bsbpmg514_assessment_event xBSBPMG514ManageProjectCostPresentation_Set2_3.pptxBSBPMG514WorkbookSet2 xAssessmentAlternativeScenarios x
Unit assessment
BSBPMG514: Manage project cost
Your task
Your assessment for this unit is to develop a project cost plan based on one of the workplace options below. Remember to use the same workplace option for each week’s assessment task. Your assessment has three tasks: one for each week.
Workplace options
· Option 1: Your workplace
· Option 2: A workplace of your choice
· Option 3: The case study provided
Weekly assessment tasks
Week 15: Determine project costs
1. Select four tasks from the project work breakdown structure and determine the resource requirements for those deliverables.
2. Estimate projects costs for the following areas:
a. contingencies to allow for identified risks and uncertainty
b. tolerance levels for the degree of cost accuracy
c. organisational requirements, for example overhead and profit margin
d. work breakdown structure.
3. Develop the project budget.
Approximate length: 850 words
and 2 charts
Week 16: Monitor and control project costs
4. Develop the financial management processes and procedures that will be implemented to monitor the project. This could include any of the following (which can be in the form of a table):
a. approval processes
b. communications and reporting processes
c. financial authorisations
d. invoice procedures
e. change request management.
5. Explain the cost analysis methods and tools that you have used to identify any cost variations. This may include:
a. variance analysis
b. performance reviews
c. work performance data and information
d. project reporting, including budgetary information
e. earned value management.
6. Demonstrate that you have implemented, monitored and modified agreed actions to maintain the financial and overall project objectives throughout the project lifecycle. This may include:
a. change requests
b. project plan updates
c. minutes from project meetings
d. reserves analysis.
Approximate length: 850 words
Week 17: Complete cost-management processes
7. Provide evidence that you have conducted appropriate activities to signify financial completion. This may include:
a. financial records finalisation
b. closure of project accounts
c. internal/external audits.
8. Explain two areas of the project that would be analysed as part of the post-implementation review to contribute to the lessons learned for the organisation relative to costs.
Approximate length: 800 words
Additional requirements
· Assessments should be typed in Cambria or Calibri.
· Assessments should be fully referenced and – where applicable – include a bibliography.
· Diagrams should be labelled and referenced.
· Pages should be numbered.
· You should keep a copy of your assessment for your records.
Note: In the context of this qualification a project has the following characteristics:
a comprehensive, detailed and integrated project management plan
a formal communications plan
a dedicated and project-based budget
formal and planned engagement with a wide range of stakeholders
a documented risk, issues and change management methodology
a quality plan with assurance and control processes
a project team-based environment.
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Diploma of Project Management
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Manage Project Cost
BSBPMG514
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Unit Outline
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This unit describes the skills and knowledge required to identify, analyse and refine project costs to produce a budget, and to use this budget as the principal mechanism to control project cost.
This unit applies to individuals responsible for managing and leading a project in an organisation, business, or as a consultant.
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Unit Structure
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There are three topics in this unit:
Topic 1 – Determine project costs
Topic 2 – Monitor and control project costs
Topic 3 – Complete cost-management processes
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Topic 1
Determine Project Costs
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What is Cost and Project Cost Management?
Cost is a resource sacrificed or foregone to achieve a specific objective, or something given up in exchange.
Costs are usually measured in monetary units, such as dollars.
Project cost management includes the processes required to ensure that the project is completed within an approved budget.
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Project Cost Management Processes
Cost estimating: Developing an approximation or estimate of the costs of the resources needed to complete a project.
Cost budgeting: Allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.
Cost control: Controlling changes to the project budget.
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Project Cost Management
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Basic Principles of Cost Management
Most members of an executive board have a better understanding and are more interested in financial terms than other elements of the project, so project managers must speak their language.
Profits are revenues minus expenses.
Life cycle costing considers the total cost of ownership, or development plus support costs, for a project.
Cash flow analysis determines the estimated annual costs and benefits for a project and the resulting annual cash flow.
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Basic Principles of Cost Management
Tangible costs or benefits are those costs or benefits that an organisation can easily measure in dollars.
Intangible costs or benefits are costs or benefits that are difficult to measure in monetary terms.
Direct costs are costs that can be directly related to producing the products and services of the project.
Indirect costs are costs that are not directly related to the products or services of the project, but are indirectly related to performing the project.
Sunk cost is money that has been spent in the past; when deciding what projects to invest in or continue, you should not include sunk costs.
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Inputs to the budget
The PMBOK Guide lists the following as inputs to determining the project budget:
Cost management plan
Scope baseline including scope statement and WBS
Activity cost estimates
Basis of estimates
Project schedule
Resource calendars
Risk register
Agreements
Organisational process assets
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How to estimate your project
https
://www.youtube.com/watch?v=rN0FrDpQNUk
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Cost Estimating
Project managers must take cost estimates seriously if they want to complete projects within budget constraints.
It’s important to know the types of cost estimates, how to prepare cost estimates, and typical problems associated with project cost estimates.
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Processes to estimate costs to enable project budget
As part of the estimation process, the PMBOK Guide refers to a range of ‘organisational process assets’ that need to be considered:
Financial control procedures
Historical information
Financial databases to support financial analytical techniques
Existing formal and informal cost estimating and budgeting-related policies, procedures and guidelines
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Cost Management Plan
A cost management plan is a document that describes how the organisation will manage cost variances on the project.
A large percentage of total project costs are often labour costs, so project managers must develop and track estimates for labour.
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How to create a project budget
https
://www.youtube.com/watch?v=LwnLNMTOQFk
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Activity 1.1
Explain the appropriate budgeting processes and techniques you will use for your project
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Cost Estimation Tools and Techniques
Basic tools and techniques for cost estimates:
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.
Parametric estimating: Uses project characteristics (parameters) in a mathematical model to estimate project costs.
Bottom-up estimates: Involves estimating individual work items or activities and summing them to get a project total.
