Being an entrepreneur is a constant struggle.

I’ve never met a single true entrepreneur who

wasn’t always looking for the next big thing. It doesn’t matter how little free time they have, or
what the state is of their current projects, they are always open to new possibilities. This can be
both a good and a bad thing, but for me personally it’s left me a little overwhelmed throughout the
past week.

Right as I was in the midst of finishing up my first premium product here at Location 180, I
decided it would be a great time to start a new venture! I’ve had an idea to start this site for the
last few months, and I finally decided to just go for it – regardless of how close I was to finishing
my current project (anyone else notice my June 15 date come and go?).

Note: My new site will officially launch in a few weeks, but if you sign up for the Location 180
mailing list, you will get full details in Wednesday’s newsletter.

The point being, why would I take on a new venture when I’m so close to finishing the project I’ve
been working on for months? To be honest, I don’t know the answer to this, but it did get me
thinking about the importance of project management and the components that lead to success
for some and an endless amount of half finished products for others.

Hint: New site has something to do with this.

So here are the 7 fundamental components of project management:

1) Organization
If you can’t force yourself to be even the slightest bit organized, you might as well not even start
the project. Organization is essential to ensuring that you stay on track and are able to focus on
the real priorities. This becomes even more essential once you get multiple projects involved and
have to balance your time between each of them. If you have a proper roadmap to completion,
filled with goals and timelines you will have a much greater chance of success. The best way to
accomplish this is to have a plan before you even get started. Know exactly how much time you
are going to spend each week, and on what tasks. Having this type of plan for each of your
endeavors will make it clear whether or not you are over extending yourself

2) The Ability to Say No

This is extremely important. As I mentioned, so often the typical entrepreneur wants to get
involved in as many opportunities as possible . However sometimes, no matter how great
something seems, you have to be able to say no. You’ve already started working on any number
of other projects, so you obviously hold a belief that they will be successful. If you over extend
yourself, very quickly those current ventures that were on the fast track to success could wind up
half finished, and you with little motivation to return to development mode.

3) A Feature Filter
So often we have a tendency to want to throw everything we possibly can into our products,
businesses, whatever. This can be one the quickest ways to slow down progress and make
yourself extremely frustrated in the process. In writing my guide to Overcoming the Fear of
Uncertainty, I had this huge unrealistic list of things I wanted to include for the initial launch. By
taking an objective standpoint and only keeping the most important features, I’m able to continue
making progress, while not getting frustrated with the sheer amount of features I tried to cram in.
With any features you are adding to something, ask yourself what the benefit is. Will it help you
sell more? Does it really make the product that much better? If the answer is no, scrap it and
move on with your life.

4) A Life Outside of Work

We’ve all been there at some point, hell I’m probably there right now, where we get so wrapped
up in the things that we are working on that we forget to have a life outside of our work.
Essentially what this leads to is lower levels of quality, more stress than necessary, and a
propensity to burn out. Don’t do that to yourself. At the very least set aside an afternoon or
evening each week to step away from business and enjoy the rest of what life has to offer.

Or you know, you can take a whole week and go some place exotic. Like Bali, where I’ll be
headed next week!

5) Follow Through
This where I get into trouble. I’m great at starting projects. I tend to get overly excited and jump
right in, without thinking too much about how I plan to actually finish a project. I get sidetracked,
start something else, lose interest, or any number of other things that keeps me from finishing
what I’ve started. Just in the last few weeks I’ve started to take heed to each of the other 6
aspects of project management, and I feel like I’m closer with this whole follow through thing than
I’ve been in awhile. It’s exciting. A little bit of momentum can carry you a long way – think about
that if you are struggling to get something past the finish line.

6) An End Goal
Why are you working so hard on this? What are you hoping to get out of it? If you don’t have a
goal, then it’s really difficult to put your full effort into your projects. Do you want to make money?
Free up time? Gain exposure? What is it that is driving you to do what you are doing?
Understanding exactly where you hope to be when all is said is done is vital to helping you get
there.

