) estimate in the range of −25% to +75%.

• Later in the project, as more information is known, definitive estimates could narrow the range of accuracy to -5% to +10%.

• In some organizations, there are guidelines for when such refinements can be made and the degree of confidence or accuracy that is expected.


Cost Estimate

• Costs are estimated for all resources that will be charged to the project.

• This includes, but is not limited to, labor, materials, equipment, services, and facilities, as well as special categories such as an inflation allowance, cost of financing, or contingency costs.

• A cost estimate is a quantitative assessment of the likely costs for resources required to complete the activity.

• Cost estimates may be presented at the activity level or in summary form.


Cost Estimate Example

http://pm4id.org/9/1/


Parametric Estimate for a Moving Project

• To estimate the size of the truck needed for a move, the parameter used by a truck rental company is the number of bedrooms.

• http://www.uhaul.com/MovingSupplies/packingplanner.aspx


Cost Management Plan Defines

• Level of accuracy: May also include an amount for contingencies.

• Units of measure. • Organizational procedures links. The WBS component

used for the project cost accounting is called the control account (CA).

• Control thresholds. Thresholds are typically expressed as percentage deviations from the baseline plan.

• Rules of performance measurement. Earned value management rules of performance measurement are set.

• Reporting formats. • Process descriptions. Descriptions of each of the three

cost management processes are documented.


Contract Types

• Cost-plus pricing is often used on government contracts (cost-plus contracts), and has been criticized as promoting wasteful expenditures.

• Fixed-Price Contracts: Provide for a firm price, or, in appropriate cases, an adjustable price.

• http://www.dtc.dla.mil/dsbusiness/Info/contracts1.htm


Resource Scheduling Problem

• Use the precedence diagram for project scheduling, the start and sequence of activities has been based solely on technical or logical steps.

• These networks assume that the people and equipment are available to perform the required work.

• Absence or shortage of resources can drastically change the technical constraints.


Resource Scheduling Problem • Parallel activities have the potential for resource

conflict. In this example, planning a wedding reception includes these activities:

• This parallel network likely assumes that there is a resource available for each of the parallel tasks. But what if the same resource is responsible for all of these tasks?


Resource-constrained Scheduling

• Only one person performing all these activities now requires that the activities now be performed in sequence:

• As a result, the duration has now been extended due to lack of resources.

• When resources are not available to meet peak demands, the late start of some activities must be delayed and duration of the project increased. This is called resource-constrained scheduling.


Resources and Priorities

• Project precedence diagram (network times) are not a final schedule until resources have been assigned (and secured).

– The implicit assumption while creating project precedence diagram is that resources will be available in the required amounts when needed.

– Finalizing project schedule requires making realistic judgments of resource availability/constraints and project durations.

• Cost estimates are not a budget until they have been time-phased.


The Resource Problem

• Resource-Constrained Scheduling Resource Leveling

– The duration of a project may be increased by delaying the late start of some of its activities if critical resources are not adequate to meet peak demands.

• Resource Smoothing – Involves attempting to even out varying demands

on resources by using slack (delaying noncritical activities) to manage resource utilization when resources are adequate over the life of the project.


Types of Project Constraints

• Technical or Logic Constraints– Constraints related to the networked sequence

in which project activities must occur.

• Physical Constraints– Activities that cannot occur in parallel or are affected

by contractual or environmental conditions.

• Resource Constraints– The absence, shortage, or unique interrelationship and

interaction characteristics of resources that require a particular sequencing of project activities

• Kinds of Resource Constraints– People, materials, equipment


Classification of A Scheduling Problem

• Classification of Problem– Using a priority matrix will help determine if the project is

time or resource constrained.

• Time-Constrained Project– Must be completed by an imposed date.

» Time is fixed, resources are flexible: additional resources are required to ensure project meets schedule.

• Resource-Constrained Project– Is one in which the level of resources available cannot be

exceeded.» Resources are fixed, time is flexible: inadequate resources

will delay the project.

