Project Management in PracticeOutline:OverviewOverview Cost and BudgetOverviewData Gathering ApproachesTools & Techniques/Some TermsSlide 8Slide 9Probability DistributionsExampleExampleExampleExpected ValueControlling CostsControlling CostsBeta DistributionFoxMeyer DrugsProject Management in Practice 4-1Budgeting the ProjectBudgetOutline:4-2Homework #17, #18, #19 (below)For #19 use the #18 data but add to it the following:-Vendor costs of either $30,000, $50,000, or $80,000 with probabilities of 0.20, 0.50, and 0.30 respectively-You will need to set up a custom distribution to do this-What is the EV for the vendor costs?-What is the base case for the new total project engineering costs?-Using simulation, find the probability total costs exceed $130,000? Overview Approaches for gather data Budgeting & Estimating costs Budget uncertainty and risk management CB HomeworkOverview4-3OverviewCost and Budget4-4Overview4-5Budgets are plans for allocating organizational resources to project activities.•forecasting required resources, quantities needed, when needed, and costsBudgets help tie project to overall organizational objectives.Budgets can be used as tool by upper management to monitor and guide projects.Data Gathering Approaches4-6Tools & Techniques/Some Terms4-7Analogous estimationParametric estimationIt will take 20 hours of a programmer’s time to write this module. The historical average rate for this type of programmer has been $100/hour. Therefore, the module cost will be $2,000.Bottom-up estimationProject Cost Estimationat various times in the project life cycle, t04-8EstimateUnc ertaintyUnc ertainty4-9Project Cost Estimationat various times in the project life cycle, t0Probability Distributions4-10Simulation Technique for Uncertainty in Project CostsExample4-11What is the probability the project comes in at $5000 or less?Simulation Technique for Uncertainty in Project CostsExample4-12Simulation Technique for Uncertainty in Project CostsExample4-13Simulation Technique for Uncertainty in Project CostsExpected Value4-14€ EV = pii∑(Oi) Materials Very Low Low Medium High Probability 0.1 0.1 0.5 0.3 Alternatives     EVIn-house 12,500 13,800 15,200 22,000 16830Outsource 15,000 15,000 15,000 15,000 15000Combo 11,200 12,100 14,000 16,800 14370Controlling Costs4-15BACEV or BCWP – value of the actually performed work for a given period of time.AC or ACWPPV or BCWSExample: Project is the construction of a 16-mile road. The work is uniformly distributed over 12 weeks.Total budgeted amount is $600,000. At the end of the first 4 weeks, $125,000 has been spent, and 4 miles of road completed.$Work PerformedSchedule/TimeControlling Costs4-16Beta Distribution4-17FoxMeyer Drugs4-18•Why did FoxMeyer initiate the Delta III project?•What was the solution? What was FoxMeyer implementing as part of the project?•What were the problems and issues?•What can we learn about managing