Three-point estimating: This technique uses three estimates to define a range for an activity’s cost: Most likely –Optimistic –Pessimistic
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Cost Estimation Tools and Techniques
Basic tools and techniques for cost estimates (continued):
Reserve analysis: Contingency reserves are included in cost estimates to account for cost uncertainty.
Project management software: Software applications, computerised spreadsheets, simulation and statistical tools are useful tools in cost estimating.
Vendor bid analysis: This technique considers bids from vendors as input to the cost estimate.
Group decision-making techniques: Key stakeholders, as a group, work through decision-making technique(s) as input to the cost estimates.
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Introduction to three-point estimating
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Activity 1.2
Identify the tools and techniques for the budgeting process relevant to your project and explain how you plan to use these tools and techniques to support the costing of your project
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Typical Problems with 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.
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Cost Estimate
Before creating an estimate, know what it will be used for, gather as much information about the project as possible, and clarify the ground rules and assumptions for the estimate.
If possible, estimate costs by major WBS categories.
Create a cost model to make it easy to change and document the estimate.
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Relationship between the WBS and project budget
From the WBS, you then identify the task requirements from a cost perspective. Costs for task completion include the following:
Human labour
Materials
Equipment and machinery
Technology
Facilities
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Activity 1.3
Draft a list of potential resource requirements for deliverables from the WBS for your project
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Outputs of cost estimates
Activity cost estimates
These are quantitative assessments of the anticipated costs to complete project work. Cost estimates can be based on resource requirements including:
Direct labour
Materials
Equipment
Services
Facilities
IT
Special categories
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Outputs of cost estimates
Basis of estimates
The PMBOK Guide outlines supporting detail for activity cost estimates as:
Documentation of the basis of the estimate (how it was developed)
Documentation of all assumptions made
Documentation of any known constraints
Indication of the range of possible estimates
Indication of the confidence level of the final estimate
Project documents updates
Project documents such as the risk register may need to be updated following cost estimates.
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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.
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Developing a project budget
There is a range of budgeting formats to use in developing your project budget:
Traditional
Xero-based
Program
Top-down
Bottom-up
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Activity 1.4
Develop project budget with estimated costs for resources identified from Activity 1.3
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Cost Management Plan
The cost management plan describes how project costs will be planned, structured and controlled.
Project Managers needs to consider the following questions:
What methods you used when you estimated the cost of the project, for example historical or zero based?
How budget changes will be communicated and carried out?
How you will summarise and identify the costs of the project including variance to actual and earned value?
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Cost Management Plan
Who has the authority and responsibility for payments and any changes to the project budget?
Who has the authority to use the contingency and reserve funds for the project?
How you will report variations to the budget or cash flow and the actions that will be taken?
Who has the responsibility for the development and distribution of budget reports not included in the communications plan?
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Activity 1.5
As part of your cost management plan, identify the key stakeholders and their delegated authority in the ongoing management of cost for your project
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Topic 2
Monitor and Control Project Costs
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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 authorised changes to the project that will affect costs.
Many organisations have problems with cost control.
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Key components to control cost
The PMBOK Guide identifies two key components of the project management plan that are used to control cost:
Cost baseline – compared with actual results to determine if a change, corrective action, or preventive action is necessary.
Cost management plan – describes how project costs will be managed and controlled.
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Activity 2.1
Identify and explain details for the financial management processes and procedures used to monitor your project by completing the table below
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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.
More and more organisations around the world are using EVM to help control project costs.
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Earned Value Management (EVM)
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.
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Earned Value Management (EVM)
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.
EV is based on the original planned costs for the project or activity and the rate at which the team is completing work on the project or activity to date.
It is also important to monitor:
the schedule variance (SV) = (EV) – (PV)
the cost variance (CV) = (EV) – (AC)
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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.
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To-complete performance index (TCPI)
TCPI is the calculated projection of cost performance to be achieved for the remaining work to meet specified management goals (the BAC or EAC). Where the BAC is no longer realistic, then it will be superseded by the EAC. So, The PMBOK Guide shows this with the formula:
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Performance reviews
Compare cost performance over time, schedule activities or work packages. This will show if activities or WBS components are running under (ahead) or over the budget (behind). If EVM is being used the following is determined:
Variance analysis is the explanation for cost, schedule and variance at completion.
Trend analysis method looks at the performance of the project over a period of time, determining if it is improving or deteriorating.
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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, especially enterprise PM software
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How do managers use budgets?
Record actuals
Calculate variances
Decide which variances to investigate
Feedback and remedial action
Managers coordinate
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Implementing and monitoring budgets
If used systematically and carefully by managers they can also powerful motivational and communication tools.
If used poorly, budgets can have a very negative effect on results, motivation and morale!
How do managers monitor budgets?
No one best method
Depends on organisational context
Management style
Management structure
Productive processes
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Possible causes of variances
original estimates not being revised
changes in market and/or vendor prices
mathematical errors
tasks having to be reworked
differences in costs of resources which need to be replaced
the specification being revised (up or down)
rescheduling of work outside normal hours (overtime and/or penalty rates)
errors in omitting costs from the outset
change in management resulting in priorities impacting the project
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4 Top Project Financial Management Tips – Project Management Finance
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Activity 2.2
Select two of the cost analysis methods and tools listed below that may be used to identify cost variations and explain how you would use them to monitor and control cost
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Activity 2.3
Explain the financial reports required for monitoring project costs
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Topic 3
Complete Cost-Management Process
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Financial completion
Projects are about achieving certain goals using limited and predetermined resources within a set period of time.
Financial records must be finalised to ensure that:
Financial data have been maintained in accordance with your project plans and according to any guidelines or standards you have been asked to follow.
The data are in a state that will make it possible to accurately compare planned and actual expenditure.
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Project Finances – Finalisation
You will also need to reconcile all the figures and controls. Check that:
payments have been made and completed
the available budget correctly reflects the commitments and payments made
whether commitments match to payments
whether there are any “unused” commitments that can be cancelled.
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Activity 3.1
Provide evidence that you have conducted appropriate activities to signify financial completion
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Financial completion – cost control
Cost control reports include the following issues:
Reports should be relevant to the project’s cost control needs of managers and stakeholders.
