Week 10:Project Cost Management (2)

Human ResourceQuality

Communication

Cost Estimation Tools and Techniques

• 3 basic tools and techniques for cost estimates:– analogous or top-down: use the actual cost of a

previous, similar project as the basis for the new estimate

– bottom-up: estimate individual work items and sum them to get a total estimate

– parametric: use project characteristics in a mathematical model to estimate costs

Constructive Cost Model (COCOMO)• Barry Boehm helped develop the COCOMO models for

estimating software development costs• Parameters include source lines of code or function

points• COCOMO II is a computerized model available on the

Web • Boehm suggests that only parametric models do not

suffer from the limits of human decision-making • See “Diktat Proyek Manajemen (7.7)” / “Slides 7-3”• Homeworks from week 9 ???

– Individuals– Groups (optional)

Typical Problems with IT Cost Estimates

• Developing an estimate for a large software project is a complex task requiring a significant amount of effort. Remember that estimates are done at various stages of the project

• Many people doing estimates have little experience doing them. Try to provide training and mentoring

• People have a bias toward underestimation. Review estimates and ask important questions to make sure estimates are not biased

• Management wants a number for a bid, not a real estimate. Project managers must negotiate with project sponsors to create realistic cost estimates

Business Systems Replacement Project Cost Estimate Overview

Business Systems Replacement Project Cash Flow AnalysisFY95

($000)

FY96

($000)

FY97

($000)

3 YearTotal($000)

Future AnnualCosts/Savings

($000)CostsOracle/PM Software(List Price)

992 500 0 1492 0

60% Discount (595) (595)Oracle Credits (397) 0 (397)

Net Cash for Software 0 500 500Software Maintenance 0 90 250 340 250Hardware & Maintenance 0 270 270 540 270Consulting &Training 205 320 0 525 0Tax & Acquisition 0 150 80 230 50Total Purchased Costs 205 1330 600 2135 570Information Services &Technology (IS&T)

500 1850 1200 3550 0

Finance/Other Staff 200 990 580 1770Total Costs 905 4170 2380 7455 570

SavingsMainframe (101) (483) (584) (597)Finance/Asset/PM (160) (1160) (1320) (2320)IS&T Support/Data Entry (88) (384) (472) (800)Interest 0 (25) (25) (103)Total Savings (349) (2052) (2401) (3820)

Net Cost (Savings) 905 3821 328 5054 (3250)

8 Year InternalRate of Return

35%

Cost Budgeting• Cost budgeting involves allocating the project

cost estimate to individual work items and providing a cost baseline

• For example, in the Business Systems Replacement project, there was a total purchased cost estimate for FY97 of $600,000 and another $1.2 million for Information Services and Technology

• These amounts were allocated to appropriate budgets as shown in Table 7-6

Business Systems Replacement Project Budget Estimates for FY97 and Explanations

Budget Category Estimated Costs ExplanationHeadcount (FTE) 13 Included are 9 programmer/analysts, 2

database analysts, 2 infrastructuretechnicians.

Compensation $1,008,500 Calculated by employee change notices(ECNs) and assumed a 4% pay increase inJune. Overload support was planned at$10,000.

Consultant/PurchasedServices

$424,500 Expected consulting needs in support of theProject Accounting and Cascadeimplementation efforts; maintenanceexpenses associated with the Hewlett-Packard (HP) computing platforms;maintenance expenses associated with thesoftware purchased in support of the BSRproject.

Travel $25,000 Incidental travel expenses incurred insupport of the BSR project, most associatedwith attendance of user conferences andoff-site training.

Depreciation $91,000 Included is the per head share ofworkstation depreciation, the Cascade HPplatform depreciation, and the depreciationexpense associated with capitalizedsoftware purchases.

Rents/Leases $98,000 Expenses associated with the Mach1computing platforms.

Other Suppliesand Expenses

$153,000 Incidental expenses associated with thingssuch as training, reward and recognition,long distance phone charges, miscellaneousoffice supplies.

Total Costs $1,800,000

Cost Control

• Project cost control includes– monitoring cost performance– ensuring that only appropriate project changes are

included in a revised cost baseline– informing project stakeholders of authorized

changes to the project that will affect costs

• Earned value management is an important tool for cost control

Earned Value Management (EVM)• EVM is a project performance measurement

technique that integrates scope, time, and cost data

• Given a baseline (original plan plus approved changes), you can determine how well the project is meeting its goals

• You must enter actual information periodically to use EVM.

• Next figure shows a sample form for collecting information

Cost Control Input Form for Business Systems Replacement Project (use software tools)

WBS#: 6.8.1.2 Description: Design Interface Process - Customer Information

Revision: Revision Date:

Assignments Forecast Hours per day Effort (in hours) Calculated

Responsible: SMC Role: PA Availability: 6 Optimistic: 20 Most Likely: 30 Plan

Effort: 30 Hrs

Involved: Role: Availability: Pessimistic: 40 Involved: Role: Availability: Plan

Duration:

5 Days

Involved: Role: Availability: Delay (Days):

Description Assumptions

Results / Deliverables Dependencies Predecessors (WBS#): Successors (WBS#):

4.7

Develop an operational process design for the Customer Information interface from the Invoicing System to Oracle Receivables. This task will accept as input the business/functional requirements developed during the tactical analysis phase and produce as output a physical operational design, which provides the specifications, required for code development.

