Software Project Management SPM chapter II

PLVD RAVIKUMAR

1. UNIT-II
Software Project Time And Cost Management: Time management, The Importance
of Project Schedules, Estimating Activity Durations, Developing The Schedule,
Controlling the Schedule.
Cost management: The Importance of Project Cost Management, BasicPrinciples of Cost
Management and Estimating Costs.
1) Define Project time management and write the processes required to ensure timely
completion of a project. ( 3+7 M)
2) Explain the following two terms: Estimating Activity Resources and Estimating Activity
Durations. ( 5+5 M)
3)Explain the following schedule development tools and techniques: ( 6+4 M)
a) Gantt chart b) PERT
4)Write about the tools and techniques used in controlling the schedule. (10 M)
5)Define Cost and Explain about different processes involved in the Project Cost
Management. ( 2+8 M)
6)Explain some of the basic principles of cost management, such as profits, life cycle costs,
tangible and intangible costs and direct and indirect costs. ( 10 M)
7)What is estimating costs? How many types are there? Explain them? (2+3+5 M)
8)Explain about the estimation tools and techniques for cost management? (10 M)
9)Discuss the benefits of Earned Value Management Project Portfolio management to assist
in cost control. ( 10 M)
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2. What is Time Management in Project Management and
explain its importance.
Time management is the management process of the
time spent, progress made, action of plan on project
tasks and activities.
Excellent time management requires the planning,
scheduling, monitoring, and controlling of all project
activities.
Spare Time:A good schedule is a difference between
being constantly overwhelmed and having extra time
to complete the event for your well-being.
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3. Why do we need Time Management:
To save project time.
To reduce stress.
To function or work effectively.
To increase our work output & Company Growth.
To have more control over Job opportunities.
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4. 4

5. How to use Time effectively:
By Effective Planning.
Setting Goals & Objectives.
Setting deadlines.
Delegation of responsibilities.
Prioritizing activities as per there importance.
Spending the right time on right activities.
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6. TheProcessofTimeManagementStartswithProject
Cost,MakingactivityLogs&Leads,GoalSetting,
Planning,PrioritizingandScheduling.
ProjectTimemanagementisoneoftheSixmajor
functionsofprojectmanagement,accordingtothe
ProjectManagementInstitute(PMI).
Ifourprojectisnotcompletedwithintime,thenwe
useSchedulingMechanisms.
Whensomepeoplerefertoprojecttimemanagement,
theyarealsoreferringtothetoolsandtechniquesused
formanagingtime.
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7. Aproject,bydefinition,hasanofficialstartandenddate.
Inordertomeetthisdate,everyprojectneedsaschedule
andtomanagetheirowntimeandtheteam’stimeto
ensurethatthescheduleismet.
ImagineyoudecidetorenovateaBathroominyourhouse.
Itwillneedsomesparetime,soyoudon’tgiveyourself
anenddateorcreateaprojectschedule.
Wehavetimetoworkontherenovation.Likelyitisfaced
withconstantdelays,andwehavesomeissues:
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8. Youfelttoobusytoworkonit,soyoupushedittothe
backofyourto-dolist.
Youdidn’torderthenewtilesintimeandhadtowait
forthemtocomein.
Youweren’tabletofindaplumberandcouldn’tinstall
thesinkorcommodinBathroomaftertheywere
delivered.
Youfoundouttoolatethatinspectionsneedtobe
bookedmonthsinadvanceofresources.
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9. The seven main Important processes in project time management:
Plan schedule management:Many resources don’t mention this process
when discussing time management. But, before you can complete the other
steps, you need to plan how you will manage your schedule.
What software or S/w tool will you use?
Who will be responsible for using the software?
How do define those resources are supportable or not?
Defineactivities:Onceyouhavepreparedtimemanagementplan,
youcanidentifyanddefineyourprojectactivitieswhocanperform.
OftenEventsWorkbreakdownstructure(WBS)isusedtohelpdefine
activitiesandtaskswithinaproject.Majormilestonesshouldalsobe
determined.
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10. Sequenceactivities:Ifallthetasksthatmustbe
completedthenyoucanstartsequencingtheminthe
properorderusingNetworkDiagram.
Estimateresources:Inprojectmanagement,theterm
‘Resources’oftenreferstopeople.