Reports need to be timely – produced on time and often enough to enable preventative or corrective action of potentially serious cost variances.
Reports need to be communicated to interested parties ie project stakeholders.
Reports should be treated as the basis for proactive action not as historical documents produced for interest only
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Financial review
As part of the finalisation processes the project manager should review the methods utilised throughout the project to determine if they were effective in managing project cost. When conducting this review you should also answer the following questions:
How effective were the approaches used during the project?
How close were your original estimates?
Were there any major differences in estimates to actual?
Were your payment processes adequate?
You should also consider whether or not the budget allocated to the project was sufficient.
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Financial review
You also need to consider the following:
Did you have to go back and ask for more money during the project?
Did you have too much left at the end?
What were the reasons for these variances?
Were you too pessimistic or optimistic in your estimations?
Did you ask for twice as much money ‘just in case’?
Did you deliberately underestimate the project?
How much variation was there between what was estimated, what was required and what was eventually used?
Did you get value for money throughout the project?
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Review and record lessons learned
It is important to debrief and document what has been learnt from the project
This is then filed and referred too for future projects which feeds back into the continuous cycle process
This is part of the organisational process assets which it considers as a valuable source for future use
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Lessons Learned
Consider the following questions as part of project review in documenting lessons learned for future projects:
What mechanisms exist to enable you to capture lessons learned relevant to cost management for your project?
How does your organisation ensure that key stakeholders are involved in collecting information for cost management lessons learned?
How does your organisation ensure that lessons learned from previous projects’ cost management are accessible for future project teams?
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Review cost-management issues and document improvements
Consider the following questions as part of project review in documenting lessons learned for future projects:
What mechanisms exist to enable you to capture lessons learned relevant to cost management for your project?
How does your organisation ensure that key stakeholders are involved in collecting information for cost management lessons learned?
How does your organisation ensure that lessons learned from previous projects’ cost management are accessible for future project teams?
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Activity 3.2
Explain two areas of the project that would be analysed as part of the post-implementation review to contribute to the lessons learned for the project’s cost management
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Project Cost Management
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Summary
Project cost management processes include estimating costs and determining budget and control costs. This should be expanded to ensure that financial closure activities are also performed.
To manage the project budget PM must be knowledgeable about internal cost management and project accounting policies and processes.
To prepare the detailed project budget it is necessary to understand all the cost elements of the project. It is critical to include both direct and indirect costs.
Project budget baseline should be updated after any approved change request. Remember to manage stakeholder expectations closely and diligently monitor and control your budget to ensure project success.
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Thank you
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TAFE NSW
Student Workbook
Diploma of Project Management
Unit code: BSBPMG514
Unit name: Manage Project Cost
TAFE NSW – Western Sydney Region
Created: 6/11/2018
Version: 1.0
Document1
Modified: 18/04/2019
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Version: 20180903
Date created: 22/11/2018
Date modified: 18/04/2019
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This resource can be found in the TAFE NSW Learning Bank.
The content in this document is copyright © NSW TAFE Commission 2018, and should not be reproduced without the permission of the TAFE NSW. Information contained in this document is correct at time of printing: 18 April 2019. For current information please refer to our website or your teacher as appropriate.
Contents
Topic 1
– Determine Project Costs 5
Introduction
5
Determine resource requirements identified in the WBS 5
Plan cost management with input from stakeholders 7
Processes to estimate costs to enable project budget 8
Tools and techniques to determine project budget 10
Relationship between the WBS and project budget 13
Outputs of cost estimates 15
Develop a project budget 16
Develop a cost management plan for management of project finances 20
Topic 2
– Monitor and control project costs 23
Introduction 23
Financial management processes and procedures 23
Cost analysis methods and tools 26
Performance reviews 27
Variance analysis
(VA) and project management software 28
Implement and monitor agreed actions to maintain financial objectives 28
Timely reporting 29
Topic 3
– Complete cost management processes
32
Introduction 32
Implement scope management procedures and processes
32
The scope control process 32
Managing scope changes within time, cost and quality constraints 35
Review progress of scope management procedures 36
Scope management issues and recommendations 38
Summary 39
References
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Topic 1
Determine Project Costs
Topic 1 – Determine Project Costs
Introduction
Welcome to the first topic of our Manage Project Cost unit. There are four key areas for this topic:
1 Determine resource requirements for individual tasks identified in the work breakdown structure, with input from stakeholders and guidance from others
2 Estimate project costs to enable project budget to be prepared within agreed tolerance
3 Develop a project budget
4 Develop a cost-management plan, within delegated authority, to ensure clarity of understanding and ongoing management of project finances.
Determine resource requirements identified in the WBS
Project cost management is defined as the series of activities for estimating, allocating and controlling costs within the project.
As the project manager, it is important that you determine the resources identified for your project and then estimate the costings for these resources. Once these resources are costed, in line with the governance requirements for the project the budget for your project will be signed off and approved.
During the implementation stage of the project cycle, you will need to ensure that costs are controlled. Project costs will be continually monitored throughout the project lifecycle. From a cost management perspective, it is a critical that your project is delivered in line with the planned project budget.
To start our learning in project cost management, let’s look at a few key definitions from the PMBOK Guide:
Plan cost management
The process that establishes the policies, procedures, and documentation, for planning, managing, expending and controlling project costs.
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 authorised cost baseline.
Control costs
The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline.
Source:
http://www.mymanagementguide.com/project-cost-management-%E2%80%93-definition-process-and-software/
The sequence for cost management requirements for your project:
Flow chart representing project cost management
Plan cost management with input from stakeholders
Planning cost management requires you as the Project Manager to gather input from key project stakeholders to support you in estimating costs for your project. Planning cost management is part of early project planning. Planning cost management is important so that performance will be efficient and coordinated throughout the project lifecycle.
Planning cost management, as outlined in the PMBOK Guide, is the process that establishes the policies, procedures and documentation for planning, managing, expending, and controlling project costs. This process is needed to ensure the project is delivered in line with the project cost baseline. The inputs, tools and techniques, and outputs of this process are shown in The PMBOK Guide, p.195:
Input to the cost management plan will come from the following key project documents:
· Scope baseline – including the project scope statement and the WBS (critical for input to cost estimation).