7) Passion
You can work on just about anything without the need to be passionate about it, but doing
something you love and believe in can certainly add motivation. I’ve tried to choose projects and
businesses that I really have an interest in. The kinds of things that I would do for free (and many
I am), if I had to. Finding something you are passionate about is a much better long term
business model than grinding away at something you hate.

How many of these things have you considered when it comes to your life and your businesses?
Whether you have a business or not, you are applying project management skills to many
aspects of your personal life. Viewing yourself as the project manager of your life and continually
analyzing it in the context of these fundamentals can be a worthwhile way to ensure you stay on
track with your goals.

Subject - Re: Characteristics of project management

1. Interpersonal skills. The ability to manage people is vital. Project managers will ultimately be
responsible for coordinating the efforts of the technical staff assigned to the project. It's crucial
that they have the interpersonal and leadership skills to direct team members and keep them
motivated and on track. They also need to be able to smoothly navigate through the tricky politics
within and between the participating organizations.
2. Organizational skills. This key characteristic of great project managers is absolutely critical to
keep projects on schedule and budget. The ability to assign resources, prioritize tasks, and keep
tabs on the budget will ensure quality and impact the project's success.

3. Communication skills. The project manager is the main communication link between the
business managers and technical team. His or her ability to clearly communicate with members of
both groups is essential. He or she must be able to clearly communicate project objectives,
challenges or problems, scope changes, and regular project status reports.

In offshore outsourcing, communication skills become even more critical. Project managers must
not only communicate with team members that may be on the other side of the world, they must
do so in a way that makes the global nature of the project invisible to the client. It's an added
challenge to try to effectively communicate between on-site and offshore staff. But an
experienced offshore outsourcing project manager can do this with ease. In addition to global
distance between personnel, he or she also needs to be aware of and address cultural
differences.

4. Problem-solving skills. In every project, it's unexpected problems or challenges that drive
everyone crazy. The project manager must be able to effectively handle these situations and
mitigate risk so they don't get out of control.

5. Professional training. Look for project managers that have PMI's Project Management
Professional (PMP®) training, the project management profession's most respected and globally
recognized certification credential. To obtain PMP certification, an individual must satisfy
education and experience requirements, agree and adhere to a Code of Professional Conduct,
and pass the PMP Certification Examination.

Benifits

Project management is a not-so-hi-tech concept that enables managers to guide a project from
point “A” to point “B” and do so in a way that demonstrates efficiency, cost-savings and plain ‘ol
ingenuity. That being said, the benefits of project management are ten-fold: the manager actually
gets to manage as they lead their team and institute a strategy that will see said project reach
fruition. The client benefits because they are allowed to provide feedback, while relishing in the
knowledge that their input really means something. And finally, the workers benefit because
without the workers/team the project wouldn’t get finished. Additionally, the team members are
able to take a stake in something, work with it and see said project through from start to finish.

The benefits of project management contain all the elements of what is a truly symbiotic
relationship between manager, client and worker bee. In fact, it’s this very application of
knowledge, skills, tools and techniques that ultimately will meet or exceed a stakeholder's needs
and/or expectations on any given project.

Now that we’ve laid out the ground-rules, it’s a lot easier to visualize what some of the benefits of
project management are. With apologies to David Letterman, I’ve put together my own top-ten list
of the benefits of project management:

