Project Cost Management

What Is Project Cost Management?

There are many processes to managing a projects cost. The ultimate goal is to complete a project successfully within an approved budget. Having a well defined plan, accurate time & cost estimates and a realistic budget to work with are all elements to keeping a budget on track. Although this doesn't come naturally to all project managers, it is an integral part of a project that is a major undertaking. It is a very demanding & detail oriented task that needs to be under control at all times.

Every single part of a project has a monetary value. Whether it be direct costs that relate to producing the products and services (labour costs are often a large percentage) or indirect costs, such as the electricity used to perform the work, or even paper towels for the team to wash their hands. A cost management plan developed in the early stages will help manage cost variances on the project.

Throughout the project it will be critical to utilize financial experts within your organization to create estimates of costs and benefits of the project throughout its entire life cycle. Being able to discuss project information in financial terms as well as technical terms will also help to keep stakeholders interested and on board with the project.

The 3 Project Cost Management Processes are:

1. Cost Estimating - this involves developing an estimate of the cost & resources needed to complete a project. You can then gauge all changes, activity costs and updates against this estimate to start narrowing your margin.
2. Cost Budgeting - is allocating the overall cost estimate into individual work items to establish a baseline for measuring performance. Knowing the monetary amount allocated for each item will help to prepare a budget with finer details.
3. Cost Control - by having control over changes made to the project budget you will be able to measure project performance, fore-casted completion date, requested changes and recommended changes to name a few so that everything is working together for the benefit of the client- and yourself in the long run.

Having a basic understanding of the terminology that is used for budgeting a project is mandatory. Pretty much everyone understands what a profit is- revenues minus expenditures. The goal is to have a profit at the end of the project. One way to help keep the cost under control is to continuously update your cost estimates.

There are 3 cost estimates that are the fundamentals of managing a budget. They are:

1. Rough Order Of Magnitude (ROM) - Otherwise known as a "ballpark" or "guesstimate". This type of estimate is done in the very early stages of a project, usually before it's even officially started. This type of estimate is often 3 or more years prior to a projects completion.
2. Budgetary Estimate - allocates money into an organization's budget. Many companies have their budgets developed at least 2 years into the future. Providing a budgetary estimate will ensure that the money within the organization has been allocated for each specific project.
3. Definitive Estimate - should be the most accurate estimate of project costs. It is used for making many purchasing decisions and should provide the most accurate estimate for determining a projects final costs. It is also the most up-to-date estimate created one year or less prior to project completion.
   

Keep in mind that it is much more cost-effective to invest money on defining user requirements and performing early studies to determine what elements are needed in a project, rather than waiting for problems to appear after the implementations.



Reflection

Cost management was an integral part of being self employed as a delivery person. There were many aspects to consider before undergoing this project.

Things I had to consider were:

• Mileage and the price of gas. What would it cost me to travel this distance and how many stops would I have to make. If the price of gas increased is there a system set in place for a gas allowance.
• Payment-What is the rate of payment for each route and are there increases for additional deliveries or is there an annual increase.
• Estimate repairs to the vehicle per year. By communicating with other people who have driven this route for a period of time you can come up with a rough estimate of what your repair expenses would be. Of course driving habits and if you do regular maintenance need to be considered. If you are a person who drives without worrying about your vehicle and you do infrequent maintenance then your costs will increase.
• The type of vehicle that you need will determine the cost output for the vehicle. Are you going to use a 4 wheel drive, an all wheel drive or a 2 wheel drive. Obviously going to a 4wheel or all wheel drive will increase your basic car payments but you also have to consider reliability in the winter and if they can handle the roads better, therefore making the cost of repairs less.

After all this information was obtained and documented I then decided that there was a profit to be made and did deliveries for 3 years. Basically, what I ended up calculating was revenues vs. expenses. Looking back I can see where I did 3 different estimates:

• Rough Order of Magnitude -where I considered the job and very roughly figured out in my head if it might be worth it.
• Budgetary Estimate - done on paper after discussing revenues and expenses with a knowledgeable person.
• Definitive Estimate-taking all revenues and expenses into consideration and including my personal living expenses at home such as mortgage, utilities, groceries and other costs.

Project Time Management

What is the best way to manage time on a project?

The proper management of time on every project is essential. It is also one of the most challenging tasks and can be the main cause of conflict on a project. Every client and project manager wants the timely completion of a project- in this, they have a common goal. There are several processes that can assist in the successful completion of a timely project.

