Chapter 7 Project Cost Management Cost Estimates Techniques and Tools Tuesday April 3 Information Technology Project Management Fourth Edition Today s Schedule Chapter 7 Cost Management Estimation Techniques Cost Budgeting Portfolio Management and S W Review of Cost Accounting Terms Information Technology Project Management Fourth Edition 2 Learning Objectives Discuss different methods for preparing cost estimates Understand the processes involved in cost budgeting Understand the benefits of project portfolio management and use of software Information Technology Project Management Fourth Edition 3 Cost Management Plan A cost management plan is a document that describes how the organization will manage cost variances on the project A large percentage of total project costs are often labor costs so project managers must develop and track estimates for labor Information Technology Project Management Fourth Edition 4 Maximum Departmental Headcounts What problems does this bring to project cost management A large percentage of the costs of many IT projects are human resource costs Information Technology Project Management Fourth Edition 5 Cost Estimation Tools and Techniques Analogous or top down estimates Use the actual cost of a previous similar project as the basis for estimating the cost of the current project Bottom up estimates Involve estimating individual work items or activities and summing them to get a project total Parametric modeling Uses project characteristics parameters in a mathematical model to estimate project costs Computerized tools Tools such as spreadsheets and project management software that can make working with different cost estimates and cost estimation tools easier Information Technology Project Management Fourth Edition 6 Constructive Cost Model COCOMO Barry Boehm helped develop the COCOMO models for estimating software development costs He suggests that only parametric models do not suffer from the limits of human decision making Parameters include Function points Technology independent assessments of the functions involved in developing a system Source Lines of Code SLOC A human written line of code that is not a blank line or comment Information Technology Project Management Fourth Edition 7 Surveyor Pro Software Development Estimate Using a modified COCOMO approach Information Technology Project Management Fourth Edition 8 Typical Problems with IT Cost Estimates Developing an estimate for a large software project is a complex task that requires a significant amount of effort People who develop estimates often do not have much experience Human beings are biased toward underestimation Management might ask for an estimate but really desire a bid to win a major contract or get internal funding Information Technology Project Management Fourth Edition 9 Figure 7 1 Surveyor Pro Project Cost Estimate Information Technology Project Management Fourth Edition 10 Cost Budgeting Cost budgeting involves allocating the project cost estimate to individual work items over time The WBS is a required input for the cost budgeting process because it defines the work items Important goal is to produce a cost baseline A time phased budget that project managers use to measure and monitor cost performance Information Technology Project Management Fourth Edition 11 Surveyor Pro Project Cost Baseline Information Technology Project Management Fourth Edition 12 Earned Value Calculations for a OneYear Project After Five Months Information Technology Project Management Fourth Edition 13 Earned Value Chart for Project after Five Months If the EV line is below the AC or PV line there are problems in those areas Information Technology Project Management Fourth Edition 14 Project Portfolio Management Many organizations collect and control an entire suite of projects or investments as one set of interrelated activities in a portfolio Project portfolio management has five levels 1 2 3 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 Information Technology Project Management Fourth Edition 15 Benefits of Portfolio Management Schlumberger saved 3 million in one year by organizing 120 information technology projects into a portfolio META Group research shows that Organizations that evaluate information technology projects by what their business impacts are and what their potential business values will be implement projects that result in 25 percent more improvement to the bottom line Business executives state that using project portfolio management allows managers to make decisions faster and with more confidence META Group IT Investment Management Portfolio Management Lessons Learned A META Group White Paper www metagroup com 2002 Information Technology Project Management Fourth Edition 16 Sample Project Portfolio Management Screen Showing Project Health Information Technology Project Management Fourth Edition 17 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 Information Technology Project Management Fourth Edition 18 For Thursday April 5 Mythical Man Month Chapter 14 Hatching a Catastrophe No assignment for week end continue working on Project Deliverable On TIME Delivery of Team Milestones Now Jeopardy for Cost Accounting Information Technology Project Management Fourth Edition 19