However,youalsoneedtoidentifywhichtools,
materials,Equipments,systems,budget,andother
resourcesyouwillneedforeachtasktobecompleted.
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11. EstimateDurations:Onceyouknowwhichtasksmustbe
completedfirstandwhatyouneedtoaccomplishthem,it’stimeto
estimatehowlongitwilltaketocompleteeachactivity.
Youmustknowwhatisthemaximumtimeperiod,minimum
timeperiodandprobabletimeperiodtocompletethe
particulartask.
Someprojectmanagersuse,PERT(ProgramevaluationReview
Technique),CPM,NetworkAnalysisMethodstocomeupwith
theirdurations.
BasedonMarginalCostonlyweknoweitherincreaseor
decreasethecompany’sgrowthrate.
ThedifferencebetweentotalcostofprojectandEstimationcost
iscalledBidValue.BasedonBidValueMarginalcostfactordepends.
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12. True value by calculating your project cost, per Year:
Costperyear=(Salary+taxes+officespace+officeequipment+Profityou
generate)
CalculateperhourlyRate=Costperyear/Workhourperyear.
Developtheprojectschedule:ThiscanbedonebyInputtingyour
activities,durations,startandenddates,sequencing,and
relationshipsintoaschedulingsoftware.
Controltheschedule:
Onceyourscheduleiscreated,itneedstobemonitoredand
controlled.WorkProgressneedstobereviewedandupdatedona
regularbasis,soyoucancompareyouractualworkcompletedagainst
theplan.
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13. DEFINE SCHEDULE. EXPLAIN THE IMPORTANCE OF PROJECT
SCHEDULE..
Inprojectmanagement,theprojectscheduleisadocument
that,ifproperlyprepared,isusableforplanning,execution,
monitoring,controlling,andcommunicatingthedelivery
ofthescopetothestakeholders.
Themainpurposeofprojectschedulingistorepresentthe
plantodelivertheprojectscopeovertime.
Theprojectscheduleisusedtocommunicatetoall
stakeholderswhencertainworkelementsandprojectevents
areexpectedtobeaccomplished.
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14. At a minimum, the project scheduleshould include the
following components:
Define All activities
A planned start date for the project.
Planned start dates for each activity.
Planned finish dates for each activity.
Planned finish date for the project.
Resource assignments.
Calendar based Events.
Estimate Activity durations.
The "flow" (sequence) of the various activities.
The relationships of activities.
Identified critical paths.
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15. Five factors for Control Schedule when Planning & Monitoring
It’simportantandyouknowhowtoplantheproject,but
therearesometipswhenplanningandschedulingyourproject
forschedulecontrol.Herearefive:
Performance Reviews:Use thisto measure, compare
and analyzethe performance of our each schedule.
There are several ways to select the performance you
want to review, such as the actual start and finish
dates,percent completeand remaining duration
for the work in progress.
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16. CriticalPathMethod:Thecriticalpathhelpsyou
predicthowlongtheprojectwilltakebyanalyzing
thesequenceofactivitiesanddiscoveringwhich
areessential,andwhichyoucanskipandstill
delivertheprojectsuccessfully.
MonteCarloSimulation:Thistechniquehelpsyou
quantifythetotalcostofyourproject,whichallows
youtocalculateadefineddistributionoftotal
costsfortheprojectandpossiblecompletiondates.
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17. Resource Histogram: By using a resource histogram,
you can show resource consumption and availability by
time period.
Variance Analysis:The variance is the difference
between the planned and actual schedule of your project.
Within give time & Budget we complete the project or
software byuse variance analysis.
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18. There are some tools and techniques available to the
project schedule are:
Schedule network analysis.
Critical Path Method.
Critical Chain Method.
Resource leveling.
What-if scenarios.
Leads and lags.
Schedule compression.
Scheduling tools.
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19. WHAT IS PROJECT BASELINE
Stakeholdersmeasureprojectsbyhowwelltheyareexecuted
withintheprojectconstraintsorbaselines.Alwaysthecurrent
tasksincreasesgrowthcomparestoprevioustasksintheproject.
Aprojectbaselineisanapprovedplanforaportionofaprojecthas+/-changes.
It is used to compare actual performance to planned performance and to
determine if project performance is better within acceptable guidelines.