The 6 steps to follow are:

1. Activity Definition - is identifying the specific activities the team members and stakeholders are responsible for to produce the projects deliverables. Every member should have a responsibility within the project. For every project manager delegating will be a necessary undertaking.
2. Activity Sequencing - identifies and documents the relationships between project activities. Many separate components on each project will be linked by a common denominator so scheduling the common element appropriately to keep the project on task is essential. (See Figure 3.1 below for example.)
3. Activity Resource Estimating - is calculating the amount of resources a project team should use to perform the project activities. This includes, the amount of people on the project (headcount), the equipment used and materials needed.
4. Activity Duration Estimating - involves estimating the number of work periods that are needed to complete each individual activity. The duration includes the actual physical amount of time spent on the activity.
5. Schedule Development - is the analyzing of activity sequences, resource estimates and the duration estimates to produce a number of schedules for keeping the project focused.
6. Schedule Control - is self explanatory. Maintaining it with up-to-date information is crucial to keep the project on-time. The more time spent to keep the project in sync and overcoming any bottlenecks quickly will be the key to a successful completion.

There are several types of software available to assist in project time management. Microsoft Office Project management software has been specifically designed to produce numerous charts such as Gantt charts to help build time management skills.

http://office.microsoft.com/en-ca/project/FX100487771033.aspx


For a Microsoft Office Project 2007 Demo click here:
http://office.microsoft.com/assistance/asstvid.aspx?assetid=XT100627731033&vwidth=700&vheight=530&type=flash&CTT=11&Origin=HA101672711033






Figure 3.1

Calculating The Critical Path=
Determining the Shortest time in which a project can be completed

Reflection

Having been involved with the construction of a one-of-a-kind home, time was one of the most important factors. The owner had a move in date and had sold his other house so the closing date and our finish date had to be timed so that he could move in without interruption from work that had yet to be completed.

The backhoe operator had to be done before the basement could be put in. The basement had to be done before the framing could begin, etc. The timing for finishing the radiant heat system was crucial to the delivery of the cement to finish the floor and cover the pipes.

Co-ordinating the plumber, electrician, insulator, dry wall and plasterer was important so as not to have them in each others way or standing around being paid while waiting for the chance to do their job. If this happens you not only increase the cost but also the time and you could lose a contractor to another job which means you have to find someone else and could increase your time and cost again.

Project Scope Management

What is Project Scope Management?

Let's start with the term "scope" in relation to project management. The "scope" of a project is all the work involved in creating the products of the project, as well as the processes used to create them. In all project undertakings we want everyone to essentially be "on the same page". This is where project scope management comes into play. It will ensure that the project team and stakeholders have the same understanding of each step & the result that will be produced within the project.

There are 5 main processes involved in scope management, they are:

1. Scope Planning - is determining how the scope will be managed. This involves defining, verifying & controlling how the work breakdown system will be created. Basically it is a blueprint for configuring the project itself.
2. Scope Definition - involves reviewing all the information to date, including the charter, the scope statement and adding all the variables & change requests that have been approved. The scope of a project will most likely have several amendments as the project progresses.
3. Creating the WBS - is an essential part of project scope management. The WBS stands for work breakdown system. This will aid you in keeping all the project deliverables decomposed into smaller more manageable components.
4. Scope Verification - is the step where the customer reviews the scope and all the scrutinized data that went into assessing the needs of the client. Once the customer/ sponsor of the project gives the go-ahead, a customer sign-off is recommended before proceeding further with the implementing of the project.
5. Scope Control - is controlling the amount of change within the scope. When on a project it is essential to keep the project on task. Controlling the momentum of the project by limiting changes to only the necessary ones that are of benefit to the project/client. Too much change could end in disaster if not carefully weighed by cost and benefit factors.

Developing a WBS can be done in several ways. Some of the most popular ways are:

• Using Guidelines- many organizations already have guidelines prepared that must be followed when developing a WBS.


• The Analogy Approach- using a similar projects existing WBS as a starting point & altering it to fit the current project.


• The Top-Down Approach - starts with the largest items of the project and breaks them down into categories.


• The Bottom-Up Approach - groups all tasks involved in the project into a larger more manageable level of categories.


• The Mind-mapping Approach - is a form of brainstorming the project from one main core branching out to structure thoughts and ideas.

Example Document:

WBS in Chart Form Developed from Mind-mapping Technique

Reflection

Having learned more about scope I can see where it will benefit me in my woodworking hobby. A lot of what I build starts with an idea and I go into the shop and start to build it. As things start to come together there are more and more ideas and things that come into play. If I was to draw out the plans for my ideas I’m sure the extras would come to mind as I built the item on paper. This would save time and scope creep from being part of almost every project I’ve done.

Having designed my first web page for someone else has been a bit of a disaster. There are 2 people in authority that can’t seem to agree with what it is they want. One wants it one way, and the other wants the opposite and they each want the other to approve it. I should have had them come up with a rough plan for the web site before agreeing to take this on. Changes just keep coming up and if it wasn’t for the fact that they are family I’d suggest they may want to seek someone else to do it for them.

