Cost Estimation and Budgeting Chapter 6 PDF

Cost Estimation and Budgeting Chapter 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-1  Common Sources of Project Cost ▪ Labor ▪ Materials ▪ Subcontractors ▪ Equipment & facilities ▪ Trav...

Cost Estimation and Budgeting Chapter 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-1  Common Sources of Project Cost ▪ Labor ▪ Materials ▪ Subcontractors ▪ Equipment & facilities ▪ Travel Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-2  Types of Costs ❖Direct Vs. Indirect ❖Recurring Vs. Nonrecurring ❖Fixed Vs. Variable ❖Normal Vs. Expedited Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-3  Cost Classifications Non-recurring Expedited Recurring Variable Normal Indirect Direct Fixed Costs Direct Labor X X X X Building Lease X X X X Expedite X X X X Material X X X X Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-4  Cost Estimation Ballpark (order of magnitude) ±30% Comparative ±15% Feasibility ±10% Definitive ±5% Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-5  Learning Curves Each doubling of output results in a reduction in time to perform the last iteration. Yx = aX b Where : Yx = time required for the x unit of output a = time required for the initial unit of output X = the number of units to be produced b = learning curve slope = log(learning %)/log(2) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-6  Problems with Cost Estimation ✓ Low initial estimates ✓ Unexpected technical difficulties ✓ Lack of definition ✓ Specification changes ✓ External factors Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-7  Creating a Project Budget WBS The budget is a plan that identifies the resources, goals and Project schedule that allows Plan a firm to achieve Scheduling Budgeting those goals Top-down Bottom-up Activity-based costing (ABC) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-8  Activity-Based Costing Projects use activities & activities use resources 1. Assign costs to activities that use resources 2. Identify cost drivers associated with this activity 3. Compute a cost rate per cost driver unit or transaction 4. Multiply the cost driver rate times the volume of cost driver units used by the project Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-9  Budget Contingencies The allocation of extra funds to cover uncertainties and improve the chance of finishing on time. Contingencies are needed because Project scope may change Murphy’s Law is present Cost estimation must anticipate interaction costs Normal conditions are rarely encountered Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-10  Resource Management Chapter 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-11  Types of Constraints ❑Time ❑Resource ❑Mixed Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-12  Resource Loading The amounts of individual resources that a schedule requires during specific time periods. Resource loading table Resource Name Work Details 5/5 5/12 5/19 5/26 Tom 40 hrs Work 8h 32h Assign Bids 40 hrs Work 8h 32h Jeff 40 hrs Work 8h 32h Calculate Cost 40 hrs Work 8h 32h Sue 40 hrs Work 8h 32h Select Bid 40 hrs Work 8h 32h Carol 8 hrs Work 8h PR Campaign 8 hrs Work 8h Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-13  Resource Leveling (Smoothing) A multivariate, combinatorial problem Objectives To determine the resource requirements so that they will be available at the right time To allow each activity to be scheduled with the smoothest possible transition across resource usage levels Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-14  Prioritization Rules for Leveling ❖Smallest amount of slack ❖Smallest duration ❖Lowest ID number (FCFS) ❖Greatest number of successor tasks ❖Requiring the most resources Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-15  General Procedure for Leveling 1. Create a project activity network diagram 2. Develop resource loading table 3. Determine activity late finish dates 4. Identify resource over allocation 5. Level the resource loading table Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-16 Creating Resource Loading Charts (1/4) Display the amount of resources required as a function of time. 4 B 5 5 D 9 9 E 11 Res = 2 Res = 7 Res = 3 1. Start with a 0 A 4 network diagram Res = 6 11 F 12 Res = 6 4 C 7 Res = 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-17  Creating Resource Loading Charts 2/4 Activity Resource Duration ES Slack LF A 6 4 0 0 4 B 2 1 4 0 5 C 2 3 4 4 11 D 7 4 5 0 9 E 3 2 9 0 11 F 6 1 11 0 12 2. Produce a table that shows the duration, early start, late finish, slack, and resource(s) required for each activity. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-18  Creating Resource Loading Charts 3/4 3. Draw an initial loading chart with 8 each activity scheduled at its ES. Resources 6 Resource 4 imbalance A D F B 2 E C 2 4 6 8 10 12 14 Project Days Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-19  Creating Resource Loading Charts 4/4 4. Rearrange activities within their slack to create a more level profile. Splitting 8 C creates a more level project. Resources 6 4 C A D F B 2 E C 2 4 6 8 10 12 14 Project Days Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-20  Key Parameters in Multi-Project Environments Schedule slippage Resource utilization In-process inventory Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-21  Prioritizing Resource Allocations in Multi-Project Environments First come first served Greatest resource demand Greatest resource utilization Minimum late finish time Mathematical programming Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 12-22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 8-23