Every project has at least four project baselines. There may be others,
depending on the project and definitions used.
1. Budget Baseline.
2. Schedule Baseline.
3. Scope Baseline.
4. Quality Baseline.
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20. WHY PROJECTS ARE LATE AND OVER BUDGET
Omissions-Leavingoutpaperworkthatmustbedone.
Examplescouldnotincludedocumentation,interfaceswiththe
PMO,missingsomepapers,tasksorinterfaceswithotherprojects.
Merging-Thepointatwhichseveralprojectschedulepathsmeet.
Successorworkcannotbeginuntilpredecessor'sworkiscomplete.
Thetimetogettoincreasewiththenumberofactivities,time
beingmerged.
Rework/Re-task-Worknotcompletedinaccordancewithcompany
standardsthus,mustbere-done,thereisactualworktaskswillbe
Missingsometimes.Thereisahumannaturereluctancetoreport
badnews.
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21. Queuing-Improper allocation of time resourcesfor
modules to perform critical path activities.
Multitasking-Most companiesnow-a-days insist their
people to work multiple projects at a time, i.e.,
multitask.
This causes project activities to wait on resources and
suffer efficiency degrades.
Many times we work on multiple projects parallelythen
firstallocate time to each module and integrate and
execute it efficiently.
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22. Failure to understand the complexity of the project-
Inability to understand how the complexity of the
work planned.
This causes us to under-estimate both budgets and
durations.
Industries never be accept over-burden & high risk
projects it causes negative impact on company’s
goodwill.
Queuing-Improper allocation of time resourcesfor
modules to perform critical path activities.
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23. MemberSyndrome-Teammemberswaitingtostartwork
untilthereisschedulepressure.Thiswillultimatelyaffect
thecriticalpathandtheprojectnotdeployinwith-in
exactdate.
Agreement Policy-Company policy about merits, bonuses,
performance reviews,or other rewards can drive people.
Based on the agreement policy managers develops the
project.
Rewards or punishments given out for being Early, on time,
late, over budget, on budget, or under budget will drive
people to protect themselves.
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24. Estimate Activity Durations –6 Tools
Scheduling is like a significant project planning activity,
To schedule the project plan, there is start & end dates.
1)Identify all the functions required to complete the project.
2) Break down large functions into small activities.
3) Determine the dependency among various activities.
4) Allocate resources to activities.
5) Plan the beginning and ending dates for different activities.
6) Determine the critical path.
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25. Basically,ascheduleisalistofprojectdeliverables,
tasks,andmilestoneswithplannedstartandfinish
dates.Projectactivitiesareoftenestimatedwiththe
helpofotherparameterssuchasresourcequantities,
activitydependencies,budget,andtime
constraints.
Itisnotaneasytaskforaprojectmanagertoestimatethe
durationofactivitiescorrectly,becausethisrequires
knowledgeandjudgment.
These are Six tools: Analogous Estimating, Parametric
Estimating, Three-Point Estimates, Expert Judgment,
Reserve analysis, and Group Decisions.
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26. 26

27. 1. Expert Judgment
Expertjudgmentmeansusingexpertswhohaveknowledge
oftherelatedfieldandexperienceinestimatingactivity
durations.
ExpertJudgmentcanbeprovidedbyaSinglememberor
multiplemembersoftheprojectmanagementteam.
Theexpertwhohasthemostknowledgeablepersonhe
knowswhattypeofworkmustperformsonthecomplex
projectstogetmoreaccurateestimates.
Theaccuracyofexpertjudgmentdependsontheknowledge
andexperienceoftheestimator,theyaremorevaluableto
project.
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28. 2. Analogous Estimating
Analogous estimating analyzes a similar project completed in
the pastand makes a rough estimation for the current project
by the use of this past project’s data.
It is good estimation technique supports Historical data.
For instance, you have to estimate the duration of a hospital
construction projectwith the help of analogous estimating.
In case you will use your previous hospital project’s data such as task
durations, milestones, and their relationshipsto determine the
new project’s activity durations.
Although calculations easily and quickly, estimations are not
accurate enough.Analogous estimation provides entire duration
estimation.
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29. 3. Parametric Estimating:
Itisanimportanttooltoestimateactivityduration,the
ParametricEstimationTechniquecanbeconsideredasof
Historicalinformationandstatisticaldata.
