10/15/20151 Software Project Management (SPM) Lecture 7 Cost Management Dr. Daniel Keret.
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Transcript of 10/15/20151 Software Project Management (SPM) Lecture 7 Cost Management Dr. Daniel Keret.
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Software Project Management (SPM)
Lecture 7 Cost Management
Dr. Daniel Keret
Reading Assignment
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Software Project Management, Bob Hughes and Mike Cotterell, McGraw-Hill, 3rd Edition.•Chapter 9
A Guide to the Project Management Body of Knowledge, PMI Publications, 3rd Edition, 2004•Chapter 7
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Cost Management Cost Management includes:
– Cost Estimation– Cost Budgeting– Cost Control
Estimation & Budgeting – Main Tools & Techniques– Estimation Techniques– Reserve Analysis ( Risk, Unknown, Cost of Quality)– Cost Baseline– Funding Requirements & Cash Flow
Cost Control.– Performance Measurement Analysis: Planned value, Actual
Cost, Cost Variance, Cost Performance Index, Estimate to Complete
– Approved Change Requests
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Estimating Schedule Activity
Estimation Cost of the Resources Needed to complete the activity
Includes variations to the cost estimate (Risk, Etc) Take into consideration Alternative Costing for the overall
project time period– Cost of extended design effort VS. additional maintenance costs
Cost estimates include ALL resources that will be charged to the project including Inflation Forecast, Salary Increase, Contingency cost.
ROM (Rough Order of Magnitude, E.G: –50/+100%) is allowed in the first stages. Refinement is required at later stages ( E.G: -10/+15%).
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Activity Estimating – Inputs & Tools
Inputs– External Factors: Marketplace Condition, External Cost
Information Databases– Organization Assets: Historical Information, Estimating
Policies and Templates, Team Knowledge– Project Factors: Scope, WBS, Management Plan, Schedule
Plan, Staffing Plan, Risk Tools
– Analogous Estimates– Resource Cost Rates– Parametric Estimates ( Function Points Etc)– Vendor Bid Analysis– Project Management Software
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Activity Estimating – Inputs & Tools(Cont.)
Reserve Analysis (Contingency Allowance)– Will Be Used at the Discretion of the Project Manager– Budgeting Project Unknowns
Risks– Will Be budgeted according to their severity level and
probabilities– The budget will cover mitigation activities and workarounds
and will be implemented upon the project manager decision. Cost of Quality (COQ)
– Costs added to the project in order to ensure conformance with quality standards
– Cost of Non Quality – Failure Cost/Rework. Costs that will added as a result of bugs and non-quality project activities
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Activity Estimating - Output
Activity Cost Estimating – Most likely estimates of all the activity resources
Estimate Details– Basis for the estimate (how it was developed)– Assumptions made– Constraints– Possible range of the estimate ( 100000$ -10%/+15%)
Requested Changes ( If the estimate analysis recommends a change)
CA – Control Account (the corporate accounting number that will incur the cost of the activity)
Cost Management Plan (Update)
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Cost Baseline Aggregating the estimated costs of the individual
scheduled activities to establish a total COST BASELINE for measuring and budgeting the project
Inputs: WBS, Activity Cost Estimate, Project Schedule, Resource Calendar, Contracts, Cost Management Plan
Tools & Techniques: Cost Aggregation, Reserve Analysis, Parametric Estimating ( adjustment to the aggregate cost), Funding Limit Reconciliation (can impact the schedule and overall cost)
Output: Cost Baseline, Expected Cash Flow, Funding Requirements (including Management Reserve), Requested Changes, Updated Cost Management Plan
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Cost control Assuring the Potential Cost Overrun do not exceed
the authorized funding PERIODICALLY and in TOTAL
Monitoring cost PERFORMANCE to detect and understand Variances from the Baseline
Detect Changes as they occur Prevent unapproved changes Ensuring Requested Changes are Agreed Upon Report Changes to Stakeholders Acting to bring expected overruns within acceptable
limits Influencing factors that creates changes to the cost
baseline
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Performance Measurements Planned Value (PV) or Budget Cost of Work
Schedule (BCWS) – baseline budget up to a given point in time.
Earned Value of an Activity– 0/100% technique ( The Recommended One): 0 if the
activity is not fully completed. Full Actual Cost if the activity was completed.
– 50/50% technique: 50% of the planned cost if the activity started, 100% of the actual cost if it was completed
– Milestone Technique: Actual Cost at the milestone date. Earned Value (EV) or Budget Cost of Work
Performed (BCWP) – the sum of the baseline costs of the work performed up to a given point in time
Actual Cost (AC) or Actual Cost of Work Performed (ACWP) – up to a given point in time
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Performance Indicators Cost Variance – The difference between actual and
budget cost spent up to a given point in time: EV – AC.
Schedule Variance – The difference of the baseline budget actually spend up to a given point of time and the baseline budget that was originally planned up to the same date: EV – PV
CPI (Cost Performance\Overrun Indicator): EV/AC Earned Value/Actual Cost. CPI < 1 indicates budget overrun
SPI (Schedule Performance\Overrun Indicator): EV/PV Earned Value/Planned Value SPI<1 indicates schedule overrun
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Example
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Forecasting Making Predictions or Estimates of the Project
future Schedule or Cost based on the project available information at the time of the Forecasting.
Forecasting is USED TOGETHER with Manual Forecasting of the remaining work. (which is considered to be more accurate)
Definitions:– BAC (Budget At Completion): Cost baseline at the
end of the project– ETC (Estimate To Complete)– EAC (Estimate At Completion)– ADE – Activity Duration Estimate
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Forecasting Techniques - Cost Recalculate Cost of Future Scheduled
Activities– Based on Typical Variance (History performance is
a good prediction for the future performance) EV(NEW)=EV/CPI
– Based On Atypical Variance ( History deviation of planned performance is irrelevant for this activity) EV(NEW)=EV
ECT = SIGMA(Future Activities PV(NEW)). If all the future activities are typical then ETC=(BAC-EV)/CPI
EAC = AC + ETC (actual cost to date + estimated cost to completion)
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Forecasting Techniques - Time Recalculate Time of Future Activities
– Based on Typical Variance (History performance of activity duration estimate is a good prediction for the future performance) ADE(NEW) = ADE/SPI
– Based On Atypical Variance ( History deviation of planned performance is irrelevant for this activity) ADE(NEW)=ADE
Estimate Time To Completion will be calculated according to the project work schedule and the critical path.
If the variance is typical across the project we can use a rough estimate : ADE = Planned time to completion/SPI
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Example
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Cost Control Workflow Input: Cost Baseline, Funding Requirements,
Performance Information and Reports, Approved Change Requests, Project Management Plan
Tools & Techniques: Cost Change Control System, Performance Measurement Analysis, Forecasting, Project Performance Review/Meeting, Variance Management
Output: Cost Estimate Update, Cost Baseline Update, Performance Measurements, Forecasted Completion, Requested Changes, Recommended Corrective Actions, Organization Process Assets (lessons learned), Project Management Plan (update)
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Approved Change Requests
Changes in the Scope of the System– Requirements Requested By the Users and by
Project Management.
– May Change the Baseline Cost of the project as well as the Planned Completion Date.
– Requires Stakeholders Approval Changes that do not affect the project Scope
– Usually Changed due to the project team requests– Changed in Design, Architecture, Delays, Etc.– Stakeholders will be notified if the changes are
significant enough.