Project Integration Management

What exactly is Project Integration Management?

In simple terms it means integrating the work of all the people involved within a project by focusing on communication and relationship management. When controlling a project from beginning to end and all the variables in between, it involves many stages of organizational skills. You must keep the project a coordinated success with the numerous areas of knowledge that will be accumulated from the stakeholders, management, users and the team who will be installing the system. If you are a keen listener and pay close attention to detail you could be a successful Project Manager.

Essentially there are 7 steps to Project Integration Management, they are:

1. The Project Charter - acknowledges the project and provides direction on objectives, similar to a basic contract.
2. The Project Scope Statement - will develop & confirm the details of the work to be accomplished on the project.
3. The Project Management Plan - is created & used to coordinate & guide all project planning, execution & control.
4. The Project Execution - managing & performing the work described in the Plan while keeping the project on budget.
5. The Monitoring & Controlling of Project Work - involves overseeing the project work to make sure the performance objectives are met.
6. Integrated Change Control - coordinating determined essential changes while keeping the project on task. An implemented Change Control System will help prevent scope creep.
7. Closing the Project - finalizing all aspects of the project, from administration, contracts, products, services & organizational process standpoints.

As you can see, a Project Manager must be very versatile and diplomatic when signing on to a project. There are many necessary functions that must be performed while dealing with the different levels of management ,the workers and all of their different personalities.

One of the best ways to determine what a job will consist of is in the strategic planning. The best method to use in planning is the SWOT method, it stands for the analyzing of:

• Strength
• Weaknesses
• Opportunities
• Threats

In the end, the most important thing to make sure is that the project is tailored to support the organization's overall business strategy.

Reflection

While working in a new Detox Unit in Ontario we had to, as a team, integrate a system for assessing client needs, planning their path to recovery, communicating with the various treatment programs, as well as with the client and documenting their progress. By first using a client contract we could assess the clients need for referral as well as their wishes for the type of treatment they were hoping for. Documentation becomes useful when the client has to deal with other staff. This gives the staff member an overall picture of what has been discussed. Documentation is also important when making the referral to treatment programs and holds important information about the client ,their addiction habits and their desire for treatment.

Planning involved setting times for treatment that the client is able to attend. They may need time away from work as well as time away from family, plus, they need to know if there is a cost involved and does their health benefits cover the cost of treatment as well as guarantee their wages. I would see the client, their family, the community, employers, and the treatment facility itself as stakeholders in a persons recovery. The client stands to profit through recovery because they would be healthier, have more cash flow, better family relations and a better standing in the community. The family would benefit by having a sober member of that family who they have less to worry about because they become more predictable in their daily routines. The community is safer (one less impaired driver) ,there are also cost savings for the community without the police, fire department, and paramedics being involved with this persons intoxicated behaviour.

The facility becomes a stakeholder in this persons life because their job is to teach him/her the fundamentals of staying sober. The reputation of the facility, in addictions, is very much spread by word of mouth, so, the better the treatment the more people talk about its good qualities and effectiveness. Employers may be one of the biggest stakeholders (next to the client and his family) because they would gain a more productive employee who has less time off and a better work attitude.

Communication is probably one of the most important tools in the process. The staff and client must develop a rapport through dialog to determine the best course of action that will benefit the client most. The staff and the treatment facility need to have a good line of communication to best serve the client by communicating pertinent information from one to the other. Once all this has been done it is most important for the client to establish the very best communication possible with the treatment facility staff. This is where they are going to learn the most but can only be helped by opening up and talking honestly about themselves and their feeling.

Starting a new Detox Unit means staff training in communications, first aid, food preparation, assessment and referral is an essential part of getting the unit up and running properly.I never really thought how project management would fit into a recovery setting but now I see that although the client is not the project, their recovery plan is. This means staff have to integrate the client into the recovery aspects of life.

What is Project Management?

Disclaimer:

All information, quotes, graphs, tables & charts included within my Project Management Blog Postings have been taken from my course textbook:

IT Project Management, Fifth Edition
Authored by Kathy Schwalbe

Buy The Text:

http://www.kathyschwalbe.com/

What is a Project?

It's a temporary endeavor to create a a unique product , service or result.

Attributes

A project has a unique purpose: a singleness of purpose directs the project and keeps the focus on the one unique purpose as opposed to doing too many things at once.Having a beginning and an end time allows for time goals.


By managing projects an organization has advantages of:

• better control of financial,physical and human relations
  



• improve customer relations shorter development times




• lower costs and improved productivity




• higher quality and increased reliability




• higher profit margins better internal coordination




• positive impact on meeting strategic goals

• higher work moral