· Schedule baseline – identifies when the project costs will be incurred as outlined in the project schedule.
· Other information – input from cost-related aspects of the project management plan including risk management (from the risk register) and communication management.
The project charter outlines the summary for the project budget, a high-level costing for the project. Further to the project charter, input to the cost management plan needs to consider the impact of the following:
· Organisational culture
· Organisational structure
· Market conditions including economic factors such as interest rates, exchange rates
· Published commercial information such as costs rates for resource requirements
Inputs to the budget
The PMBOK Guide lists the following as inputs to determining the project budget:
· Cost management plan
· Scope baseline including scope statement and WBS
· Activity cost estimates
· Basis of estimates
· Project schedule
· Resource calendars
· Risk register
· Agreements
· Organisational process assets
Processes to estimate costs to enable project budget
As the Project Manager, you need to estimate costs based on the resources required for delivering your project. As part of the estimation process, the PMBOK Guide refers to a range of ‘organisational process assets’ that need to be considered:
· Financial control procedures such as time reporting, required expenditure reviews, accounting or cost centre codes, often part of the project governance procedures.
· Historical information including a history of ‘lessons learned’ from cost management of previous similar projects. You may gain valuable insights in estimating costs from the experience of other expert individuals or groups, including:
· Other units / teams within the organisation
· Consultants
· Stakeholders, including customers
· Professional and technical associations
· Industry groups.
· Financial databases to support financial analytical techniques such as payback period or return on investment (ROI) calculations.
· Existing formal and informal cost estimating and budgeting-related policies, procedures and guidelines.
You will need to access and utilise the above assets to support you in estimating project costs.
The PMBOK Guide outlines the supporting details needed for cost estimates:
· Documentation of the basis of the estimate
· Documentation of all assumptions made
· Documentation of any known constraints
· Indication of the range of possible estimates that the item is expected to cost between a range of values (for instance, $1000 to $1100)
· Indication of the confidence level of the final estimate
Source:
www.gettyimages.com
Activity 1.1 – explain the appropriate budgeting processes and techniques to use for a project (refer Assessment 1, question 1).
Tools and techniques to determine project budget
Estimating costs is approximating the monetary resources to complete planned project activities. The PMBOK Guide explains that cost estimates are a prediction based on the information known at a given point in time, in consideration of:
· Costing alternatives
· Cost trade-offs and risks such as make versus buy, buy versus lease and the sharing of resources
Cost estimates are generally expressed in the form of currency ($). In estimating certain costs, including human resources, calculating time in the form of hours enables comparisons. The number of hours calculated to complete project work activities is multiplied by the hourly rate to estimate costings for these resources. The hourly rate will be a designated hourly rate based on commercial rates, influenced by market forces.
In estimating costs, there are a range of tools and techniques to support you:
Analogous estimating
This technique relies on the actual cost of previous, similar projects as the basis for estimating the cost of the current project. Analogous cost estimating uses historical information and expert judgement.
Parametric estimating
Uses a statistical relationship between relevant historical data and other variables to calculate a cost estimate for project work. An example of this type of estimating is the use of costs per ‘square footage’ in the construction industry.
Bottom-up estimating
Estimated costs for individual work packages or activities are ‘rolled up’ from the individual work packages or activities to estimate project costs.
Three-point estimating
This technique uses three estimates to define a range for an activity’s cost:
1. Most likely – costing based on realistic effort assessment for the required work and its predicted expenses.
2. Optimistic – costing based on best-case scenario for the activity.
3. Pessimistic – costing based on worst-case scenario for the activity.
Reserve analysis
Contingency reserves are included in cost estimates to account for cost uncertainty. The PMBOK Guide refers to this as accounting for identified risks. For instance, this cost estimate addresses the ‘known-unknowns’ for the project and can be calculated as:
· A percentage of the estimated cost
· A fixed number
· A result of using qualitative analysis methods.
Project management software
Software applications, computerised spreadsheets, simulation and statistical tools are useful tools in cost estimating. These tools are often specific to the organisation and its project management software needs.
Vendor bid analysis
This technique considers bids from vendors as input to the cost estimate. Aspects of project cost can be based on the successful bids from vendors.
Group decision-making techniques
Key stakeholders, as a group, work through decision-making technique(s) as input to the cost estimates. Decision-making techniques are designed to engage key stakeholders who are close to the work packages, tasks and activities for project deliverables. Engaging key stakeholders, aware of the work required, improves the cost estimation for your project.
Activity 1.2 – identify the tools and techniques for the budgeting process for a project. Explain how you plan to use these tools and techniques to support the costing of a project (refer Assessment 1, question 2).
Relationship between the WBS and project budget
During the initiation stage of the project, you have provided high-level estimate costings for your project. These high-level estimates provide a ‘target’ budget for your project. During the planning stage of the project a comprehensive budget is developed. The comprehensive budget is based on the project schedule and the WBS. In addition to the project schedule and WBS, resource requirements identify key costs as input to the project budget.
The accurate identification of work activities for your project, captured in the WBS and time schedule, determine the quality of your project budget. The WBS provides the basis for your project budget. The WBS for your project identifies the deliverables for your project and identifies the tasks for each work package for your project.
From the WBS, you then identify the task requirements from a cost perspective. Costs for task completion include the following:
· Human labour – identify the number of hours required to complete the tasks for your project, multiplied by the hourly rate for the specified labour needed.
· Materials
– identify the costs of materials including supplies needed for task completion for your project, generally presented as purchase costs in the budget.
· Equipment
and machinery – identify the specific equipment and machinery required for task completion and may include purchase, hire or lease costs.
· Technology – identify the hardware and software requirements to complete tasks identified for your project which may include purchase or rental costs.
· Facilities
– physical sites or buildings required and may include costs such as rent and or lease arrangements.
