Budget and Risk Planning Flashcards
Methods for estimating cost
(can also be used to estimate time) _ analogous estimating _ parametric estimating _ bottom-up estimating _ three-point estimates
Work effort
_ total time for a person to complete a task if working on nothing else
bottom-up estimating
_ most precise way of estimating, and most time-consuming
_ assigns a cost estimate to each work package
_ uses work effort determinations and resource expense rates to determine costs
_ it can help to create a chart listing, for each work package, the resource, the work effort, and the rate; add a total cost column and then sum this column
_ total cost of project is sum of costs of work packages
_ the WBS and the project resource requirements are necessary inputs
Three-point estimates
_ average of the most likely estimate, the most optimistic estimate, and the most pessimistic estimate
_ the most-likely-estimate assumes that costs end up being as expected
Tips for estimating
_ brainstorm with the project team and other experts
_ provide stakeholders with a timeline for establishing definitive estimates
_ using available cost estimate templates and worksheets may help define hidden costs
_ get estimates from the people doing the work
_ document assumptions
Loaded rate
_ rate that includes a percentage of the employee’s salary for covering company benefits
Cost baseline
_ total expected cost for the project
_ key members of the team should review draft
_ once approved, used during project to “measure the overall cost performance”; it then becomes a cost “baseline”
_ accounting, finance department, or program management office may take responsibility for tracking actual expenses and compliance with baseline
_ project manager has final responsibility for ensuring that the project stays on budget
Chart of accounts
_ list of accounting codes for each category of expense
_ categories include salary, hardware, software, travel, supplies, etc.
budgeting
_ done after the schedule has been created and the resources determined
_ process of aggregating all cost estimates and establishing a cost baseline
_ organizations usually require assigning an account code to each expense from the chart of accounts
_ budget is usually a spreadsheet
Questions to ask organization before spending money
_ What expenses submitted to the project manager for approval?
_ What spending authority or approval levels does the project manager have regarding project expenses?
_ Does the project manager approve time sheets?
_ Are there categories or thresholds of cost that require approval of the sponsor or customer?
Contingency reserve
_ money set aside to cover unexpected issues
_ includes covering scope creep, risks, change requests, variances in estimates, cost overruns, etc.
_ usually a percentage of the total calculated cost
Management reserve
_ money set aside by upper management to cover unexpected situations
_ usually a percentage of the total calculated cost
_ not included in the project budget or cost baseline
Expenditure tracking
_ measures the project spending to date
_ determines the “burn rate” of how fast you’re going through money
_ associates actual expenditures with the cost baseline
_ done with project management software or a spreadsheet
Expenditure reporting
_ mechanism for reporting the current state of the project budget
_ e.g. a table that for each account code, names the associated category, the estimated costs, the actual costs at the time of the report, and the difference (aka “variance”)
Earned value management (EVM)
_ a collection of analysis techniques
_ determines and documents cause and impact of variance
_ determines whether corrective action is needed
_ compares schedule, cost, and scope measurement to actual work complete to date
_ usually performed on work packages or other WBS components
_ must first gather planned value (PV), actual cost (AC), and earned value (EV)
_ e.g. CV, SV, CPI, SPI, EAC, ETC
PV
_ Planned Value
_ “As of today, what is the budgeted cost of the work that is scheduled to be completed?”
_ “the value of work to be done during a particular time period”
_ authorized and budgeted cost of work for a specific schedule activity or WBS component during a given period
AC
_ Actual Cost
_ “As of today, what is the actual cost incurred for the work accomplished?”
_ the actual cost of completing a work component in a given period
_ includes direct and indirect costs, depending on what was originally budgeted
EV
_ Earned Value
_ “As of today, what is the budgeted cost of the work that is actually accomplished?”
_ value of the work completed to date
_ (percent completed) x (planned value)
_ may exceed the planned value if team is ahead of schedule
_ cannot exceed total project budget, because it is not dependent on actual cost
CV
_ Cost Variance
_ “Measures the actual progress/performance to date (earned value) against what’s been spent (actual costs). If < 0, over budget. If 0, on budget. If > 0, under budget.”
_ CV = EV - AC
_ measure of performance to date against actual costs
SV
_ Schedule Variance
_ “Compares actual progress/performance to date (earned value) to estimated progres/performance (planned value). If < 0, behind schedule. If 0, on schedule. If > 0, ahead of schedule.”
_ SV = EV - PV
_ measure of performance to date against expected costs
_ useful with the critical path methodology
Efficiency indicators
_ cost variance
_ schedule variance
CPI
_ Cost Performance Index
_ “Measures value of work completed as of measurement date (earned value) against actual costs. Indicates cost efficiency for work completed.”
_ CPI = EV / AC
_ measure of cost efficiency for work completed to date
SPI
_ Schedule Performance Index
_ “Measures progress as of measurement date (earned value) against planned progress (planned value).”
_ SPI = EV / PV
_ measure of progress to date compared to planned progress
Burn rate
_ rate at which money is being spent
_ may vary over time
_ can use the estimate to complete (ETC) formula
BAC
_ Budget at Completion
_ “How much did we budget for the total project?”