Itisadefinitetechniquetoidentifybothcostandtime
foracurrentprojectusingdatafrompastprojects
withduplicateparameters.
Forinstance,wehavetobuildadamandyoumeasured
someofthemajortask’squantitieswithcost.
Byusingtheproductivityratesofmachinesfromthe
previousproject,youcanestimateyourcurrentproject
durationwiththesemachinery.
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30. 4. Three-Point Estimates
Whiledoingtheestimation,wecarefullyestimatethedurationof
eachactivity,butweneverknowthefuture.Incaseofany
uncertainties,theprojectschedulecanbefailed.
So,todealwiththoseuncertaintiesandrisk,weneedtotakethe
helpofthree-pointestimationwhichisalsoreferredasPERT---
ProgramEvaluationandReviewTechnique.
TheProgramEvaluationandReviewTechniqueusethreetypes
ofestimations:
M–MostLikely:Therealisticoridealsituation,alltherequired
resourceswillbeassignedandcanachievetheexpected
productivity.
O–Optimistic:Estimationbasedonbestcasescenario.
P–Pessimistic:Estimationbasedonworstcasescenario.
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31. For good scenarios marginal cost rate is high, bad
scenarios marginal cost rate is low.
Marginal Cost rate defines the organisational value.
The expected duration can be calculated using two
basic formulas.
Triangular Distribution –(O+M+P)/3
Beta distribution –(O+4M+P)/6
(Total time to complete the project is Tp)
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32. 5.Reserve Analysis
Basically,therearetwotypesofreserves,Contingency
ReserveandManagementReservetodealwithany
uncertaintiesduringtheprojectlifecycle.
Contingency Reserve
Contingencyreservesareincludedwithinthedurationof
schedulebaseline.Itisestimatedbyconsideringthe
“Known-Unknowns”tasksor“identifiedrisks”.
Management Reserve
Managementreservesarenotincludedintheprojectbaseline
well,butconsideredinoverallprojectduration.
Itisintendedtodealwiththeall“Unknown-Unknowns”or
“unidentifiedrisk”thatcanaffectthetotalproject.
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33. 6. Group Decision Making Techniques
Groupdecision-makingtechniquescanbeusedtoestimate
thedurationofeachactivity.Inthistechnique,youconsult
yourteammembersorexpertstoprovidethebestestimatesfor
theprojectactivities.
1) Restricting the scope of the work of an activity.
2) Using more resources:Employing more workforce and machinery.
3) Increasing the productivity rate.
4) High demand less supply of products leads to more pricing
strategy, this is one method to get profits.
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34. Explain about how to Develop a Project
Schedule
ScheduleManagementistheprocessofdefining
projecttasksandtheirdurations,dependencies,
andassignedresourcesinordertocompletethe
projectwithinadesignatedtimeframeandalso
havestartandenddates.
Effectiveprojectmanagement requirescareful
planning,controllingandschedulingtoensurethat
tasks,theprojectsarefinishedontime,onbudget,on
scopeandtothedesiredquality.
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35. Activity:A specific taskorset of tasksis a part of the
scope of a project.
Typically WBS work packages are decomposed to identify
particular activities.
Network Diagram:A useful visual representation of
the projecthavingStart to finish.
Critical path:
1)Longest path through the network diagram for big projects.
2)Identifies the shortest schedule time for the project.
3)If delay of any activity form critical path, delays the project.
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36. Effective project management requires careful planning and
schedulingto ensure that tasks the projects are finished on
time, on budget, and to the desired quality.
Steps to Developing a Project Schedule:
Step 1: Create a work breakdown structure.
Step 2: Estimate durations.
Step 3: Determine resources.
Step 4: Identify predecessors.
Step 5: Determine milestones.
Step 6: Identify dependencies.
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37. Step 1: Create a Work Breakdown Structure (WBS)
AWorkBreakdownStructure(WBS)isusedfor
estimatingtheprojectscopebybreakingitdown
intoeasilymanageablecomponents,orbites.
WBSisthehierarchicallistofproject’sphases,tasks,
andmilestones.
AWBSisveryusefulinplanningaprojectandmakesa
complexprojectmoremanageable.
TheWBSisdesignedtohelpbreakdownaproject
intomanageablechunksthatcanbeeffectively
estimated,managed,anditissupervised.
