Chapter 9 - Calculation and budgeting Flashcards
Project cost
Costs for the resources in the project
Product cost
Related to materials needed to produce the product
Lifecycle cost
- All costs arising during all phases of a product’s lifecycle
- Often discussed in larger projects or investments
Top Down
A rough estimate of costs by comparison with similar projects already executed
Self-costing estimate
- Based on the idea that the project should bear all its own costs
- Both direct (can be attributed to a certain activity/cost unit) and indirect (overhead, common to several cost units) costs should be included
Bottom Up
Detailed calculation based on a careful analysis of each activity in the project
Internal pricing
- Might be hard to distribute indirect costs
- You should evaluate work efforts and other resources in the fairest way possible
Contribution estimate
- Based on project being burdened only with the cost that arise if the project is preformed, so-called specific costs
- Useful in prioritising between different courses of action
- Alternative with largest contribution margin should be chosen
Specific revenue
The revenue that arises through execution of the project
Specific cost
The cost that arises through execution of the project
How do you calculate the Contribution margin?
Specific revenue - Specific cost
Describe Income - expenditure
- Income arises at the time of sale
- Expenditure arises at the time of purchase
- For external reporting and tax calculations
Describe Revenue - cost
- Distributed incomes and expenditures
- Value created of consumed during a certain period
- Financial result = Revenue - Cost
Describe Payment - disbursement
- Occur at the time of cast receipt
- When an invoice or other bill is paid
Pre-estimates
- Connect the project estimates to the schedule
- Items in budget should be possible to connect to activities and resources
- Estimating cost for each activity in the schedule
Variable costs are
Affected by volume
Fixed costs are
Independent
Cost estimates in agile projects
- Cost for each sprint is fixed
- Because sprint length is set and staffing of team should not be changed
- Project cost is determined by number of Scrum teams working on the project and number of sprints to achieve the goal
Calculation of cost for scrum team on p. 220
Accrual-basis accounting
- Advance estimate should be based on it, presented in table or graphically, in chart, to be used during execution
- Schedule and estimated activity costs are important information sources in order to enable it
Resource histogram
Provides overview of the distribution of project costs over time
A projects S-curve or Cost baseline
Visual presentation of the advanced estimate, as shown on p. 221
Methods most suitable when uncertainty is high
- Rolling wave planning
- Agile work methods
- This gives control over costs and risks, however requires PO to keep cool and be ready to give a loose mandate to the project
Uncertainty analysis
Estimating uncertainty
Base the values on similar projects, or estimates from groups with members having different ideas of the final costs
- The closer to the upper intervals you are, the larger the risk of exceeding budget is
See p. 223 for formula and example
What needs to be done if the budget and advance estimate isn’t in balance
- Review calculations and try to find cheaper resources
- Re-plan project and find another way to achieve the goal
- PM must ask PO for larger budget or decreased project scope
