NCV 3 Project Management Hands-On Support Slide Show - Module 4

Project Management 3

Project Management 3 1Future Managers

Module 4: Project estimation and costing

Project Management 3 Future Managers 2

Module 4: Elements and resources to be costed

• After completing this outcome, you will be able to:– Identify the work elements of a given project– Identify cost types (elements) of a given project;– Assess a given project for work elements and

cost types (elements) of the project;– Determine the resource requirements of the

given project, in terms of type, quantity and unit cost, and document in an agreed format.


1.1 Identifying the work elements of a given project

• Can you recall what the four phases of a project are?– Idea generating or initiation phase– Planning (and development) phase– Execution– Close-out (handover) phase


Activity 1


• As a knowledge refresher, draw a project life cycle and also indicate the four (4) phases or stages on the cycle

Tasks or activities• What is an activity?

– An activity may be defined as any task, job or operation that must be performed to complete the work package or project

– In a network diagram, an activity is always represented by an identity number and is represented by a box


Tasks or activities• An activity box


Early start Early finish

Float Activity number

Description

Duration

Late start Late finish

Tasks or activities• Activities in series


Activity 1 Activity 2 Activity 3

Tasks or activities• Activities in parallel


Activity 1

Activity 2

Activity 4

Activity 3

Work package• Work packages are a way of modularising the

project into manageable segments. Thus, tracking the progress of work packages is a way to assess and control the work done on a project

• By breaking work into work packages, you can determine the skills you need to complete the work on a project, and you can quantify how many people will be required to do the work

• Work packages allow you to communicate the work that needs to be done to other team members without getting into too much detail


1.2 Identify the cost types of a given project

• Costing– Design and calculations– Scope of work, bill of materials and parts list– Detail planning– Firm prices from subcontractors and suppliers,

man hours and labour cost• Cost budgeting


Activity 2 - Costing


• Task 1– Page through newspapers for advertisements on

material such as: bathroom items, building material, hardware, etc.

– Write down a few items and their prices; to add them up and get a total price.



• Task 2– The first group of students can go to a shop selling

hardware/building material and ask for prices for the following items:

• Cement (per bag)• Building bricks (cost per brick + cost per 500 / 1000)• PVC gutters (1.8m or different lengths)• PVC down pipes; Roof tiles (per tile or per package)• Building sand (per cubic meter)• Exterior paint (prices for 500ml, 1 liter, 5 liter, 20 liter);• 2 x claw-hammer;• 2 x jigsaw;• 200 x wooden nails



– The second group of students have to organise a 21st birthday (event) and get prices for:

– Catering (3 course meal per person/head);– DJ (music – rate per hour or rate per event)– Venue– Table clothes (25)– Crockery (25 tables, ten guest per table)– Drinks (50 x 2 liter Coke, 25 cases Beer, 25 Bottles

champagne, 75 Bottles White Wine)– Note: Find out best price per unit or per pack (quantity) –

e.g. wine per bottle or per 6/12 bottle or 2/5 liters



• To do:– Write down the items and prices on a cost-

template consisting of the following columns: item; quantity; price per unit and cost

– Determine the total cost of the exercise.


• What is cost estimating?– Cost estimating involves developing an assessment

of the likely quantitative result – how much will it cost the performing organisation to provide the product or service involved

• What is pricing?– Pricing is a business decision – how much will the

performing organization charge for the product or service – that uses the cost estimate as but one consideration of many


Activity 3: Sydney Opera House


• Read the article on page 90 and answer the following questions:– If you were to plan a project, would you use the work (sketches) of

Jorn Utzon?– What was the cost escalation over the project duration – from start

to finish?– What was the time duration of the project?– Why did the government of Australia decide to continue with the

project?– From the design of Utzon, what was the first problem encountered

when building the Sydney Opera House?– Could we link this “problem” to an environmental factor, and if so,

which environment factor?– Are you aware of a project (specifically a building) in South Africa

which is also under an environmental threat?– Work out how many times the final cost exceeded

the original cost


• What is cost escalation?– The amount by which actual costs increase to overrun

the initial estimated costs is referred to as cost escalation

• Reasons for cost escalation– Uncertainty and lack of accurate information– Changes in design or requirements– Economic and social variables in the environment– Work efficiency, poor communication, and lack of

control– Ego involvement of the estimator– Nature of project contract



• Components of estimating costs– Resource identification - involves planning and

deciding what resources are needed to complete project activities

– Cost approximating - entails estimating project costs

– Cost budgeting - involves allocating the estimated project costs to specific project activities

– Cost control - involves identifying the managing changes to project costs.