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38. Estimation Resources:
Forprojectdevelopingtime,weneedsomeresourcesbyusingthat
resourcesweexecutetheproject.Butwefollowtwoapproachesto
getscopeoftheproject:
Top-Down Estimating
Thistechniqueisveryusefulinestimatingtheprojectwhenmorehigh-
levelrequirementsareknowninaprojectanditisthendecomposed
progressivelyintosmalleractivitiescalledwork-packets.
Forexample,activityexcavationisbrokentop-downintoactivities
‘Pouringconcrete’,‘Cure’,‘sitegrading’topillarformation’.
Bottom-Up Estimating
Thisisusuallyusedwhentheinformationisonlyknowninsmallerpieces.
Thistechniqueisusedwhenrequirementsareknownatadiscretelevel
wherethesmallerworkpiecesarethenaggregatedtoestimatethe
entireproject.
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39. WBS for a House Construction Project
Theprojectisbrokendownintoactivitieswhichare
furtherdecomposedintosub-tasksorsub-activities.
The tasks done to complete the project are called
activities.
An activity is the lowest level sub-set in the project
phasethat is executed to accomplish a component of the
project. Following is a WBS example for the
construction of a House:
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40. Define Broader Activities in the Project
Beginbylistingthehigh-levelactivitiescalled
summarytasksrequiredtodotheproject.Startmapping
thelower-leveltaskscalledBrokentasksoractivities
intheformofhierarchytodoneproject.
The high-level activities (Summary tasks) to construct a
house are:
Foundation.
External Construction.
Internal Construction
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41. 41

42. Step 2:Estimate Task Duration
Oncethelistofactivitiesisidentified,estimatethetask
durationforallactivitiesastohowmucheffortby
durationisrequiredtoperformeachactivity.
Toestimatethetaskduration,makesuretheactivityis
detailedenoughtoestimatehowmuchefforteach
activityorsub-activitywillrequiretocomplete.
Forexample,tocalculatehowmuchtimeisrequired
tocompletethe‘Excavation’forconstructingthehouse,
youmayneedtoknowwhatareinvolvedsteps,when
toinvolvedintheexcavation.
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43. 43

44. Step 3: Determine the Resources Requirements
Determinethepersonnelandnon-personnelresources
requiredtoperformallactivities.Forexample,the
excavationworkmayrequirethefollowingresources:
Project Manager–Work duration 16hours per week.
Site Grading Contractor–Work duration 80hours per
week.
CreateaResourceTableofallresourceswhowillwork
ontheproject.
AssignorAllocateresourcestoactivitiestothe
people.
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45. 45

46. Step 4: Identify the Predecessor between Tasks
Task dependencies are theinter-relations that exist
between project activities. These task dependencies
determine the order in which project tasks must be
executed. If predecessor complete then successor task
will begin.
For example, some tasks need to be executed in sequence,
meaning one task must be completed before the next can
begin.
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47. Step 5: Identify Dependencies
In a project, dependency is a link between tasks or
activities or elements. There are four kinds of
dependencies:
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48. Step 6: Determine Milestones
Theprojectisbrokendownintodiscretechunksandthe
relatedtasksaregroupedtogetherasaphaseorcomponent.
Thisphaseorcomponentoftheprojectisassigneda
measurablemilestoneasthetargetdateortimetofinish
earlyit.
Forexample,basedontheestimationofthewhole
complexproject,itisbrokenintophaseswith
milestones.
Milestonesaresignificanteventsthatareeitherreachedor
imposedupontheprojectoncompletionofeachphase
perfectlyintheprojectontime.
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49. Explain how to Controlling the Project Schedules
Controllingthescheduleinprojectmanagementinvolvesmonitoringthe
progressoftheprojectandmakingadjustmentsasnecessarytoensurethatthe
projectstaysontrack.Herearesomekeystepsinvolvedincontrollingthe
schedule:
1.Monitorprogress:Regularlymonitortheprogressoftheprojectagainstthe
schedule.Thiscanbedoneusingprojectmanagementsoftware,spreadsheets,or
othertools.
2.Identifyvariances:Identifyanyvariancesbetweentheactualprogress
andtheplannedprogress.