Process Design Document - Technical - Operation/Physical DFD - Process Specifications - Interface Data Map

- All business rules and issues will be resolved prior to this task. - The ERD & data model for Oracle Receivables & any Oracle extension required will be completed and available prior to this task. - The ERD for the Invoicing System will be completed and available prior to this task. - Few iterations of the review/modify cycle will be required. - Primarily a documentation task.

Earned Value Management Terms• The planned value (PV), formerly called the

budgeted cost of work scheduled (BCWS), also called the budget, is that portion of the approved total cost estimate planned to be spent on an activity during a given period

• Actual cost (AC), formerly called actual cost of work performed (ACWP), is the total of direct and indirect costs incurred in accomplishing work on an activity during a given period

• The earned value (EV), formerly called the budgeted cost of work performed (BCWP), is an estimate of the value of the physical work actually completed

Earned Value Calculations

Earned Value Formulas

Earned Value = BCWP = Budgeted Cost Work PerformedActual Cost = ACWP = Actual Cost Work PerformedBCWS = Budgeted Cost Work Scheduled

Rules of Thumb for Earned Value Numbers

• Negative numbers for cost and schedule variance indicate problems in those areas. The project is costing more than planned or taking longer than planned

• CPI and SPI less than 100% indicate problems

Earned Value Calculations for a One-Year Project After Five Months (see example file .xls)

Earned Value Chart

Project Portfolio Management• Many organizations collect and control an entire suite

of projects or investments as one set of interrelated activities in a portfolio

• Five levels for project portfolio management– Put all your projects in one database– Prioritize the projects in your database– Divide your projects into two or three budgets based on type

of investment– Automate the repository– Apply modern portfolio theory, including risk-return tools

that map project risk on a curve

Using Software to Assist in Cost Management

• Spreadsheets are a common tool for resource planning, cost estimating, cost budgeting, and cost control

• Many companies use more sophisticated and centralized financial applications software for cost information

• Project management software has many cost-related features

Sample Enterprise Project Management Screen

Group Task

• Estimate the cost of your project depends on your detailed WBS (code implementation).

Latihan: Cost Controlling (1)• Proyek A dengan estimasi durasi 8 bulan dan total anggaran

Rp. 80 juta. Setelah 2 bulan, proyek dikontrol. Manajer proyek mengatakan proyek berjalan dengan anggaran di bawah rencana, hanya 15 juta yang baru dikeluarkan dan 25% kegiatan telah selesai.

• Proyek B dengan estimasi durasi 8 bulan dan total anggaran Rp. 80 juta. Setelah 2 bulan proyek dikontrol. Manajer proyek mengatakan proyek berjalan dengan anggaran 5 juta lebih dari rencana, dengan penyelesaian 20%.

• Asumsi: biaya proyek terbagi secara merata pada periode pengerjaan.

Latihan: Cost Controlling (2)

1. Kesimpulan apa yang dapat diambil dari data-data yang Anda terima pada kasus di atas ?

2. Hitunglah variabel-variabel yang diperlukan untuk mengevaluasi jalannya proyek !

3. Kesimpulan apa yang dapat Anda lihat setelah proyek dievaluasi dengan variabel-variabel kontrol biaya ?

The Importance of Human Resource Management

• People determine the success and failure of organizations and projects

• Recent statistics about IT workforce:– The total number of U.S. IT workers was more than

10.1 million in December 2002, up from 9.9 million in January 2002

– IT managers predict they will need to hire an additional 1.2 million workers in the near future

– Hiring by non-IT companies outpaces hiring by IT companies by a ratio of 12:1

What is Project Human Resource Management?

• Project human resource management includes the processes required to make the most effective use of the people involved with a project. Processes include– Organizational planning– Staff acquisition– Team development

Keys to Managing People

• Psychologists and management theorists have devoted much research and thought to the field of managing people at work

• Important areas related to project management include– motivation (intrinsic and extrinsic)– influence and power– effectiveness

Abraham Maslow’s Hierarchy of Needs

McGregor’s Theory X and Theory Y

• Douglas McGregor popularized the human relations approach to management in the 1960s

• Theory X: assumes workers dislike and avoid work, so managers must use coercion, threats, and various control schemes to get workers to meet objectives

• Theory Y: assumes individuals consider work as natural as play or rest and enjoy the satisfaction of esteem and self-actualization needs

• Theory Z: introduced in 1981 by William Ouchi and is based on the Japanese approach to motivating workers, emphasizing trust, quality, collective decision making, and cultural values