1.2.2 Tools used to identify necessary resources which will determine the cost

of a project• The work breakdown structure• History• A description of available services• Experts• The scope statement


1.3 Cost estimating techniques

• Top down estimating– The top-down estimating technique, also called

analogous estimating, is a technique that requires upper (top) management to examine past data from similar projects to develop a cost estimate for the current project

– In addition to past project data, top-down estimates are based on the manager’s experience, or expert judgment.



• Bottom-up estimating– The bottom-up estimating technique requires a

cost estimate to be developed for each of the work packages in the WBS. Then, once the cost of each work package is estimated, the estimates can be added together to compile the total project cost estimate



• Phased estimating– The phased estimating technique allows a

project to be broken into phases, with separate cost estimates being done for each phase, rather than for an entire project.

– Easier to use than other methods– Results are more accurate– Decreases the project team’s risk


1.3 Cost estimating techniques• Supporting details necessary to create cost

estimates– Some types of supporting data are:– A description of the scope of the work for which

cost estimates were done– A description of how the estimates were made for

each work package– Reference to any historical data used to make the

estimates– A list of any assumptions made when creating the

estimates.– Estimates should be expressed in terms of currency



• Project estimating pitfalls– Poorly defined project scope– Inadequately defined schedule– Incorrect work breakdown structure (WBS)– Failure to account for information– Inaccurate use of estimating techniques– Failure to account for overhead costs


1.3 Cost estimating techniques• A common response to the possibility of errors

when estimating project costs is to simply increase all cost estimates by 5% to 10%.

• Some cost estimating problems include:– The price of resources can change over the course

of a project– Project resources can spoil or be wasted, so you

should include a cost allowance for problems and have more resources available than necessary

– Costs are frequently understated in order to make the project seem more attractive to stakeholders

– Sometimes problems occur without any explanation


1.4 Project costs• Direct costs

– What are direct costs?• Those costs that can be specifically identified with an activity

or project– Direct costs include

• Direct management costs• Direct labour costs• Direct material costs • Direct equipment costs • Direct expenses • Travel cost• Legal fees • Training • Marketing / Advertising


1.4 Project costs• Indirect costs

– What are indirect costs?• Indirect costs, also called overhead costs, are those costs

that cannot be directly booked to an activity or project, but are required to keep the company operational

– Indirect costs include• Indirect management costs• Indirect labour costs• Indirect materials• Indirect equipment• Indirect expenses• Facilities


1.4 Project costs• Other project related costs

– If a project’s duration is reduced or extended how will the costs change? To do this calculation you need to determine how costs are affected by time. The following have to be considered:

• Rent increases with time• Running costs increase with time• If the project’s duration is reduced, employee labour rate

will increase if the workers have to work overtime• Contract labour on a fixed rate is not affected by time,

but their productivity may reduce if they have to work long hours

• Fixed price contracts may not be affected by timeProject Management 3 Future Managers 29

1.4 Project costs• Project office costs• Preliminary and general costs


Activity 4: Direct, indirect and time related costs


• Now that you know and understand the above mentioned three groups/types of cost (direct, indirect and time-related cost) divide into your groups and do the following:– Imagine that you are working on a project – list all

the sub-costs from the three main groups of cost.– Link a cost (or price) to each of the sub-costs (try to

stay realistic) and add it up– The total amount of your cost is your “budget”

(remember this is just an exercise and need not be 100% correct!)

Practical 5


a. Link the cost (pg 103) next to the deliverables, activities and sub-activities of your work breakdown structure (WBS) – you may either do it in your manual or you may re-do the WBS and then add the cost next to the deliverables, activities or sub-activities

b. Calculate a cost estimation for the project – on the given template on page 104 (Annexure A)

Practical 5 (Solution)


Activity 5 – Direct and indirect costs


• From the cost information of the project, divide the cost into direct and indirect costs and complete the template on page 105

Activity 5 (Answers)


1.6 Determine the resource requirements of the given project• What are the resources used to complete

projects?– People– Facilities– Equipment– Expenses– Materials

• Careful resource planning allows you to know what resources are required for each work package



Deliverable Activities Resource Quantity Cost

1. Digging and laying the foundations

Hire a trencher for the digging workCement

Machine + Operator

1 R500 p/h

2. Building of house

Building of walls

Put up roof

Labour

Labour; Material

4 x Builders4 x Brick layers8 x Labourers

Rate per hour

Rate per hour

3. Plumbing work Bathrooms; kitchen; Laundry

Labour; Material 1 x Plumber2 x Labourer

Rate per hour

4. Electricity work

Pipes; wire and plugs; light fittings

Labour; material 2 x Electricians2 x Labour

Rate per hour

5. Paint work (outside and inside)

Paint of outside and inside walls

Labour; material 4 x Painters Rate per hour

NCV 3 Project Management Hands-On Support Slide Show - Module 4

Education

Transcript of NCV 3 Project Management Hands-On Support Slide Show - Module 4