Source:
www.gettyimages.com.au
Activity 1.3 – Draft a list of potential resource requirements for deliverables from a WBS for a project. Resources can include human, technological, and physical – equipment & machinery (refer Assessment 1, question 3).
|
Project deliverables |
Resource requirements |
Outputs of cost estimates
Activity cost estimates
These are quantitative assessments of the anticipated costs to complete project work. The PMBOK Guide outlines that cost estimates can be based on resource requirements including:
· Direct labour
· Materials
· Equipment
· Services
· Facilities
· IT
· Special categories such as cost of financing, including interest charges, an inflation allowance, exchange rates, cost contingency reserve, indirect costs.
Basis of estimates
The PMBOK Guide outlines supporting detail for activity cost estimates as:
· Documentation of the basis of the estimate (how it was developed)
· Documentation of all assumptions made
· Documentation of any known constraints
· Indication of the range of possible estimates to indicate that the item is expected to cost between a range of values (+ or -)
· Indication of the confidence level of the final estimate.
Project documents updates
Project documents such as the risk register may need to be updated following cost estimates.
Develop a project budget
The PMBOK Guide explains that determining the budget is the process of aggregating the estimated costs of individual activities or work packages to establish the authorised cost baseline.
Project performance can be monitored and controlled against the authorised cost baseline. The inputs, tools and techniques, and outputs of this process are shown in The PMBOK Guide, p.208:
Project budgets are often developed based on familiarity. Stakeholders will often stick to the way budgets have been developed previously. There is a range of budgeting formats to use in developing your project budget:
· Traditional: historical data is the foundation for future project budget figures.
· Xero-based: each work activity is based on its own justification and previous historical data is disregarded.
· Program: groupings consolidate costs generated by program or major activities (eg. work packages)
· Top-down: senior management utilise their knowledge and experience to develop estimates that are communicated down the project with project managers breaking these down into further estimates.
· Bottom-up: budgets are aggregated using the estimates from the individuals directly responsible for the work to be completed.
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Activity 1.4 – draft a project budget with estimated costs for resources identified from Activity 1.3 (refer Assessment 1, question 4).
Deliverable
Resources
Estimated costing
(show calculation)
Agreed tolerances
(% and/or $)
Develop a cost management plan for management of project finances
The PMBOK Guide explains that the cost management plan is a component of the project management plan. The cost management plan describes how project costs will be planned, structured and controlled.
Planning cost management is the process that establishes the policies, procedures and documentation for planning, managing, expending and controlling costs. The PMBOK Guide, p.196 provides a flowchart that illustrates the inputs for the cost management plan for the project:
In particular, the PMBOK Guide outlines the ‘organisational process assets’ that support the cost management plan:
1. Financial controls procedures, including time reporting, expenditure and disbursement reviews, accounting codes and standard contract provisions.
2. Historical information.
3. Financial databases.
4. Existing formal and informal cost estimating and budgeting-related policies, procedures, and guidelines.
Activity 1.5 – As part of a cost management plan, identify key stakeholders and their delegated authority in the ongoing management of cost for a project (refer Assessment 1, question 5).
Key stakeholder
Details of delegated authority
Topic 2
Monitor and Control
Project Costs
Topic 2 – Monitor and control project costs
Introduction
Welcome to the second topic of our Manage Project Cost unit. There are four key areas for this topic:
2.1 Implement agreed financial-management processes and procedures to monitor actual expenditure against budget
2.2 Select and use cost-analysis methods and tools to identify cost variations and evaluate alternative actions
2.3 Implement and monitor agreed actions to maintain financial objectives
2.4 Provide accurate and timely financial reports
Let’s start Topic 2 with an overview of financial management processes and procedures.
Financial management processes and procedures
Budget management is the process by which costs or expenses incurred on the project are formally identified, approved, paid, recorded, and communicated (PM4DEV 2007). Much of the effort of cost control surrounds measuring the relationship between the consumption of the project funds relative to the physical output or realisation for that level of consumption.
Figure 1: Steps and processes in budgeting
The PMBOK Guide explains that controlling costs is the process of monitoring the status of the project to update project costs and manage changes to the cost baseline, including:
· Influencing the factors that create changes to the authorised cost baseline
· Ensuring that all change requests are acted on in a timely manner
· Managing the actual changes when and as they occur
· Ensuring that cost expenditures do not exceed the authorised funding by period, by WBS component, by activity, and in total for the project
· Monitoring cost performance to understand variances from approved cost baseline
· Monitoring work performance against funds expended
· Preventing unapproved changes from impacting the reported cost or resource usage
· Informing appropriate stakeholders of all approved changes and associated cost, and
· Bringing expected cost overruns within acceptable limits.
The PMBOK Guide identifies two key components of the project management plan that are used to control cost:
1. Cost baseline – compared with actual results to determine if a change, corrective action, or preventive action is necessary.
2. Cost management plan – describes how project costs will be managed and controlled.
The PMBOK Guide, p. 215, illustrates the process for controlling project costs:
Activity 2.1 – Identify and explain details for the financial management processes and procedures used to monitor projects by completing the table below (refer Assessment 2, question 1):
Processes and/or procedures
Details
Financial reporting
Financial approvals / authorisations
Financial change requests
Cost analysis methods and tools
The following is a method that is used to measure the performance or progress of a project in dollar terms. However, earned value management is also used to measure the performance of the project in respect of its schedule or time aspect.
Earned value management (EVM)
In its various forms EVM is used as a measure of performance for project management and integrates scope, cost and schedules to determine the project performance and progress by the project team. It uses three key dimensions for each work package and control account:
· planned value (PV) – amount of money which is assigned or allocated to a particular work activity or WBS component.
· earned value (EV) – monetary value of work performed expressed in terms of the approved budget allocated to that particular work activity or WBS component.
· actual cost (AC) – total cost actually incurred and recorded in completing work performed for a particular work activity or WBS component. It is also important to monitor:
a. the schedule variance (SV) = (EV) – (PV)
b. the cost variance (CV) = (EV) – (AC)
As your project progresses, you can start to forecast an estimate at completion (EAC). EAC is based on project performance in relation to monies allocated for each activity of WBS component. The EAC could differ from the budget at completion (BAC), developed at the beginning of the project. The difference between the two is that the EAC takes into account the environment, events or conditions, causing the difference between the metrics.
