Copyright Course Technology 1999 1 Topic 5: Project Cost Management Chapter 6.

Copyright Course Technology 1999

1

Topic 5:Project Cost Management

Chapter 6


2

The Importance of Project Cost ManagementIT projects have a poor track record for

meeting cost goalsAverage cost overrun was 189% of the

original estimatesIn 1995, cancelled IT projects cost the

U.S. over $81 billion


3

What is Cost and Project Cost Management?Cost is a resource sacrificed or fore-

gone to achieve a specific objective or something given up in exchange

Costs are usually measured in monetary units like dollars

Project cost management includes the processes required to ensure that the project is completed within an approved budget


4

Project Cost Management ProcessesResource planning: determining what

resources and quantities of them should be used

Cost estimating: developing an estimate of the costs and 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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Basic Principles of Cost ManagementMost CEOs and boards know a lot more about

finance than IT. IT project managers must speak their language– Profits are revenues minus expenses– Life cycle costing is estimating the cost of a

project over its entire life– Cash flow analysis is determining the estimated

annual costs and benefits for a project– Benefits and costs can be tangible or intangible,

direct or indirect– Sunk cost should not be a criteria in project

selection


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Table 6-1. Cost of Software Defects

When Defect is Detected Typical Cost of CorrectionUser Requirements $100-$1,000Coding/Unit Testing $1,000 or moreSystem Testing $7,000 - $8,000Acceptance Testing $1,000 - $100,000After Implementation Up to millions of dollars

It is important to spend money up-front on ITprojects to avoid spending a lot more later.


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Resource PlanningThe nature of the project and the organization

will affect resource planningSome questions to consider:

– How difficult will it be to do specific tasks on the project

– Is there anything unique in this project’s scope statement that will affect resources?

– What is the organization’s history in doing similar tasks?

– Does the organization have or can they acquire the people, equipment, and materials that are capable and available for performing the work?


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Cost Estimating

An important output of project cost management is a cost estimate

There are several types of cost estimates and tools and techniques to help create them

It is also important to develop a cost management plan that describes how cost variances will be managed on the project


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Table 6-2. Types of Cost Estimates

Type of Estimate When Done Why Done How Accurate

Rough Order ofMagnitude (ROM)

Very early in theproject life cycle,often 3–5 yearsbefore projectcompletion

Provides roughballpark of cost forselection decisions

–25%, +75%

Budgetary Early, 1–2 years out Puts dollars in thebudget plans

–10%, +25%

Definitive Later in the project, <1 year out

Provides details forpurchases, estimateactual costs

–5%, +10%


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Cost Estimation Tools and Techniques4 basic tools and techniques for cost

estimates:– Analogous or top-down: use the actual cost of a

previous, similar project as the basis for the new estimate

– Bottom-up: estimate individual work items and sum them to get a total estimate

– Parametric: use project characteristics in a mathematical model to estimate costs

– Computerized tools: use spreadsheets, project management software, or other software to help estimate costs


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Constructive Cost Model (COCOMO)Barry Boehm helped develop the

COCOMO models for estimating software development costs

Parameters include source lines of code or function points

COCOMO II is a computerized model available on the web

Boehm suggests that only parametric models do not suffer from the limits of human decision-making


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Typical Problems with IT Cost EstimatesDeveloping an estimate for a large software project

is a complex task requiring a significant amount of effort. Remember that estimates are done at various stages of the project

Many people doing estimates have little experience doing them. Try to provide training and mentoring

People have a bias toward underestimation. Review estimates and ask important questions to make sure estimates are not biased

Management wants a number for a bid, not a real estimate. Project managers must negotiate with project sponsors to create realistic cost estimates


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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 authorized changes to the project that will affect costs

Earned value analysis is an important tool for cost control


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Earned Value Analysis (EVA)EVA 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 EVA. Figure 6-1 shows a sample form for collecting information


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Figure 6-1. Cost Control Input Form for Business Systems Replacement Project

WBS#: 6.8.1.2 Description: Design Interface Process -Customer Information

Revision: Revision Date:

Assignments ForecastHours per day Effort (in hours) Calculated

Responsible: SMC Role: PA Availability: 6 Optimistic: 20Most Likely: 30 Plan

Effort:30 Hrs

Involved: Role: Availability: Pessimistic: 40

Involved: Role: Availability: PlanDuration

:

5 Days

Involved: Role: Availability: Delay (Days):

Description Assumptions

Results / Deliverables Dependencies Predecessors (WBS#): Successors (WBS#):

4.7

Develop an operational process design for the Customer Informationinterface from the Invoicing System to Oracle Receivables. This task willaccept as input the business/functional requirements developed during thetactical analysis phase and produce as output a physical operational design,which provides the specifications, required for code development.