Thiscanincludetasksthataretakinglongerthanexpected,unexpecteddelays,
orchangesinscope.
3.Analyzethecausesofvariances:Analyzethecausesofthevariancesand
determineiftheyarewithinthecontroloftheprojectteam.Thiscaninclude
factorssuchasresourceconstraints,unforeseenissues,orchangesinpriorities.
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50. 4.Determinecorrectiveactions:Determinecorrectiveactionsto
addressanyvariancesthatarewithinthecontroloftheproject
team.Thiscanincludereallocatingresources,adjustingthe
schedule,re-taskingorrevisingtheprojectplan.
5.Implementcorrectiveactions:Implementthecorrective
actionsandmonitortheireffectiveness.Thiscaninvolve
communicatingchangestoteammembersandstakeholders
andupdatingtheprojectplanandschedulewithCPManalysis.
6.Rebaselinetheschedule:Ifsignificantchangesaremadetothe
projectplanorschedule,itmaybenecessarytore-baselinethe
schedule.Thisinvolvesupdatingthescheduletoreflectthenew
planandestablishingnewtargetsforcompletion.
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51. 7. Communicate progress:Communicate progress to team
members, stakeholders, and sponsors.
This can includeregular status reports, meetings,
and other formsof communication.
8. Controlling the schedule: It is critical to the success
of the project. By monitoring progress, identifying
variances, and taking corrective action,project
managers can ensure that the project stays on track and
achieves its objectives.
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52. Costdenotestheamountofmoneythatacompanyspendsonthecreationor
productionofgoodsorservices.Itdoesnotincludethemarkupforprofit.Fromaseller's
pointofview,costistheamountofmoneythatisspenttoproduceagoodproduct.
Costestimationinprojectmanagementistheprocessofforecastingthecostand
otherresourcesneededtocompleteaprojectwithinadefinedcost&scope.
Costestimationaccountsforeachtaskrequiredfortheprojectand
calculatesatotalamountthatdeterminesaproject’sbudget.
Deliveryofasuccessfulprojectisdefinedbyyouroverallcostperformanceand
abilitytomeetprojectdeadlines.
Projectmanagersneedtohavetheabilitytoallocatetimeandresources
efficientlytomanagecostsandkeeptheprojectonitstracks.
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53. Almostallorganizationslookforprofit,withproject
managementskillsbecausetheyShowyourabilityto
stayorganizedandcommunicate withteam
members,especiallywhenhandlingcomplexprojects.
Whenpracticingcostcontrol,projectmanagersshould
payattentiontothefollowingfactors:
1)Original budget
2)Approved cost
3)Forecasted vs. Actual cost
4)Committed costs
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54. Itinvolvesanalyzingvariousfactors,Suchaslabor,
materials,equipment,overhead,andanyother
relevantexpenses,todeterminetheoverallcostofa
particularendeavor.
Theaccuracyofcostestimatesiscrucialforeffective
budgetinganddecision-making.
Thereareseveraltypesofcostestimates.Herearefour
mainfactorstoestimateeachprojecttobesuccess.
1. Order of Magnitude Estimate (Rough Estimate).
2. Budget Estimate (Preliminary Estimate).
3. Definitive Estimate (Detailed Estimate).
4. Control Estimate (Monitorize Estimate).
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55. Basic Principles or types of implementing project cost management::
Theprojectcostmanagementprocessempowersyoutoplanaproject
well,makeinformeddecisionsonceactivitiesareunderway,and
measuresuccess.Keeptrackofmultipletypesofprojectcost,include:
1.Profits:Profitsaretheultimategoalofcostmanagement.Theprimary
objectiveistogeneraterevenuesthatexceedthecostsincurredinproducing
goodsordeliveringservices.
Costmanagementaimstooptimizecoststoenhanceprofitabilityofan
organization.
2.LifeCycleCosts:Lifecyclecostsrefertothetotalcostincurredthroughoutthe
entirelifespanofaproductorservice.Itencompassescostsrelatedtoresearchand
development,production,marketing,distribution,customersupport,anddisposal.
Consideringlifecyclecostshelpsinmakinginformeddecisionsaboutpricing,
quality,andresourceallocation.
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56. 56

57. 3.TangibleCosts:Tangiblecostsaredirectandmeasurableexpenses
incurredintheproductionprocess.Thesecostsincluderawmaterials,
labor,equipment,utilities,andtransportationexpenses.