Source: www.gettyimages.com.au
To-complete performance index (TCPI)
TCPI is the calculated projection of cost performance to be achieved for the remaining work to meet specified management goals (the BAC or EAC). Where the BAC is no longer realistic, then it will be superseded by the EAC. So, The PMBOK Guide shows this with the formula:
Performance reviews
Compare cost performance over time, schedule activities or work packages. This will show if activities or WBS components are running under (ahead) or over the budget (behind). If EVM is being used the following is determined:
· Variance analysis is the explanation for cost, schedule and variance at completion. Cost and schedule variances are the most frequently measured. Cost variance analysis is demonstrated with the following:
· Trend analysis method looks at the performance of the project over a period of time, determining if it is improving or deteriorating.
Variance analysis (VA) and project management software
VA is used to measure the magnitude of the variation of the original baseline to determine both the cause and the degree of the variation which then determines the corrective and/or preventative action that would be required.
Software systems are typically used to monitor the three dimensions of EVM being the (PV, planned value, EV, earned value and AC, actual cost) which then represents them in visual forms such as tables, graphs and charts.
Source: www.gettyimages.com.au
Implement and monitor agreed actions to maintain financial objectives
Whilst we have reviewed the various methods to measure variances, we need to identify the causes of these variances. These causes may include:
· original estimates not being revised
· changes in market and/or vendor prices
· mathematical errors
· tasks having to be reworked
· differences in costs of resources which need to be replaced
· the specification being revised (up or down)
· rescheduling of work outside normal hours (payment of overtime and/or penalty rates)
· errors in omitting costs from the outset
· change in management resulting in priorities impacting the project
Activity 2.2 – Select two of the cost analysis methods and tools listed below that may be used to identify cost variations. Explain how you would use them to monitor and control cost (refer Assessment 2, question 2). Tools and methods for cost analysis (select two):
a. variance analysis
b. performance reviews
c. work performance data and information
d. project reporting, including budgetary information
e. earned value management
Tools & methods for cost analysis
Details on use of these tools and methods
Possible alternative actions to maintain financial objectives
Timely reporting
From the outset of the project, cost reporting is required by key project stakeholders. This needs to be done in a mandated and timely manner to capture cost variances as soon as possible. Accuracy of reporting is dependent on the system that the project manager relies on. Whether you use sophisticated software or a simple spreadsheet, you will need to ensure that reporting is updated regularly. This will allow you to determine; problem areas, cost savings, cost re-allocation or the requirement for additional project funds.
Activity 2.3 – Explain the financial reports required for monitoring project costs. Ensure that you include the timing and process to support accuracy of these reports (refer Assessment 2, question 3).
Financial reports for monitoring
Timing of report
Process that supports accuracy of the financial report
Topic 3
Complete Cost
Management Processes
Topic 3 – Complete cost management processes
Introduction
Welcome to the third topic of our Manage Project Cost unit. There are three key areas for this topic:
3.1 Conduct appropriate activities to signify financial completion
3.2 Review project outcomes using available records to determine effectiveness of project cost management
3.3 Review cost-management issues and document improvements
Implement scope management procedures and processes
The need for scope management is triggered by a range of factors including:
· Determining changes to scope from change in management, problems with supply or compliance issues.
· Identification of and reporting of project creep (referring to uncontrolled changes or added objectives in a project’s scope) which may occur as a result of the scope not being properly documented, defined, or controlled. It is generally considered a negative occurrence, to be avoided.
· Refining scope progressively throughout the project life cycle, the collection of the sequence of project phases/stages.
Source: www.gettyimages.com.au
The scope control process
It is rare that a project will stay on the original plan or scope for the duration of the project. At some stages throughout the project it will be necessary to make changes. These changes will affect the project scope baseline. Because of this, it is necessary to put in place a procedure to ensure that the scope is controlled in an effective and efficient manner. The scope control process is used to enable this.
The scope-control process must follow the process below to ensure that these needs are met:
· the change has been identified for the project
· the change request is created
· the change request is approved or rejected by relevant stakeholders
· the variance analysis is completed
· the necessary changes are made to scope documentation to reflect the change
· the new baseline is created, if required for scope, time and cost.
Change request
When changes need to be made to a project, a change request needs to be created. This document details the change required and the work that needs to be done to incorporate the change in the project.
Variance analysis
Variance analysis involves comparing the work required to be completed with the scope baseline. If there is a difference between the two, this is a variance. Variances are either favourable (+ve) or unfavourable (ve).
Changes will usually affect the project budget, time or quality outcomes, ideally to be avoided as much as possible, particularly in short timeframe projects.
Variances occur when project scope creep occurs. This is when a project runs over its planned timescale and budget due to many requirement changes or changes being added to in an uncontrolled manner. This is extremely common and is one of the major reasons for project failure.
Activity 3.1 – Scope management procedures and processes
Scope management aspect
Explain scope management procedures and processes
Determining scope change
Identifying scope creep
Seeking authorisation for changes to scope
Implementing scope changes
Managing scope changes within time, cost and quality constraints
It is important to keep project stakeholders informed throughout the project. Some communication will be informal through conversations, some communication will be via programmed meetings and some communication will be through reports. Clear expectations for reporting with all stakeholders needs to be established early in the project.
As part of managing the scope-control process, the following should be considered:
· all formal agreements including contracts, subcontracts and memoranda of understanding may need updating
· all major elements of the project could change, including product design, implementation standards or financial requirements, it is critical to understand the impact of the change
· all project documentation, including plans, schedules, statements, directives, guidelines and instructions may need updating and redistributing to all stakeholders.
This is a timely process, it is important that any changes are considered fully prior to seeking approval.