Process Design Document - Technical - Operation/Physical DFD - Process Specifications - Interface Data Map

- All business rules and issues will be resolved prior to this task.- The ERD & data model for Oracle Receivables & any Oracleextension required will be completed and available prior to this task.- The ERD for the Invoicing System will be completed and availableprior to this task.- Few iterations of the review/modify cycle will be required.- Primarily a documentation task.


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Earned Value Analysis TermsBudgeted 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 of work performed (ACWP), also called actual cost, are the total direct and indirect costs incurred in accomplishing work on an activity during a given period

Budgeted cost of work performed (BCWP), also called earned value, is the percentage of work actually completed multiplied by the planned cost (or BCWS)


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Table 6-6. Earned Value Calculations for One Activity After Week One

Activity Week 1 Week 2 Total % Completeafter Week 1

EarnedValueafter Week 1

(BCWP)Purchase web server 10,000 0 10,000 75% 7,500

Weekly Plan (BCWS) 10,000 0 10,000Weekly Actual (ACWP) 15,000 5,000 20,000Cost Variance (CV) -7,500Schedule Variance (SV) -2,500Cost PerformanceIndex (CPI)

50%

Schedule PerformanceIndex (SPI)

75%


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Table 6-7. Earned Value Formulas

Term FormulaEarned Value Budgeted Cost of Work Performed (BCWP) =

budgeted cost to date X % completeCost Variance CV=BCWP-ACWP (actual cost of work performed)Schedule Variance SV=BCWP-BCWS (budgeted cost of work

scheduled)Cost Performance Index CPI=BCWP/ACWPSchedule Performance Index SPI = BCWP/BCWS


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Rules of Thumb for EVA NumbersNegative numbers for cost and

schedule variance indicate problems in those areas. The project is costing more than planned or taking longer than planned

CPI and SPI less than 100% indicate problems


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Figure 6-2. Earned Value Calculations for a One-Year Project After Five Months

Excel file


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Figure 6-3. Earned Value Chart for Project After Five Months

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1 2 3 4 5 6 7 8 9 10 11 12

Month

$

BCWS or Cumulative Plan ACWP or Cumulative Actual BCWP or Cumulative EV

BCWS

ACWP

BWCP

BAC

Excel file

EAC


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Using Software to Assist in Cost ManagementSpreadsheets 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


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Topic 6:Project Quality Management

Chapter 7


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Quality of Information Technology ProjectsMany people joke about the poor

quality of IT products (cars and computers joke)

People seem to accept systems being down occasionally or needing to reboot their PCs

There are many examples in the news about quality-related problems


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What Is Project Quality Management?The International Organization for

Standardization (ISO) defines quality as the totality of characteristics of an entity that bear on its ability to satisfy stated or implied needs

Other experts define quality based on– conformance to requirements: meeting

written specifications– fitness for use: ensuring a product can be

used as it was intended


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Project Quality Management ProcessesQuality planning: identifying which quality

standards are relevant to the project and how to satisfy them

Quality assurance: evaluating overall project performance to ensure the project will satisfy the relevant quality standards

Quality control: monitoring specific project results to ensure that they comply with the relevant quality standards while identifying ways to improve overall quality


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Quality ExpertsDeming was famous for his work in rebuilding

Japan and his 14 pointsJuran wrote the Quality Control Handbook and

10 steps to quality improvementCrosby wrote Quality is Free and suggested

that organizations strive for zero defectsIshikawa developed the concept of quality

circles and using fishbone diagramsTaguchi developed methods for optimizing the

process of engineering experimentationFeigenbaum developed the concept of total

quality control


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Malcolm Baldrige Award and ISO 9000The Malcolm Baldrige Quality Award

was started in 1987 to recognize companies with world-class quality

ISO 9000 provides minimum requirements for an organization to meet their quality certification standards


