BADM 633 University of Cumberlands Project Planning & Budget Management Discussion TASK-1 Reflect on the assigned readings from PPT attached and then type

BADM 633 University of Cumberlands Project Planning & Budget Management Discussion TASK-1

Reflect on the assigned readings from PPT attached and then type a four page paper regarding what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding. Define and describe what you thought was worthy of your understanding in one page, and then explain why you felt it was important, how you will use it, and/or how important it is in project planning.

Task-2 – Problem Set #11 (write atleast 4 page)

Question I – Why is cost estimation such an important component of project planning? Discuss how it links together with the Work Breakdown Structure and the project schedule.

Question II – Suppose your organization used function point analysis to estimate costs for software projects. How would the expertise level of a recently hired programmer affect your calculation of their function points on a monthly basis when compared to an older, more experienced programmer?

Note: APA FORMAT MUST Budget Planning
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Project Management
Chapter 12: Budget Planning
Budget Management
•
•
•
•
Importance
Estimating costs to compare and select
Methods of Estimating
Managing the Budget
• Budget timeline
• Budget variances
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Project Management
Chapter 12: Budget Planning
Importance of budget planning
• Cost is one of the three project constraints
• A budget is a plan or forecast
• Cost management also includes tracking and
managing variances from the planned expenditures
• Detailed estimates are important
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Project Management
Chapter 12: Budget Planning
Estimating costs to compare
and select projects
• Payback, rate of return or NPV (or combine them)
• Need accurate numbers but must balance with the cost
of getting more accurate estimates
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Project Management
Chapter 12: Budget Planning
Estimating methods
• Analogous estimate
• Find a similar project or task and assume this one will be the same or
similar
• The more experience the estimator has, the better this works
• Learn from each project
• DPCI (Darnell-Preston Complexity Index) can help with
benchmarking
• Parametric estimate
• Parameters such as number of square feet for a building; number of
kitchens, bathrooms, etc. for a house.
• Bottom-up estimating
• Estimate each item or task and add them together
• Generally more accurate but takes more effort to create
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Project Management
Chapter 12: Budget Planning
Estimating Guidelines
• Don’t gold-plate: estimate what you expect, and meet
that estimate.
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Project Management
Chapter 12: Budget Planning
Managing the Budget
• Cash flow
• Make a plan of WHEN the outflows will occur, and ensure that
the money is available on time
• Contingency reserves
• For unexpected expenses that arise during the project
• There are almost always some surprises, but can’t predict at the start
what it will be
• Project Manager does not allocate to the sub-projects but manages it
centrally
• Can be spent and still be within the original project budget
• Management Reserves
• For scope changes
• Not likely to be spent; not part of project baseline
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Project Management
Chapter 12: Budget Planning
Reporting Progress:
Earned value management
Budgeted Cost of
work Scheduled
BCWS
Detailed estimates for each activity
in the project
Planned Value
PV
Total budgeted cost as of a certain
date in the project
Earned Value
EV
Budgeted cost of the completed
work as of a certain date in the
project
Actual Cost
AC
Actual cost of the completed work
as of a certain date in the project
Budget at Completion
BAC
Total budgeted costs for the entire
project
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Project Management
Chapter 12: Budget Planning
Project Cost Chart
$50,000
BAC
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$February
March
April
May
June
July
Budget Baseline
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Project Management
Chapter 12: Budget Planning
Budget Baseline and Project
Cost Chart
• The project budget is usually shown graphically,
illustrating the cumulative planned spending.
• Typical shape for the budget curve is s-shaped, with
less spending at the beginning and end of the project.
• Add the periodic expenditures on a regular basis to
create the Project Cost Chart.
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Project Management
Chapter 12: Budget Planning
Project Cost Chart (up to May)
$50,000
BAC
$45,000
$40,000
AC
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$February
March
April
Actual Expenditures
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May
June
July
Budget Baseline
Project Management
Chapter 12: Budget Planning
Schedule Variance: SV
• Difference between planned and actual progress
SV=EV-PV
• Positive value: project is ahead of schedule
• Zero: project is on-time
• Negative: project is behind schedule
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Project Management
Chapter 12: Budget Planning
Cost Variance: CV
• The difference between the earned value and the
actual cost is the cost variance:
CV=EV-AC
• If positive, you are achieving more than you predicted
for the money
• If zero, you are right on the plan
• If negative, you are achieving less than you predicted
for the money
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Project Management
Chapter 12: Budget Planning
Schedule Performance Index:
SPI
• Compares progress on the scope to spending:
SPI = EV/PV
• SPI less than one indicates the project is behind
schedule
• SPI of one is right on schedule
• SPI greater than one the project is ahead of schedule
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Project Management
Chapter 12: Budget Planning
Cost Performance Index: CPI
• Compares the budget spent to date with progress to
date:
CPI=EV/AC
• A value greater than one: under budget
• Equal to one: on budget
• Less than one: overspending the budget
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Project Management
Chapter 12: Budget Planning
Estimated Cost to Complete
the Project: ETC
• Formula to use depends on what the PM expects with
regard to future project costs and whether the original
budget assumptions remain valid
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Project Management
Chapter 12: Budget Planning
ETC if past variances are not
expected to continue:
ETC = BAC – EV
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Project Management
Chapter 12: Budget Planning
ETC if past variances are expected
to continue at the same level
ETC = (BAC – EV)/CPI
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Project Management
Chapter 12: Budget Planning
Estimated Final Project Cost:
EAC
EAC = ETC + AC
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Project Management
Chapter 12: Budget Planning
Budget Timeline
• Contractual agreements often require partial payments
• Prepare a schedule, based on contractual and other
expenditure requirements
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Project Management
Chapter 12: Budget Planning
Budget Management
Summary
• Cost estimations may be used to choose between
options
• Managing the budget includes
•
•
•
•
Estimating costs and setting a budget
Determining when the budgeted costs should occur
Tracking expenditures
Managing variances between the budget and the expenditures
• Methods of Estimating
• Analogous, Parametric, Bottom-up
• Managing the Budget
• Budget timeline
• Budget variances
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Project Management
Chapter 12: Budget Planning
Budget Management
Summary (continued)
• Budgeting and Cost Management are important
activities for project managers
• There are several methods for estimating the costs
• Estimated costs may be used to choose between
options
• Project progress and budget management are closely
related and can be managed with indices: BCWS, PV,
SV, AC, CV, SPI, CPI, ETC, BAC and EAC
• Contingency funds allow for the unexpected
• Reporting to the team and to management are
important components in budget management
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Project Management
Chapter 12: Budget Planning
Questions?
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Project Management
Chapter 12: Budget Planning

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