Better efficiency in delivering services: Project management provides a “roadmap” that is easily
followed and leads to project completion. Once you know where to avoid the bumps and pots
holes it stands to reason that you’re going to be working smarter and not harder and longer.
Improved/increased/enhanced customer satisfaction: Whenever you get a project done on time
and under budget, the client walks away happy. And a happy client is one you’ll see again. Smart
project management provides the tools that enable this client/manager relationship to continue.
Enhanced effectiveness in delivering services: The same project management strategies that
allowed you to successfully complete one project will serve you many times over.
Improved growth and development within your team: Positive results not only command respect
but more often than not inspire your team to continue to look for ways to perform more efficiently.
Greater standing and competitive edge: This is not only a good benefit of project management
within the workplace but outside of it as well; word travels fast and there is nothing like superior
performance to secure your place in the marketplace.
Opportunities to expand your services: A by-product of greater standing. Great performance
leads to more opportunities to succeed.
Better Flexibility: Perhaps one of the greatest benefits of project management is that it allows for
flexibility. Sure project management allows you to map out the strategy you want to take see your
project completed. But the beauty of such organization is that if you discover a smarter direction
to take, you can take it. For many small-to-midsize companies, this alone is worth the price of
admission.
Increased risk assessment: When all the players are lined up and your strategy is in place
potential risks will jump out and slap you in the face. And that’s the way it should be. Project
management provides a red flag at the right time: before you start working on project completion.
Increase in Quality: Goes hand-in-hand with enhanced effectiveness
Increase in Quantity: Often the result of better efficiency, a simple reminder regarding the benefits
of project management.

Read more: http://www.brighthub.com/office/project-

management/articles/2350.aspx#ixzz1DGaK9SIa

The Role of Project Managers

Get the PDF VersionBy Tony Jacowski

The tasks to be handled by a project manager to successfully manage a project include:

Integration Management - This is developing and managing the direction of the project
Scope Management - This includes planning, defining and managing the scope of the project.
Time and Cost Management - This covers developing a schedule, allocating resources and
managing funds for the project.
Quality Management - This involves taking care of the quality of the process in question such that
it meets or even exceeds various quality parameters set earlier.
Human Resource Management - A manager needs to take care of his team, encourage and
motivate them and make sure the team moves in the right direction.
Communication Management - The manager needs to prepare a communication plan and make
sure that there is a healthy communication, both horizontally and vertically.
Risk Management - Various risks involved in a project should be identified and a mitigation and
contingency plan needs to be developed to ensure that the project is not derailed at any point.
Procurement Management - Various materials needed during the project need to be procured
and managed with the vendors and suppliers for successful completion of the project.
A project manager is usually responsible for the success or the failure of the project. They first
need to define the project and then build its work plan. If the scope of the project is not very clear,
or the project is executing poorly, the manager is held accountable. However, this does not mean
that the manager does all the work by himself (which is practically impossible). There is an entire
team under the project manager, which helps to achieve all the objectives of the project.
However, if something goes wrong, the project manager is ultimately accountable.
Apart from this, depending on the size and the complexity of the project, they may need to take
on multiple roles. The project manager may need to assist with gathering business requirements,
help to design a database management system or may prepare project documentation. They may
work full time on a large project, or may work part-time on various projects of a smaller nature; or
may alternatively handle various projects as well as handle other responsibilities like business
analysis and business development.
At times, they may have accountability but not authority. For example, he or she may be using
certain resources but might not have direct control over those resources. At such times, the
manager might find certain limitations over task execution, which might not take place as they
might have liked. Not having direct control over the state of finances and finance allocation might
cause ambiguity.
In order to be successful, the project manager must be given support and authority by senior
management.

The Project Life Cycle refers to a logical sequence of activities to accomplish the project’s goals
or objectives. Regardless of scope or complexity, any project goes through a series of stages
during its life. There is first an Initiation or Birth phase, in which the outputs and critical success
factors are defined, followed by a Planning phase, characterized by breaking down the project
into smaller parts/tasks, an Execution phase, in which the project plan is executed, and lastly a
Closure or Exit phase, that marks the completion of the project. Project activities must be grouped
into phases because by doing so, the project manager and the core team can efficiently plan and
organize resources for each activity, and also objectively measure achievement of goals and
justify their decisions to move ahead, correct, or terminate. It is of great importance to organize
project phases into industry-specific project cycles. Why? Not only because each industry sector
involves specific requirements, tasks, and procedures when it comes to projects, but also
because different industry sectors have different needs for life cycle management methodology.
And paying close attention to such details is the difference between doing things well and
excelling as project managers.