An important tool in managing change requests is the change log. In most projects, the change log is mandatory. This log is critical in recording change requests relating to the project. Once change requests are accepted (approved), these changes need to be incorporated in the project scope. Similarly, change requests that are rejected need to be documented. The change log is useful for the post-implementation review (at the project closure stage) as it may highlight areas of planning deficiency or oversights during the initiation stage of the project. A sample change log template is included below, for your review:
Source:
http://pmtips.net/wp-content/uploads/2011/05/change-log
Review progress of scope management procedures
To evaluate the effectiveness of the scope management procedures, it is important to review the project progress and record results. The ‘verify scope process’ is a useful tool to review the progress of the project and the effectiveness of scope management procedures. The ‘verify scope process’ involves stakeholders reviewing the team’s work and ensuring that each piece of work was completed satisfactorily.
If the project team has completed the work correctly, then the stakeholders will accept the project deliverables. If the stakeholders have found issues with defects, then a formalised list must be produced and an action plan established.
Activity 3.2 – Managing scope changes within the triple constraint
Potential scope changes
Explain integrated change control procedures
Potential time constraint(s)….
Potential cost constraint(s)….
Potential quality constraint(s)….
Scope management issues and recommendations
The most common scope management issues are related to:
· scope creep
· poorly defined project scope
· lack of communication with stakeholders.
The integration management process involves using information from previous projects and learning from these to improve performance on future projects. Therefore, is it important that all issues found are documented (lessons learnt) and studied to suggest recommendations for future projects. This includes issues found throughout the project and those found using the ‘verify scope process’. Information gathered throughout the project should be amalgamated to capture the knowledge of the project team. This could be done through project post-implementation review meetings.
Issues should be evaluated using established success and failure criteria. Lessons learnt should be established and documented. This may lead to recommendations for:
· process or form changes
· training programs for team members
· sub-contractor management changes
· supplier changes.
Source:
www.creativecommons.com.au
Various project documents may be used to identify and report outcomes, including:
· time sheet register to measure time spent on the project
· expense forms and a cost register to identify costs association with the project
· quality register and working with quality assurance and quality control techniques to measure project quality
· change register to record any changes in the project
· risk register to record all the risks identified in the project
· issue register log to record all the issues related to the project
· communications register to record all project communications
· procurement register to record purchasing, buying, ordering
· acceptance forms which record the level of satisfaction with outcomes/attained goals.
Summary
The importance of scope cannot be underestimated, as all activities around your project will come from scope. If you get it right, you will have a good foundation for your project. If you get it wrong, it will make project success very tough. Managing projects, given uncertainty is tough enough so invest the time in project scope to improve the probability for your project’s success.
Activity 3.3 – Lessons learnt relative to scope
Areas of scope for analysis
Potential areas to include in lessons learnt as part of post implementation review
References
Hartley, Stephen (2014) Professional project management: the integration of strategy, operations and change. Tilde University Press, Melbourne.
Linton, Therese (2014), Project Management Essentials, Cengage Learning Australia, Melbourne.
Executing the budget
Controlling the budget
Updating the budget
Defining the budget
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Case studies
BSBPMG511A
Project scope
There are four alternative case studies provided:
1. Community festival project
2. Building
3. IT software rollout
4. Fashion boutique
Case study 1, the community festival project, is the most well-developed. The other three have less information provided, but that will give you the chance to develop the project you have chosen even further, by using your imagination and adding your own information.
Your Task
Develop a project scope plan for your business project.
Week 6: Conduct project authorisation activities
Week 7: Define project scope
Week 8: Manage project scope-control process
Scenario 1: Community festival project
http://www.morguefile.com/archive/display/908157
Background
Your
local council
each year holds an event that celebrates your local community and what it has to offer. It is the show case event on the calendar and your community looks forward to it each year with neighbouring communities and districts considering the event the ‘best of its kind’ within a 100km radius. Your community is made up of a diverse group of people covering all demographics and social groups.
The festival is an opportunity to show case the following but needs to be expanded as part of your project brief:
people in the community
traditional custodians of the land
history of the community
local grown foods and international cuisine
local music and entertainment talent
local community clubs.
It is held over the Saturday and Sunday of the first weekend in October. The location for your festival is around the highest traffic area retail and commercial area which is closed on the Friday afternoon and reopened at midnight on the Sunday night once everything is removed and replaced. This area could consist of smaller independent retail shops such as the newsagent, post office, florist, bank, pharmacy and the like. With other such outlets including cafes, restaurants, dry cleaners and medical centres.
Transport options to the venue might include rail, bus and taxi services. Parking for visitors for the festival is in the surrounding area and estimated to be within a 3-4 km radius of the thoroughfare.
Forecast crowds for the event are in the order of five to eight thousand per day made up of locals, travellers and event organisers and their teams. As a result there will be a lot of vehicular and people traffic around the event which requires consultation with your council and police local area command. This is to ensure traffic can flow in and out of the area without too much delay and with minimal interruption to the normal weekend traffic for other visitors and
residents
located within a ten kilometre radius of the venue.
Given the nature of the project there are a number of stakeholders that will need to be identified, engaged and managed as part of the event of successful project delivery. The initial high level stakeholder identification has uncovered the following:
local council
traditional custodians of the land
police and traffic control
Shop keepers
residents
volunteers
event stall holders.
The Project
As the council project manager you have been given the authority and responsibility for the project to plan, execute, control and finalise. This includes full budget control, authority for all expenditure and the responsibility to ensure the event does not lose any money. In other words the Council does not require a profit from the event but expects that it will be revenue neutral.
Your delegated authority extends to the recruitment and selection of project team members, the negotiation with event sponsors and stall holders, and the recruitment and management of the event volunteers.
The council is also mindful of the legislative compliance issues and has directed you to ensure that the WHS, Food Safety and Environmental issues are identified, managed and controlled. The other remaining compliance issues will be controlled by the Council’s Corporate Governance manager however you must consult with the manager on the compliance issues you are to deal with.
The project manager role normally will report to the General Manager of the Council and will continue to do so for the Community Festival project.
Additional project information
Project scope
The project scope relative to festival includes the following items:
consultation with the stakeholders
preparation of the festival area
temporary toilet facilities for the event
rubbish and recycling facilities
The festival catering areas are prepared with running water, power and waste extraction ready for the arrival of the catering vans and stall holders.