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Quality PlanningIt is important to design in quality and

communicate important factors that directly contribute to meeting the customer’s requirements

Design of experiments helps identify which variables have the most influence on the overall outcome of a process

Many scope aspects of IT projects affect quality like functionality, features, system outputs, performance, reliability, and maintainability


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Quality AssuranceQuality assurance includes all the

activities related to satisfying the relevant quality standards for a project

Another goal of quality assurance is continuous quality improvement

Benchmarking can be used to generate ideas for quality improvements

Quality audits help identify lessons learned that can improve performance on current or future projects


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Quality Control

The main outputs of quality control are– acceptance decisions– rework– process adjustments

Some tools and techniques include– pareto analysis– statistical sampling– quality control charts– testing


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Testing

Many IT professionals think of testing as a stage that comes near the end of IT product development

Testing should be done during almost every phase of the IT product development life cycle


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Figure 7-6. Testing Tasks in the Software Development Life Cycle


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Types of TestsA unit test is done to test each individual

component (often a program) to ensure it is as defect free as possible

Integration testing occurs between unit and system testing to test functionally grouped components

System testing tests the entire system as one entity

User acceptance testing is an independent test performed by the end user prior to accepting the delivered system


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Improving Information Technology Project QualitySeveral suggestions for improving

quality for IT projects include– Leadership that promotes quality– Understanding the cost of quality– Focusing on organizational influences and

workplace factors that affect quality– Following maturity models to improve

quality


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Leadership

“It is most important that top management be quality-minded. In the absence of sincere manifestation of interest at the top, little will happen below.” (Juran, 1945)

A large percentage of quality problems are associated with management, not technical issues


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The Cost of Quality

The cost of quality is – the cost of conformance or delivering

products that meet requirements and fitness for use

– the cost of nonconformance or taking responsibility for failures or not meeting quality expectations


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Five Cost Categories Related to QualityPrevention cost: the cost of planning and executing

a project so it is error-free or within an acceptable error range

Appraisal cost: the cost of evaluating processes and their outputs to ensure quality

Internal failure cost: cost incurred to correct an identified defect before the customer receives the product

External failure cost: cost that relates to all errors not detected and corrected before delivery to the customer

Measurement and test equipment costs: capital cost of equipment used to perform prevention and appraisal activities


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Organization Influences, Workplace Factors, and QualityStudy by DeMarco and Lister showed that

organizational issues had a much greater influence on programmer productivity than the technical environment or programming languages

Programmer productivity varied by a factor of one to ten across organizations, but only by 21% within the same organization

Study found no correlation between productivity and programming language, years of experience, or salary

A dedicated workspace and a quiet work environment were key factors to improving programmer productivity


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Maturity ModelsMaturity models are frameworks for

helping organizations improve their processes and systems– Software Quality Function Deployment Model

focuses on defining user requirements and planning software projects

– The Software Engineering Institute’s Capability Maturity Model provides a generic path to process improvement for software development

– Several groups are working on project management maturity models


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Project Management Maturity Model1. Ad-Hoc: The project management process is described as disorganized,

and occasionally even chaotic. The organization has not defined systems and processes, and project success depends on individual effort. There are chronic cost and schedule problems.

2. Abbreviated: There are some project management processes and systems in place to track cost, schedule, and scope. Project success is largely unpredictable and cost and schedule problems are common.

3. Organized: There are standardized, documented project management processes and systems that are integrated into the rest of the organization. Project success is more predictable, and cost and schedule performance is improved.

4. Managed: Management collects and uses detailed measures of the effectiveness of project management. Project success is more uniform, and cost and schedule performance conforms to plan.

5. Adaptive: Feedback from the project management process and from piloting innovative ideas and technologies enables continuous improvement. Project success is the norm, and cost and schedule

performance is continuously improving.