• Trade-off between Time and Resource


Resource Allocation Methods

• Limiting Assumptions– Splitting activities is not allowed—once an activity

is start, it is carried to completion. E.g., high set-up cost

– Level of resources used for an activity cannot be changed.

• Risk Assumptions– Activities with the most slack pose the least risk.

– Reduction of flexibility does not increase risk.

– The nature of an activity (easy, complex) doesn’t increase risk.


Botanical Garden Example

• Project uses only one resource (backhoes) and all backhoes are interchangeable.

• This bar chart shows activities on a time scale. dependencies=vertical arrows; horizontal arrows=activity slack.



• This is a resource profile showing when a backhoe is needed and during which periods of the project.

• The resource profile shows the use of 4 backhoes during periods 4 thru 10.



• The goal of this project is to reduce the resource demand on the backhoes. Notice the slack on Irrigation and Fence & Walls activities. These are the only two activities that have slack. How can the project manager reduce demand and level this resource?



• The project manager centered on the activity having the least risk of being late: Fence and walls. By delaying this one activity and starting it in period 10 instead of 4, the number of backhoes needed over the life of the project had been reduced from 4 down to 3 (25%).


Time-Constrained Projects• Must be completed by an imposed date.

• Require use of leveling techniques that focus on balancing or smoothing resource demands.

• Use positive slack (delaying noncritical activities) to manage resource utilization over the duration of the project.

– Peak resource demands are reduced.

– Resources over the life of the project are reduced.

– Fluctuation in resource demand is minimized.


Resource Allocation Methods (cont’d)

• Resource Demand Leveling Techniques for Time-Constrained Projects

– Advantages

» Peak resource demands are reduced.

» Resources over the life of the project are reduced.

» Fluctuation in resource demand is minimized.

– Disadvantages

» Loss of flexibility that occurs from reducing slack.

» Increases in the criticality of all activities.


Resource Allocation Methods

• Resource-Constrained Projects– Resources are limited in quantity or availability.

– Activities are scheduled using heuristics (rules-of-thumb) that focus on (based on the following priority:

1.Minimum slack

2.Smallest (least) duration

3.Lowest activity identification number

– The parallel method is used to apply heuristics» An iterative process starting at the first time period

of the project and scheduling period-by-period the start of any activities using the three priority rules.


The Impacts of Resource-Constrained Scheduling

• Reduces delay but reduces flexibility.

• Increases criticality of events.

• Increases scheduling complexity.

• May make the traditional critical path no longer meaningful.

• Can break sequence of events.

• May cause parallel activities to become sequential and critical activities with slack to become noncritical.


Splitting

• A scheduling technique use to get a better project schedule and/or increase resource utilization.

– Involves interrupting work on an activity to employ the resource on another activity, then returning the resource to finish the interrupted work.

– Is feasible when startup and shutdown costs are low.

– Is considered the major reason why projects fail to meet schedule.


Multiproject Resource Schedules

• Multiproject Scheduling Problems

1. Overall project slippage

» Delay on one project create delays for other projects

2. Inefficient resource application

» The peaks and valleys of resource demands create scheduling problems and delays for projects.

3. Resource bottlenecks

» Shortages of critical resources required for multiple projects cause delays and schedule extensions.


Multiproject Resource Schedules (cont’d)

• Managing Multiproject Scheduling:

– Create project offices or departments to oversee the scheduling of resources across projects.

– Use a project priority queuing system: first come, first served for resources.

– Centralize project management: treat all projects as a part of a “megaproject.”

– Outsource projects to reduce the number of projects handled internally.


Budget

http://pm-foundations.com/tag/project-budgeting/



Project Expenditures PatternMost project expenditures follow this pattern, resulting in a graphical representation that resembles an "S". Knowing the timing of expenditures on a project will assist management in planning appropriately.

http://www.projectinsight.net/project-management-basics/basic-project-budget

Date post:	19-Dec-2015
Category:	Documents
Upload:	norma-butler
View:	217 times
Download:	0 times

Project Management Cost and Resources Minder Chen, Ph.D. CSU Channel Islands [email protected].

Documents