However other scope inclusions need to be considered.
Project exclusions
The project exclusions include:
transport to the venue for any stakeholder
event transport during the event weekend
However other scope inclusions need to be considered.
Project time
The lead time to the event is two months.
Project cost
The budget is set at $200,000.00 which is considered adequate. This is based on the previous year’s results and includes a 10% increase on last year’s actual project cost.
Project team
The project team currently consists of the following:
project manager – you
project coordinator – Jacinta
Required are the following contract positions for a three month period:
marketing and publicity manager
two event organisers.
So you will have a project team consisting of five people. You have the authority and budget capacity to hire specialist skilled casuals for the three weeks at 38 hours per week leading up to the event and for the two day duration of the event.
Project risk
Early risk identification has identified the following which needs to be considered for successful project delivery:
traffic flow issues around arriving and traffic departing the event
failing to meet the financial requiring of being neutral cost to the council
WHS issues around people moving around the event given the temporary nature of the event.
Project quality
As outlined in the background information, the event is considered to be the highlight of the community and a major event on the calendar for your community. Therefore there is an expectation that needs to be met and managed and controlled throughout your festival.
Early quality requirements have identified the following which needs to be considered for successful project delivery:
quality as to the type and nature of the stall holders
quality of the food and beverage
quality of the festival benchmarked against previous festival and the community’s expectation.
Project information and communication
Communication will be key to the project gaining and maintaining stakeholder support and engagement for the Festival. It will be important to rank your key stakeholders and establish the requirements of the communication plan which will require the collection and dissemination of project information such as project logs, reports and registers. At this stage you have decided to establish a file repository for the project team to store their information and communication.
Early file names have been set up to store the following which will be expanded upon once your project gets away.
stakeholder communication
project budget information
project management plan
Project procurement
Your approach to procurement will be to use council’s established policies and procedures to ensure the suppliers used and processes meet your council’s probity and project governance compliance requirements. The purpose here is to ensure that procurement management is fair and equitable with open and full disclosure to avoid any issues. Your first thought is to access last year’s project information and final report to access who was previously used and look at their performance which is recorded as part of project lessons learned.
Scenario 2: Building
photo credit: mlwoodchuck via photopin cc
Project scope is for ACME Constructions to demolish an existing house on a large 1000 sq. metre block and to erect a duplex consisting of two dwellings which share a common wall. Project estimated time for the project is months which includes submitting the development application to council for the proposed duplex. Project estimated cost for the project is $650,000.00. The anticipated rental income return from both duplexes is $40,000 per year. Property prices in the area have seen a steady capital value rise of between 3 and 5% per annum. The block and existing dwelling is located in an older part of the north west of the city. The current architecture is consistent with 1950’s to 1960’s Federation style, design and colour scheme. The intention is to give the new duplex more of a contemporary style, design and colour scheme. The scope for the project is for each dwelling to consist of the following: one main bedroom and two smaller bedrooms one smaller bathroom off the main bedroom and a main bathroom a modern kitchen with all of the appliances a single car garage. a laundry a television/ family room. a dining room. a driveway made of stencilled concrete to house one car outside of the garage side pathways a paved area 3 sq metres in each backyard back yard to be covered with grass a letterbox for each residence down lights throughout the dwelling. The council has a record of hit and miss when it comes to granting proposed development applications for duplexes within the area. They are approving approximately 60% of submitted applications with strict conditions around colour schemes and work hours/days during construction. Project exclusions are front garden beds and lawn, any pergolas and barbeque areas, installed watering system and any motion lighting external to the dwellings. photo credit: shawncampbell via photopin cc Project scope is to rollout a new in store point of sale (POS) software system which includes transferring the existing stores data into the new system. Here are some details: Within ACME Clothing the current POS system has customer, transaction and financial data. The size of the existing database varies based on the turnover and operational years of the store. Before the data is migrated or transferred across the IT person assigned to the installation is to clean the data up and remove any old and unwanted records. The point is to ensure the new POS system only has useful and relevant data. Once the new POS system is installed the benefit to ACME head office is that each stores database and records will be available to them in real time which will help them with inventory management, rostering and purchasing as examples. The project scope includes four hours onsite training for each stores team members and two hours additional training for the manager. Currently there are fifty stores located on the eastern seaboard and the majority of the stores are within the three metropolitan areas. The plan is to send the team to one metropolitan area for the completion of that area before another is undertaken to economise on travel and accommodation and onsite support for any technical difficulties from the senior project leader. Project time Project estimated time for the software implementation is twelve months. Project estimated time for each implementation is between two to four days depending on the age and existing database for each store. Project estimated costs for the software implementation for wages, accommodation, travel and incidentals is $200,000.00. Project exclusions Any additional training, physical removal from the premises of the existing POS systems, telecommunications issue resolution i.e. telephone and/or internet (ISP) and data analysis decisions. photo credit: MAZZALIARMADI.IT via photopin cc Project scope is to design and fit out a store within the city high end retail trade sector. [It is considered a “turnkey” project which means on completion of the project at the point where the keys are handed over to the business owner the store is ready to open its doors and trade] Therefore in addition to the design and fit out which includes internal and external signage, is the requirement to purchase and install all of the incidentals such as: point of sale software (POS) stationery lunch room fit out, lockers, table and chairs.
Estimated inventory is $50,000 – $75,000, $20,000 for POS and front of shop items, $5,000 for back of shop items around lunch and staff room with the balance of funds being used for the design and fit out.
Project estimated time is three months from signing of the lease and the handover of keys from the real estate agent.
Project estimated cost is $350,000.00
Project exclusions are any major alterations to the existing leased premises. It is presumed that the existing lights, plumbing, walls and floor are structurally sound and only require minor refurbishment. TAFE NSW Online NSW Technical and Further Education Commission 21/08/2015 | Version 1.0 Page 1 of 8
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8/8 8/8 8/8 8/8 Turnitin Report Formatting Title Page Citation OutlineScenario 3: IT software rollout
Project costs
Scenario 4: Fashion boutique
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