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Topic 7 :Project Human Resource Management

Chapter 8


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The Importance of Human Resource ManagementPeople determine the success and failure of

organizations and projectsThe shortage of good IT workers makes

human resource management even more challenging for IT projects– ITAA calculated that there were over 345,000

openings for IT jobs - about 10% of programmer, systems analysts, and computer engineering positions are open

– 70% of CEOs in high-tech firms listed the lack of highly skilled, trained workers as the number one barrier to growth


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What is Project Human Resource Management?Project human resource management

includes the processes required to make the most effective use of the people involved with a project. Processes include– Organizational planning– Staff acquisition– Team development


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Keys to Managing People

Psychologists and management theorists have devoted much research and thought to the field of managing people at work

Important areas related to project management include– motivation– influence and power– effectiveness


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Motivation

Abraham Maslow developed a hierarchy of needs to illustrate his theory that people’s behaviors are guided by a sequence of needs

Maslow argued that humans possess unique qualities that enable them to make independent choices, thus giving them control of their destiny


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Figure 8-1. Maslow’s Hierarchy of Needs


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Herzberg’s Motivational and Hygiene FactorsFrederick Herzberg wrote several famous

books and articles about worker motivation. He distinguished between– motivational factors: achievement, recognition,

the work itself, responsibility, advancement, and growth, which produce job satisfaction

– hygiene factors: cause dissatisfaction if not present, but do not motivate workers to do more. Examples include larger salaries, more supervision, and a more attractive work environment


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Thamhain and Wilemon’s Ways to Have Influence on Projects1. Authority: the legitimate hierarchical right to issue orders2. Assignment: the project manager's perceived ability to

influence a worker's later work assignments3. Budget: the project manager's perceived ability to authorize

others' use of discretionary funds4. Promotion: the ability to improve a worker's position5. Money: the ability to increase a worker's pay and benefits6. Penalty: the project manager's perceived ability to dispense or

cause punishment7. Work challenge: the ability to assign work that capitalizes on a

worker's enjoyment of doing a particular task8. Expertise: the project manager's perceived special knowledge

that others deem important9. Friendship: the ability to establish friendly personal

relationships between the project manager and others


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Ways to Influence that Help and Hurt ProjectsProjects are more likely to succeed

when project managers influence with– expertise– work challenge

Projects are more likely to fail when project managers rely too heavily on– authority– money– penalty


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Power

Power is the potential ability to influence behavior to get people to do things they would not otherwise do

Types of power include– Coercive– Legitimate– Expert– Reward– Referent


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Improving Effectiveness - Covey’s 7 HabitsProject managers can apply Covey’s 7 habits

to improve effectiveness on projects– Be proactive– Begin with the end in mind– Put first things first– Think win/win– Seek first to understand, then to be understood– Synergize– Sharpen the saw


53

Empathic Listening and RapportGood project managers are empathic

listeners; they listen with the intent to understand

Before you can communicate with others, you have to have rapport

Mirroring is a technique to help establish rapport

IT professionals often need to develop empathic listening and other people skills to improve relationships with users and other stakeholders


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Improving Relationships Between Users and DevelopersSome organizations require business

people, not IT people, to take the lead in determining and justifying investments in new computer systems

CIOs push their staff to recognize that the needs of the business must drive all technology decisions

Some companies reshape their IT units to look and perform like consulting firms


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Organizational PlanningOrganizational planning involves

identifying, documenting, and assigning project roles, responsibilities, and reporting relationships

Outputs and processes include– project organizational charts– work definition and assignment process– responsibility assignment matrixes– resource histograms


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Figure 8-3. Work Definition and Assignment Process


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Figure 8-4. Sample Responsibility Assignment Matrix (RAM)


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Figure 8-5. RAM Showing Stakeholder Roles


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Figure 8-6. Sample Resource Histogram for a Large IT Project

0

2

4

6

8

10

12

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Java programmers Business analysts Technical writers

Managers Administrative staff Database analysts

Testing specialists

Num

ber

of P

eopl

e

Excel file


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Issues in Project Staff Acquisition and Team DevelopmentStaffing plans and good hiring

procedures are important in staff acquisition, as are incentives for recruiting and retention

Some companies give their employees one dollar for every hour a new person they helped hire works