Diverse project management tools and methodologies prevail in the different project cycle
phases. Let’s take a closer look at what’s important in each one of these stages:
1) Initiation
In this first stage, the scope of the project is defined along with the approach to be taken to
deliver the desired outputs. The project manager is appointed and in turn, he selects the team
members based on their skills and experience. The most common tools or methodologies used in
the initiation stage are Project Charter, Business Plan, Project Framework (or Overview),
Business Case Justification, and Milestones Reviews.

2) Planning
The second phase should include a detailed identification and assignment of each task until the
end of the project. It should also include a risk analysis and a definition of a criteria for the
successful completion of each deliverable. The governance process is defined, stake holders
identified and reporting frequency and channels agreed. The most common tools or
methodologies used in the planning stage are Business Plan and Milestones Reviews.

3) Execution and controlling

The most important issue in this phase is to ensure project activities are properly executed and
controlled. During the execution phase, the planned solution is implemented to solve the problem
specified in the project's requirements. In product and system development, a design resulting in
a specific set of product requirements is created. This convergence is measured by prototypes,
testing, and reviews. As the execution phase progresses, groups across the organization become
more deeply involved in planning for the final testing, production, and support. The most common
tools or methodologies used in the execution phase are an update of Risk Analysis and Score
Cards, in addition to Business Plan and Milestones Reviews.

4) Closure
In this last stage, the project manager must ensure that the project is brought to its proper
completion. The closure phase is characterized by a written formal project review report
containing the following components: a formal acceptance of the final product by the client,
Weighted Critical Measurements (matching the initial requirements specified by the client with the
final delivered product), rewarding the team, a list of lessons learned, releasing project resources,
and a formal project closure notification to higher management. No special tool or methodology is
needed during the closure phase.

Construction Projects

The project produces an artefact. The value generated by the project is embedded in the artefact.
The artefact may be a complex system with human and mechanical components.
Examples:

Warship
Jubilee line extension
Millennium dome
Customer call centre
Method guidebook
IT system
Research Projects

The project produces knowledge. The knowledge may be formally represented as models,
patterns or patents. Or the knowledge may be embedded in a working process or artefact.
Examples:

Business modelling
Developing a model of the UK economy
Developing a new species of wheat
Developing novel approaches to project management.
Military intelligence/ codebreaking.
The analysis, testing, QA or evaluation portions of a larger project.
Reengineering Projects

The project produces a desired change in some system or process.

Examples:

Taking sterling into the Euro

Renumbering the UK telephone system
Implementing PRINCE project management practices into a large organization.
Designing and installing an Intranet.
Procurement Projects

The project produces a business relationship contractually based with a selected supplier for a
defined product or service based on a fixed specification and/or a defined specification process
Examples:

Outsourcing a specific construction or research project

Outsourcing a complete business function (such as IT).
Imposing new rules and measures on a regulated industry.
Business Implementation Projects

The project produces an operationally effective process. The value generated by the project is
embedded in the process.
Examples:

Developing a new business process to repackage and exploit existing assets.

Installing e-commerce
Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses of the
existing business or proposed venture, opportunities and threats as presented by the
environment, the resources required to carry through, and ultimately the prospects for success.[1]
[2] In its simplest term, the two criteria to judge feasibility are cost required and value to be
attained.[3] As such, a well-designed feasibility study should provide a historical background of
the business or project, description of the product or service, accounting statements, details of
the operations and management, marketing research and policies, financial data, legal
requirements and tax obligations.[1] Generally, feasibility studies precede technical development
and project implementation.
[edit]Five common factors (TELOS)

