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