Some organizations allow people to work from home as an incentive


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Resource Loading and Leveling

Resource loading refers to the amount of individual resources an existing project schedule requires during specific time periods

Resource histograms show resource loading

Over-allocation means more resources than are available are assigned to perform work at a given time


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Figure 8-7. Sample Histogram Showing an Over-allocated Individual

Project 98 file


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Resource Leveling

Resource leveling is a technique for resolving resource conflicts by delaying tasks

The main purpose of resource leveling is to create a smoother distribution of resource usage and reduce over-allocation


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Team Development

It takes teamwork to successfully complete most projects

Training can help people understand themselves, each other, and how to work better in teams

Team building activities include– physical challenges– psychological preference indicator tools


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Reward and Recognition Systems

Team-based reward and recognition systems can promote teamwork

Focus on rewarding teams for achieving specific goals

Allow time for team members to mentor and help each other to meet project goals and develop human resources


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General Advice on TeamsFocus on meeting project objectives

and producing positive resultsFix the problem instead of blaming

peopleEstablish regular, effective meetingsNurture team members and encourage

them to help each otherAcknowledge individual and group

accomplishments


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Topic 7 (Continued):

Project Communications Management

Chapter 9


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Importance of Good CommunicationsThe greatest threat to many projects is a

failure to communicateOur culture does not portray IT professionals

as being good communicatorsResearch shows that IT professionals must

be able to communicate effectively to succeed in their positions

Strong verbal skills are a key factor in career advancement for IT professionals


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Project Communications Management ProcessesCommunications planning: determining the

information and communications needs of the stakeholders

Information distribution: making needed information available in a timely manner

Performance reporting: collecting and disseminating performance information

Administrative closure: generating, gathering, and disseminating information to formalize phase or project completion


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Communications Planning

Every project should include some type of communications management plan, a document that guides project communications

Creating a stakeholder analysis for project communications also aids in communications planning


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Communications Management Plan ContentsA description of a collection and filing structure for

gathering and storing various types of informationA distribution structure describing what information

goes to whom, when, and howA format for communicating key project informationA project schedule for producing the informationAccess methods for obtaining the informationA method for updating the communications

management plans as the project progresses and develops

A stakeholder communications analysis


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Table 9-1. Sample Stakeholder Analysis for Project Communications

Stakeholders Document Name DocumentFormat

Contact Person Due

CustomerManagement

Monthly StatusReport

Hard copy Gail Feldman,Tony Silva

First of month

CustomerBusiness Staff


Hard copy Julie Grant,

Jeff Martin

First of month

CustomerTechnical Staff


E-mail Evan Dodge,

Nancy Michaels

First of month

InternalManagement


Hard copy Bob Thomson First of month

InternalBusiness andTechnical Staff


Intranet Angie Liu First of month

TrainingSubcontractor

Training Plan Hard Copy Jonathan Kraus 11/1/1999

SoftwareSubcontractor

SoftwareImplementationPlan

E-mail Barbara Gates 6/1/2000


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Information DistributionGetting the right information to the

right people at the right time and in a useful format is just as important as developing the information in the first place

Important considerations include– using technology to enhance information

distribution– formal and informal methods for

distributing information


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What Went Wrong?A well publicized example of misuse of e-mail comes from the 1998 Justice Department's high profile, antitrust suit against Microsoft. E-mail emerged as a star witness in the case. Many executives sent messages that should never have been put in writing. The court used e-mail as evidence, even though the senders of the notes said the information was being interpreted out of context. Some companies, such as Amazon.com, have established policies to encourage employees to watch their use of e-mail and delete it often. Their "Sweep and Clean" program instructed employees to purge e-mails that were no longer required for business or legal purposes. They even offered free café lattes to employees who complied immediately. Harmon, Amy, "E-mail comes back to haunt companies," November 29, 1998


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Figure 9-1. The Impact of the Number of People on Communications Channels


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Performance ReportingPerformance reporting keeps stakeholders

informed about how resources are being used to achieve project objectives– Status reports describe where the project stands

at a specific point in time– Progress reports describe what the project team

has accomplished during a certain period of time– Project forecasting predicts future project status

and progress based on past information and trends

– Status review meetings often include performance reporting


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Administrative Closure

A project or phase of a project requires closure

Administrative closure produces– project archives– formal acceptance– lessons learned