[edit]Technology and system feasibility

The assessment is based on an outline design of system requirements in terms of Input,
Processes, Output, Fields, Programs, and Procedures. This can be quantified in terms of
volumes of data, trends, frequency of updating, etc. in order to estimate whether the new system
will perform adequately or not. Technological feasibility is carried out to determine whether the
company has the capability, in terms of software, hardware, personnel and expertise, to handle
the completion of the project when writing a feasibility report, the following should be taken to
consideration:
A brief description of the business
The part of the business being looked towards
The human and economic factor
The possible solutions to the problems
[edit]Economic feasibility
Economic analysis is the most frequently used method for evaluating the effectiveness of a new
system. More commonly known as cost/benefit analysis, the procedure is to determine the
benefits and savings that are expected from a candidate system and compare them with costs. If
benefits outweigh costs, then the decision is made to design and implement the system. An
entrepreneur must accurately weigh the cost versus benefits before taking an action.
Cost-based study: It is important to identify cost and benefit factors, which can be categorized as
follows: 1. Development costs; and 2. Operating costs. This is an analysis of the costs to be
incurred in the system and the benefits derivable out of the system.
Time-based study: This is an analysis of the time required to achieve a return on investments.
The future value of a project is also a factor.
[edit]Legal feasibility
Determines whether the proposed system conflicts with legal requirements, e.g. a data
processing system must comply with the local Data Protection Acts.This factor help the system
developers not to get law suited.
[edit]Operational feasibility
Operational feasibility is a measure of how well a proposed system solves the problems, and
takes advantage of the opportunities identified during scope definition and how it satisfies the
requirements identified in the requirements analysis phase of system development.[4]
[edit]Schedule feasibility
A project will fail if it takes too long to be completed before it is useful. Typically this means
estimating how long the system will take to develop, and if it can be completed in a given time
period using some methods like payback period. Schedule feasibility is a measure of how
reasonable the project timetable is. Given our technical expertise, are the project deadlines
reasonable? Some projects are initiated with specific deadlines. You need to determine whether
the deadlines are mandatory or desirable.
[edit]Other feasibility factors

[edit]Market and real estate feasibility

Market Feasibility Study typically involves testing geographic locations for a real estate
development project, and usually involves parcels of real estate land. Developers often conduct
market studies to determine the best location within a jurisdiction, and to test alternative land
uses for given parcels. Jurisdictions often require developers to complete feasibility studies
before they will approve a permit application for retail, commercial, industrial, manufacturing,
housing, office or mixed-use project. Market Feasibility takes into account the importance of the
business in the selected area.
[edit]Resource feasibility
This involves questions such as how much time is available to build the new system, when it can
be built, whether it interferes with normal business operations, type and amount of resources
required, dependencies,
[edit]Cultural feasibility
In this stage, the project's alternatives are evaluated for their impact on the local and general
culture. For example, environmental factors need to be considered and these factors are to be
well known. Further an enterprise's own culture can clash with the results of the project.
[edit]Financial feasibility
In case of a new project,financial viability can be judged on the following parameters:
Total estimated cost of the project
Financing of the project in terms of its capital structure, debt equity ratio and promoter's share of
total cost
Existing investment by the promoter in any other business
Projected cash flow and profitability