Tangiblecostsareeasilyquantifiableandaretypicallyaccountedforin
financialstatements.
4.Intangible Costs:Intangible costs are indirect and non-measurable
expenses associated with business operations.
Thesecostsarenoteasilyquantifiable&notmeasurablebutcan
significantlyimpactacompany'sperformance.
Examplesofintangiblecostsincludeemployeeturnover,customer
dissatisfaction,branddamage,andlostopportunities.Managing
intangiblecostsoftenrequiresafocusonimprovingefficiency,
quality,agreementpoliciesandcustomersatisfaction.
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58. 5.Fixedcosts:One-offfeesmaybeconsideredfixed,notbechanged
aren’tlinkedtotimemanagement.
6.Variablecosts:Thistypeofcostrisesifaprojectisextendedor
delayed.Staffingcostsarehighforacommonexample.
7.Sunkcosts:Thesearepurchasesthathavealreadybeforebeenmade,
effectivelythecostisdeemedtobesunk.Ex:Buyingtheapartmentsin
constructingtime.
8.DirectCosts:Directcostsareexpensesthatcanbedirectlyattributedto
aspecificproduct,project,oractivity.Theyaretypicallyincurredindirect
relationtotheproductionteam.
Examplesofdirectcostsincludelaborcostsforworkersdirectly
involvedinproductioncost,rawmaterials,andspecificequipment
usedexclusivelyforaparticularproject.
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59. 9.IndirectCosts:Indirectcostsareexpensesthatare
notdirectlylinkedtoaspecificproductorproject,but
arenecessaryfortheoverallfunctioningofabusiness.
Indirect costs are often shared across multiple activities
or products.
Examplesofindirectcostsincluderent,utilities,
administrativesalaries,andgeneralmaintenance
expenses.
Indirectcostsareallocatedtovariousproductsorprojects
usingallocationmethodssuchascostdriversor
activity-basedcosting.
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60. 60

61. What is Project ROI
ProjectROIisthereturnonyourinvestmentinaparticular
project.It’stheprofitaprojectgeneratesafteryouexclude
alltheprojectcoststhatgointocompletingit.
Calculate your expenses & ROI using this formula:
Totalexpenses=softwarecosts+operatingcosts+
additionalcosts+servicecosts.(hourstocomplete
work)x(numberofpeoplecompletingwork)x
(hourlywages).
ROI=(Netprofit/costofinvestment)x100
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62. COST ESTIMATE TECHNIQUES
Order of Magnitude (ROM) Rough Estimate:
Thistypeofestimateisdoneattheearlystagesofaproject
whenthereislimitedinformationavailable.
Itprovidesabroadrangeorapproximationofcosts,
usuallywithahighdegreeofuncertainty.
ROMestimatesareusedforinitialfeasibilitystudies,
high-levelbudgeting,orwhenthereisaneedforaquick
estimate.
Theyaretypicallyexpressedasarangeorasinglevalue
withalargemarginoferror.
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63. Detailed Estimate:
Adetailedestimateisperformedwhenmorespecific
informationisavailableabouttheproject.
Itinvolvesathroughanalysisofallcostcomponents,takinginto
accountdetailedprojectplans,specifications,andquantities.
Thistypeofestimateprovidesamoreaccurateandprecisecost
projection.
Detailedestimatesarecommonlyusedforbiddingoncontracts,
preparingprojectbudgets,andmakingfinancialdecisions.
Withinthesetwocategories,therearedifferenttechniquesand
approachesusedtoestimatecosts.
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64. Defineeachestimationtechniquepreviouslywe
discussfromtopics:


ThreePointAnalysis:
ReserveAnalysis:
Top-BottomestimatingAnalysis:
Bottom-TopestimatingAnalysis:
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65. EARNED VALUE METHOD
Discuss the benefits of Earned Value Management Project Portfolio
management to assist in cost control.
Oneotherverypowerfultoolthatwillhelpinthisscheduleanalysisisthe
EarnedValueMethod(EVM).
EVMhelpsevaluatingprojectscheduleperformance,andCalculatea
SchedulePerformanceIndex(SPI),whichisarepresentationofthe
effectivenessofyourplannedschedule.