Thamhain and Wilemon’s Ways to Have Influence on Projects

1. Authority: the legitimate hierarchical right to issue orders2. Assignment: the project manager's perceived ability to influence a

worker's later work assignments3. Budget: the project manager's perceived ability to authorize others'

use of discretionary funds4. Promotion: the ability to improve a worker's position5. Money: the ability to increase a worker's pay and benefits6. Penalty: the project manager's ability to cause punishment7. Work challenge: the ability to assign work that capitalizes on a

worker's enjoyment of doing a particular task8. Expertise: the project manager's perceived special knowledge that

others deem important9. Friendship: the ability to establish friendly personal relationships

between the project manager and others

Organizational Planning• Organizational planning involves

identifying, documenting, and assigning project roles, responsibilities, and reporting relationships

• Outputs and processes include– project organizational charts– work definition and assignment process– responsibility assignment matrixes– resource histograms

Sample Organizational Chart for a Large IT Project

Work Definition and Assignment Process

Sample Responsibility Assignment Matrix (RAM)

Staff Acquisition

• Staffing plans and good hiring procedures are important in staff acquisition, as are incentives for recruiting and retention

• Some companies give their employees one dollar for every hour a new person they helped hire works

• Some organizations allow people to work from home as an incentive

• Research shows that people leave their jobs because they don’t make a difference, don’t get proper recognition, aren’t learning anything new, don’t like their coworkers, and want to earn more money

Resource Leveling

• Resource leveling is a technique for resolving resource conflicts by delaying tasks

• The main purpose of resource leveling is to create a smoother distribution of resource usage and reduce overallocation

Resource Leveling Example

Team Development

• It takes teamwork to successfully complete most projects

• Training can help people understand themselves, each other, and how to work better in teams

• Team building activities include– physical challenges– psychological preference indicator tools

Social Styles

Individual Task

• Identify what is the type of your co-workers in your project ?

• Is he / she appropriate to the job descriptions ?

What Is Quality?

• The International Organization for Standardization (ISO) defines quality as the totality of characteristics of an entity that bear on its ability to satisfy stated or implied needs

• Other experts define quality based on– conformance to requirements: meeting written

specifications– fitness for use: ensuring a product can be used as it

was intended

Project Quality Management Processes

• Quality planning: identifying which quality standards are relevant to the project and how to satisfy them

• Quality assurance: evaluating overall project performance to ensure the project will satisfy the relevant quality standards

• Quality control: monitoring specific project results to ensure that they comply with the relevant quality standards while identifying ways to improve overall quality

Quality Planning

• It is important to design in quality and communicate important factors that directly contribute to meeting the customer’s requirements

• Design of experiments helps identify which variables have the most influence on the overall outcome of a process

• Many scope aspects of IT projects affect quality like functionality, features, system outputs, performance, reliability, and maintainability (ISO 9126)

Quality Assurance• Quality assurance includes all the activities

related to satisfying the relevant quality standards for a project

• Another goal of quality assurance is continuous quality improvement

• Benchmarking can be used to generate ideas for quality improvements

• Quality audits help identify lessons learned that can improve performance on current or future projects

Quality Control

• The main outputs of quality control are– acceptance decisions– rework– process adjustments

• Some tools and techniques include– Pareto analysis– statistical sampling– Six Sigma– quality control charts

Pareto Analysis

• Pareto analysis involves identifying the vital few contributors that account for the most quality problems in a system

• Also called the 80-20 rule, meaning that 80% of problems are often due to 20% of the causes

• Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources

• Pareto diagrams are histograms that help identify and prioritize problem areas

Figure 8-1. Sample Pareto Diagram

Testing

• Many IT professionals think of testing as a stage that comes near the end of IT product development

• Testing should be done during almost every phase of the IT product development life cycle

Testing Tasks in the Software Development Life Cycle

Types of Tests• A unit test is done to test each individual

component (often a program) to ensure it is as defect free as possible

• Integration testing occurs between unit and system testing to test functionally grouped components

• System testing tests the entire system as one entity

• User acceptance testing is an independent test performed by the end user prior to accepting the delivered system

Group Task

• Identify the ISO 9126 (available in the course web and dictat 10.6), what kind of Software Qualities will be tested in your project?

Project Communications Management Processes

• Communications planning: determining the information and communications needs of the stakeholders

• Information distribution: making needed information available in a timely manner

• Performance reporting: collecting and disseminating performance information

• Administrative closure: generating, gathering, and disseminating information to formalize phase or project completion

Sample Stakeholder Analysis for Project Communications

Media Choice Table

The Impact of the Number of People on Communications Channels

Performance Reporting

• Performance reporting keeps stakeholders informed about how resources are being used to achieve project objectives– Status reports describe where the project stands at a

specific point in time– Progress reports describe what the project team has

accomplished during a certain period of time– Project forecasting predicts future project status and

progress based on past information and trends– Status review meetings often include performance

reporting

Administrative Closure

• A project or phase of a project requires closure

• Administrative closure produces– project archives– formal acceptance– lessons learned

Sample Template for a Monthly Progress Report

Sample Template for a Letter of Agreement for a Class Project

Final Project Documentation Items