The Elements of a Good Feasibility Study

Get the PDF VersionBy Tim Bryce

"Those who do not do their homework do not graduate." Bryce's Law

In its simplest form, a Feasibility Study represents a definition of a problem or opportunity to be
studied, an analysis of the current mode of operation, a definition of requirements, an evaluation
of alternatives, and an agreed upon course of action. As such, the activities for preparing a
Feasibility Study are generic in nature and can be applied to any type of project, be it for systems
and software development, making an acquisition, or any other project.
There are basically six parts to any effective Feasibility Study:
1. The Project Scope which is used to define the business problem and/or opportunity to be
addressed. The old adage, "The problem well stated is half solved," is very apropos. The scope
should be definitive and to the point; rambling narrative serves no purpose and can actually
confuse project participants. It is also necessary to define the parts of the business affected either
directly or indirectly, including project participants and end-user areas affected by the project. The
project sponsor should be identified, particularly if he/she is footing the bill.
I have seen too many projects in the corporate world started without a well defined project scope.
Consequently, projects have wandered in and out of their boundaries causing them to produce
either far too much or far too little than what is truly needed.
2. The Current Analysis is used to define and understand the current method of implementation,
such as a system, a product, etc. From this analysis, it is not uncommon to discover there is
actually nothing wrong with the current system or product other than some misunderstandings
regarding it or perhaps it needs some simple modifications as opposed to a major overhaul. Also,
the strengths and weaknesses of the current approach are identified (pros and cons). In addition,
there may very well be elements of the current system or product that may be used in its
successor thus saving time and money later on. Without such analysis, this may never be
discovered.
Analysts are cautioned to avoid the temptation to stop and correct any problems encountered in
the current system at this time. Simply document your findings instead, otherwise you will spend
more time unnecessarily in this stage (aka "Analysis Paralysis").
3. Requirements - how requirements are defined depends on the object of the project's attention.
For example, how requirements are specified for a product are substantially different than
requirements for an edifice, a bridge, or an information system. Each exhibits totally different
properties and, as such, are defined differently. How you define requirements for software is also
substantially different than how you define them for systems.
4. The Approach represents the recommended solution or course of action to satisfy the
requirements. Here, various alternatives are considered along with an explanation as to why the
preferred solution was selected. In terms of design related projects, it is here where whole rough
designs (e.g., "renderings") are developed in order to determine viability. It is also at this point
where the use of existing structures and commercial alternatives are considered (e.g., "build
versus buy" decisions). The overriding considerations though are:
Does the recommended approach satisfy the requirements?
Is it also a practical and viable solution? (Will it "Play in Poughkeepsie?")
A thorough analysis here is needed in order to perform the next step...
5. Evaluation - examines the cost effectiveness of the approach selected. This begins with an
analysis of the estimated total cost of the project. In addition to the recommended solution, other
alternatives are estimated in order to offer an economic comparison. For development projects,
an estimate of labour and out-of-pocket expenses is assembled along with a project schedule
showing the project path and start-and-end dates.
After the total cost of the project has been calculated, a cost and evaluation summary is prepared
which includes such things as a cost/benefit analysis, return on investment, etc.
6. Review - all of the preceding elements are then assembled into a Feasibility Study and a
formal review is conducted with all parties involved. The review serves two purposes: to
substantiate the thoroughness and accuracy of the Feasibility Study, and to make a project
decision; either approve it, reject it, or ask that it be revised before making a final decision. If
approved, it is very important that all parties sign the document which expresses their acceptance
and commitment to it; it may be a seemingly small gesture, but signatures carry a lot of weight
later on as the project progresses. If the Feasibility Study is rejected, the reasons for its rejection
should be explained and attached to the document.

Ratio Analysis

What Does Ratio Analysis Mean?

A tool used by individuals to conduct a quantitative analysis of information in a company's
financial statements. Ratios are calculated from current year numbers and are then compared to
previous years, other companies, the industry, or even the economy to judge the performance of
the company. Ratio analysis is predominately used by proponents of fundamental analysis
8.1 Project Constraints

In this lesson, we will discuss the essential features of resource planning and management in
projects. We begin this lesson by first understanding the different kinds of project constraints, in
particular, the types and nature of resource constraints.

The primary impact of project constraints is the likelihood of delaying the completion of the
project. There are three types of project constraints: technological, resource and physical. The
technological constraints relate to the sequence in which individual project activities must be
completed. For example, in constructing a house, pouring the foundation must occur before
building the frame. Resource constraints relate to the lack of adequate resources which may
force parallel activities to be performed in sequence. The consequence of such a change in
network relationships is delay in the completion date of the project. We will examine the nature of
resource constraints in much greater detail in the next section. Physical constraints are caused by
contractual or environmental conditions. For example, due to space limitations an activity such as
painting a wall may have to be performed by only one person (Gray and Larson, 2003).