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Suggestions for Improving Project CommunicationsResolve conflicts effectivelyDevelop better communication skillsRun effective meetingsUse templates for project

communications


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Conflict Handling Modes, in Preference OrderConfrontation or problem-solving: directly

face a conflictCompromise: use a give-and-take approachSmoothing: de-emphasize areas of

differences and emphasize areas of agreement

Forcing: the win-lose approachWithdrawal: retreat or withdraw from an

actual or potential disagreement


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Figure 9-2. Sample Template for a Project DescriptionObjective: Describe the objective of the project in one or two sentences. Focus on the business benefits of doing the project.

Scope: Briefly describe the scope of the project. What business functions are involved, and what are the main products the project will produce.

Assumptions: Summarize the most critical assumptions for the project.

Cost: Provide the total estimated cost of the project. If desired, list the total cost each year.

Schedule: Provide summary information from the project’s Gantt chart as shown. Focus on summary tasks and milestones.

Project 98 file


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Table 9-2. Sample Template for a Monthly Progress Report

I. Accomplishments for Month of January (or appropriate month):

Describe most important accomplishments. Relate to project's Gantt chart

Describe other important accomplishments, one bullet for each. If any issues wereresolved from the previous month, list them as accomplishments.

II. Plans for February (or following month):

Describe most important items to be accomplished in the next month. Again relateto the project's Gantt chart.

Describe other important items to accomplish, one bullet for each

III. Issues: Briefly list important issues that surfaced or are still important. Managershate surprises and want to help the project succeed, so be sure to list issues.

IV. Project Changes (Date and Description): List any approved or requestedchanges to the project. Include the date of the change and a brief description.


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Using Software to Assist in Human Resource ManagementSoftware can help in producing RAMS

and resource histograms Project management software includes

several features related to human resource management such as – viewing resource usage information– identifying under and over-allocated

resources– leveling resources


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Table 9-3. Sample Template for a Letter of Agreement for a Class Project

I. Project Description: Describe the project's objective, scope, assumptions, costinformation, and schedule information, as shown in Figure 9-2. Be sure to includeimportant dates that the project's sponsor needs to be aware of

II. Organizational Goals and Expectations: Have the main sponsor from theorganization briefly state their goals and expectations for the project.

III. Student Goals and Expectations: Students on the project team should brieflystate their goals and expectations for the project.

IV. Meeting Information. It is a good idea for the project's sponsor and all studentson the project team to agree on at least one hour per week where all parties can meetto work on this project. The meeting place should be a convenient location withoutdistractions. Virtual meetings may be an option for some people and projects.

V. Contact Information and Communications Plan: List the sponsor's andstudents' names, phone numbers, e-mails, and important procedures forcommunications. It is a good idea to set up a web site for all project information.

VI. Signatures: Have the main sponsor and students on the project team sign theletter of agreement. Designate which student is the project manager. This studentshould be the main contact for all project information.


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Table 9-4. Outline for a Final Project Report

I. Cover page

II. Table of contents and executive summary (for a long report)

III. Need for the project

IV. Project description and letter of agreement

V. Overall outcome of the project and reasons for success or failure

VI. Project management tools and techniques used and assessment of them

VII. Project team recommendations and future considerations

VIII. Final project Gantt chart

IX. Attachments with all deliverables


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Table 9-5. Final Project Documentation ItemsI. Project description

II. Project proposal and backup data (request for proposal, statement of work,proposal correspondence, and so on)

III. Original and revised contract information and client acceptance documents

IV. Original and revised project plans and schedules (WBS, Gantt and PERT charts,cost estimates, communications management plan, etc.)

V. Design documents

VI. Final project report

VII. Deliverables, as appropriate

VIII. Audit reports

IX. Lessons learned reports

X. Copies of all status reports, meeting minutes, change notices, and other writtenand electronic communications


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Figure 9-3. Gantt Chart Template for a Class Project

Project 98 file

Copyright Course Technology 1999 1 Topic 5: Project Cost Management Chapter 6.

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