_ total amount of PV for all the work under consideration
EAC
_ Estimate at Completion
_ a forecasting technique
_ “EAC forecast for ETC work performed at the budgeted rate”: EAC = AC + BAC - EV [assumes work will be completed at budgeted rate]
_ “EAC forecast for ETC work performed at the present CPI”: EAC = BAC / CPI [assumes that past performance predicts future performance]
_ “EAC forecast for ETC work considering both SPI and CPI”: EAC = AC + (BAC - EV) / (CPI * SPI) [assumes that there is a negative cost performance to date and the that the project schedule dates must be met]
ETC
_ Estimate to Completion
_ cost estimate for remaining project work
_ ETC = EAC - AC [for some definition of EAC]
_ typically provided by the members working on the activities
_ (but book gives an example of just subtracting amount spent from budgeted amount)
Budget s-curve
_ graphing expenses or remaining budget against time shows an s-curve
_ spending is minimal at the beginning of a project and increases as work gets underway
Components of risk planning
_ identifying potential risks
_ analyzing the potential impact of each risk
_ developing a response for the risks with the greatest probability and impact
Risk register
_ list of risks identified
_ gives each risk an identification number, name, description, owner, and response plan (or location of a response plan)
_ the risk own monitors the project for this risk and takes responsibility for implementing the response plan
Potential sources of risk
Best to brainstorm with stakeholders and the team: _ budget/funding _ schedule _ scope _ requirement changes _ contracts _ hardware _ political concerns _ management risks _ legal risks _ technical issues
SWOT analysis
_ a technique for identifying risks
_ Strengths, Weaknesses, Opportunities, and Threats
_ analyzes project from each of these perspectives
_ also analyzes the project management process, resource, and organization from these perspectives
_ negative risks are associated with an organization’s weaknesses
_ positive risks are associated with an organization’s strengths
_ opportunities and threats are usually external to the organization
Risk analysis
_ process of identifying the risks with the greatest possibility of occurring and the greatest impact on the project
_ must first understand the risk tolerance levels of the stakeholders
_ often expressed as a probability and impact matrix
_ risk events have a higher probability of occurring early in the project and also more impact early in the project
_ risk often diminishes over time, so the risk rankings should change as the project progresses
Risk impact
_ the consequence or opportunity the risk poses for the project, if it were to occur
_ rely on expert judgement and historical data
_ evaluate as high, medium, or low
_ convert to a number between 0.0 and 1.0, with 1.0 being the highest impact (for subsequent analysis)
Probability and impact matrix
_ a table that lists probably, impact, and risk score for each risk
_ risk score = probability of risk * impact of risk
Strategies for dealing with negative risks
_ avoid - avoid or eliminate the risk
_ transfer - move the liability to a third party, such as by purchasing insurance
_ mitigate - reduce the impact or probability of the risk
_ accept - choose to accept the consequences of the risk
Strategies for dealing with positive risks
_ exploit - look for opportunities to take advantage of positive risks
_ share - assign the risk to a third party who is best able to bring about the opportunity
_ enhance - monitor the probability or impact of the risk event to assure benefits are realized
_ accept - allow the consequences without pursuing them
Risk trigger
_ a sign or precursor signaling that a risk event is about to occur
Basic communication model
_ sender-message-receiver
Effective vs efficient communication
_ effective = right info, right format, right audience, right time
_ efficient = appropriate level and amount of info for that time (i.e. only the info needed at the time)
Communication plan
Can be implemented as a table:
_ for each recipient of information (e.g. stakeholders)
_ types of communication used
_ format of communication (i.e. written or verbal)
_ distribution method
_ responsible party
_ frequency of communication
Stakeholder communication requirements
Document each stakeholder’s preferences in the communication plan. Preferences include:
_ frequency
_ level of report detail
_ types of communication (some want every document, some just status updates) – includes format of communication and distribution method
_ confidentiality constraints (what this person should or should not receive)
_ responsible party
Stakeholder engagement plan
_ helps engage stakeholders who are not otherwise engaged or who don’t understand their roles
_ identify which aspects of plan to communicate
_ list probable benefits or concerns from the stakeholder
_ determine the key message for each stakeholder
_ e.g. for each stakeholder, create a table with rows labeled why, what, how, when and columns labeled high-level overview (5 mins), key points (30 mins), supporting detail (1-2 hours), depending on how much time you have with the stakeholder, preparing you in advance for a meeting
_ the sponsor should review the plan
Managing a geographically dispersed team
_ everyone should understand the project thoroughly; “there should be no question about vision”
_ group similar phases or work efforts together
_ use voice conferencing, video conferencing, instant messaging
Communication triggers
For their associated audiences (just scan this)... _ audits _ project planning phases _ project changes _ risk register updates _ milestones achieved or missed _ schedule changes _ task initiation/completion - expressing appreciation _ changes by stakeholders _ gate reviews _ business continuity response _ incident response _ resource changes (communicated with stakeholders)
Communication trigger plan
_ a plan for how to handle each communication trigger in advance of the triggers
_ for each trigger, list stakeholders to receive notice, reason for communicating with the stakeholder, method of communication, and timing of notifications (which may be more often than just at trigger)
project planning trigger
_ inform sponsor, client
_ impacts planning documents
project change trigger
_ inform team
_ impacts schedule, cost, or risk
risk register update trigger
_ inform sponsor, team
_ impacts schedule or cost
milestone trigger
_ inform sponsor, client
_ impacts schedule, cost, or risk
schedule change trigger
_ inform sponsor, functional managers, client
_ impacts schedule, cost, or risk
task initiation/completion trigger
_ inform team
_ impacts upcoming risks
stakeholder change trigger
_ inform team, affected stakeholders
_ impacts schedule, cost, or risk
gate review trigger
_ inform team
_ reporting requirement
business continuity response trigger
_ inform sponsor, team
_ impacts project
incident response trigger
_ inform team
_ impact schedule, cost, or risk
resource change trigger
_ inform functional managers, team
_ impacts schedule, cost, or risk