In general, from a scheduling perspective, projects can be classified as either time constrained or
resource constrained. A project is classified as time constrained in situations where the critical
path is delayed and the addition of resources can bring the project back on schedule and the
project completed by the required date. However, the additional resource usage should be no
more than what is absolutely necessary. The primary focus, for purposes of scheduling, in time
constrained projects is resource utilization. On the other hand, a project is resource constrained if
the level of resource availability cannot be exceeded. In those situations where resources are
inadequate, project delay is acceptable, but the delay should be minimal. The focus of scheduling
in these situations is to prioritize and allocate resources in such a manner that there is minimal
project delay. However, it is also important to ensure that the resource limit is not exceeded and
the technical relationships in the project network are not altered.

For many development projects, the bulk of project costs are tied to staffing. In this case, the best
way to estimate project cost is to prepare a detailed project schedule using Microsoft Project (or a
similar tool), and to use the resource management features of that software to identify the types,
quantities, and phasing of different types of labor.

Project cost estimating is usually performed by summing estimates for individual project elements
into a project total. The pieces can vary in size and number from a few large chunks of a project
with known costs to hundreds or thousands of discrete tasks or individual work packages.

Bottom-up estimates are often prepared by contractors to support their proposal bid process. This
involves using a detailed WBS and pricing out each work package making up the project. This
method may be laborious and time consuming, but it can result in a fairly accurate estimate if the
work content is well understood.

Top-down estimates use rules of thumb, parametric models, analogies, or cost estimating
relationships (CERs). CERs based on historical experience can provide data such as the cost to
develop a source line of software or the cost per square foot for a building construction project.

Sometimes project cost goals are a forced-fit to the amount of money available in the budget.
This will require the project manager to initiate a cost estimate to find out if the project is feasible.
Adjustments in scope may be needed so the project can survive.

"Design-to-Cost" is a process where cost goals for development, acquisition, or operations and
maintenance are used as design parameters, along with technical performance, in the systems
design trade-off process. In cases where the absolute value of a dollar threshold needs to be
contained, the project definition, conceptual design, and development can address performance
trade-offs to fit the project within a predetermined cost envelope.

"Cost as the Independent Variable" is an affordability based method for planning project scope. It
starts with a fixed budget and works backwards, through an iterative process of prioritizing and
selecting requirements, to arrive at a project scope achievable within budget constraints.

Costs can usually be estimated with acceptable accuracy by using relevant historical cost data, a
well constructed and documented estimating methodology, and a good understanding of the work
content to be performed. This approach involves putting as much detail into understanding the
tasks as possible and generating assumptions with whatever shreds of knowledge may be
available.

If equipment is to be acquired, a recent analogous vendor quote will be helpful. Experience

shows, however, that analogous cost data are often not analogous. For this reason, the cost
estimator will want to determine whether configurations are really similar; changes are
anticipated; things like start-up, installation, and spare parts are included; and if there are costs
left out. These same principles apply to using costs from similar projects or service contracts.
Find out what the cost data include and what has been left out. It is sometimes useful to take
available cost data and shape it using size and complexity factors to estimate costs for
analogous, yet distinctly different, project efforts.

If you estimate only the requirements you are sure of, your estimate will usually be low. If your
estimate for the number of source lines of software is uncertain, you may want to add an
uncertainty factor to the estimate (15-35%). It may be prudent to add a contingency factor to
account for expected changes, or to allocate management reserves to deal with later
eventualities.

When a cost estimate is done well, the most likely problems will be: (1) scope left out, (2) not
understanding the technical difficulty, and (3) changes.

Cost estimates are done for different reasons, and the purpose of the estimate usually imparts a
bias to the numbers. "Marketing estimates" are likely to be low, while good "budget estimates" are
likely to be high. When judging the accuracy of an estimate, you need to know the source of the
estimate and the purpose for which it was derived. If the estimate was proposed by a project
advocate, you may want to use caution before putting those numbers in your budget.

Cost estimates that hinge on assumptions about staff or asset availabilities or schedule
dependencies outside the manager’s control should be considered areas of cost risk and
managed accordingly.

As a project manager, you need to understand if your cost estimates are sound or if you are
buying into an inevitable cost overrun due to under-estimating. The adverse consequence of a
cost estimate that is too conservative is that it can kill an otherwise viable project by making it
look unaffordable.