EVMcanalsocalculateaScheduleVariance(SV)whichisthedifference
betweenthevalueoftheworkcompletedandthevalueoftheplannedwork.
EVMdoeshaveseveraldrawbacks,buttherearesolutionstothedrawbacks:
1. EVMignores the critical path. There are two things we can do to
solve this problem.
a. Perform a separate CP analysis.
b. Strip out all non-CP work elements and perform a second EVM analysis.
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66. 66
2. As the project nears completion, EVM breaks down for
schedule analysis.
This is because as the project nears completion, EV
approaches PV, and in fact, reaches PV at project completion.
SV and SPI lose their meaning.

67. Limitations of Earned Value
Management (EVM):
High Complexity.
Data Requirements.
Focus on Cost.
Less Productivity.
Lack of Flexibility.
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68. 1.PerformanceMeasurement:EVMprovidesobjectiveand
quantitativemeasuresofprojectperformancebyintegratingcost,
schedule,andscope.
Itallowsprojectmanagerstocomparetheplannedandactual
progressofwork.
BytrackingkeyperformanceindicatorssuchasCostPerformance
Index(CPI)andSchedulePerformanceIndex(SPI),project
managerscaneffectivelymonitorandcontrolprojectcosts.
2.CostControlandForecasting:EVMprovidesasolidfoundation
forcostcontrolandforecasting.
EVMtechniqueslikeCostPerformanceIndex(CPI)andEstimateat
Completion(EAC),helpforecastthefinalprojectcostbasedonthe
project'scurrentperformance.
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69. 3.CostVarianceAnalysis:EVMprovidesarobustframework
foranalyzingcostvariances.Itcalculatesvariousmetricssuch
asCostVariance(CV)andScheduleVariance(SV)toassessthe
variancebetweenplannedandactualcostsandschedules.
By conducting variance analysis, project managers can identify areas
where cost overruns or under-runs are occurring,enabling them
to take corrective actions.
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70. 70
4.Schedule Control:EVM establishes a schedule plan that serves as a
reference for planning the project performance. It provides a clear understanding
of schedule variance, Actual cost and schedule performance Indexing.
5.ResourceOptimization:EVMfacilitatesefficientresourceallocation
andutilization.Bymonitoringcostperformance,projectmanagerscan
identifyareaswhereresourcesarebeingunder-utilizedorover-utilized.
6.StakeholderCommunication:EVMprovidesastandardizedand
objectiveapproachforreportingprojectcoststostakeholders.
IntegratingEVMintoprojectportfoliomanagementpractices
enhancescostcontrolbyenablingperformancemeasurement,
accuratecostforecasting,costvarianceanalysis,baselinecontrol,
resourceoptimization,andeffectivestakeholdercommunication.

71. VARIANCE ANALYSIS
Varianceanalysisisanothertooltohelptheprojectmanager
understandwhyworkelementsarebehindoraheadofschedule.
TheTimeManagementPlanprobablysetsthresholdsforbehind
schedule(say5%),andadifferentthresholdforaheadofschedule(say
10%),totriggeryourattention.
Understandingwhyworkelementsarebehindschedulewillassistthe
projectmanagerindevelopingsolutions(actionplans)tobringtheproject
backwithinacceptableranges.
Regardlessofcareorexecution,projectscheduleslippageswilloccur.Some
projectswillfinishveryclosetothescheduleddate.Moreprojectswillfinish
withinacceptableranges(+/-5%).
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72. Otherswillfinishwelloutsidetheacceptablerange(>10%).Using
thetechniqueswewillreducethenumberofprojectsinthis
categoryandreducethesizeofthebehindvariances.
Key practices of EVM include:
Establish a Performance Measurement Baseline (PMB)
Evaluate performance against the baseline.
Problems due to the absence of Baseline:
MonitoringorLackofProgressProblem
Delaysinschedules
Lackofplanningofresources
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74. BaselineControl:EVMestablishesabaselineplanthatserves
asareferenceformeasuringprojectperformance.
Itprovidesaclearunderstandingoftheapprovedscope,schedule,
andbudget,whichservesasacontrolmechanismthroughoutthe
projectlifecycle.
Byallowingprojectmanagerstoassesstheimpactoncostandtake
necessarymeasurestomaintaincostcontrol.
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