Good cost estimating requires a supportive environment in the organization. One way to help this
is to develop projects using standard work breakdown structure categories, and then collect
actual costs in a historical cost database. A cost database for software, for instance, could be
used to collect data related to cost per line of code, software sizing algorithms, costs for function
points, or cost data from bottom-up functional descriptions and tasks.
A well-structured cost estimate can become unmanageable after the third or fourth "what-if"
iteration unless each change is meticulously documented. Even knowing this fact well,
experienced cost estimators are constantly reminded of it when trying to reconstruct or explain
cost estimates that were prepared some months or years back. It seems that one can never
document a cost estimate too well or record assumptions too thoroughly. An aid to this process is
using a PC spreadsheet to prepare your estimate, and then keeping all the important data and
adjustment factors visible in cells, rather than hidden in formulas. If the assumptions, factors, and
data sources are not obvious in your cost estimate documentation, then it is not done yet.

Put assumptions like uncertainty factors, mark-ups, and quantity multipliers in cells and where
they can be accessed globally, then you can do iterations quickly, and your assumptions will be
visible for reviewers and clearly documented for future reference. It is sometimes helpful to
document your cost estimating methodology in a narrative form. This can help with subsequent
reviews and audits, and it can lay the groundwork for developing an enterprise-wide cost
estimating methodology.

When you construct a cost estimating spreadsheet with each cost driving factors in a single cell, it
can be used to conduct cost sensitivity analysis. You can vary an uncertain quantitative
assumption and the plot it against the range of results. If total project or product cost is relatively
insensitive to a given variable, it can be left alone. If the project cost is sensitive to an uncertain
assumption, specific efforts should be focused on gathering additional data to lessen that
uncertainty.

Variable cost
From Wikipedia, the free encyclopedia

Decomposing Total Costs as Fixed Costs plus Variable Costs.

Variable costs are expenses that change in proportion to the activity of a business.[1] Variable
cost is the sum of marginal costs over all units produced. It can also be considered normal costs.
Fixed costs and variable costs make up the two components of total cost. Direct Costs, however,
are costs that can easily be associated with a particular cost object.[2] However, not all variable
costs are direct costs. For example, variable manufacturing overhead costs are variable costs
that are indirect costs, not direct costs. Variable costs are sometimes called unit-level costs as
they vary with the number of units produced.
Direct labor and overhead are often called conversion cost,[3] while direct material and direct
labor are often referred to as prime cost.[3]
Contents [hide]
1 Explanation
2 See also
3 Notes
4 References
[edit]Explanation

For example, a manufacturing firm pays for raw materials. When activity is decreased, less raw
material is used, and so the spending for raw materials falls. When activity is increased, more raw
material is used and spending therefore rises. Note that the changes in expenses happen with
little or no need for managerial intervention. These costs are variable costs.
A company will pay for line rental and maintenance fees each period regardless of how much
power gets used. And some electrical equipment (air conditioning or lighting) may be kept running
even in periods of low activity. These expenses can be regarded as fixed. But beyond this, the
company will use electricity to run plant and machinery as required. The busier the company, the
more the plant will be run, and so the more electricity gets used. This extra spending can
therefore be regarded as variable.
In retail the cost of goods is almost entirely a variable cost; this is not true of manufacturing where
many fixed costs, such as depreciation, are included in the cost of goods.
Although taxation usually varies with profit, which in turn varies with sales volume, it is not
normally considered a variable cost.
For some employees, salary is paid on monthly rates, independent of how many hours the
employees work. This is a fixed cost. On the other hand, the hours of hourly employees can often
be varied, so this type of labour cost is a variable cost.

In economics, fixed costs are business expenses that are not dependent on the level of goods or
services produced by the business [1] They tend to be time-related, such as salaries or rents
being paid per month, and are often referred to as overhead costs. This is in contrast to variable
costs, which are volume-related (and are paid per quantity produced).
In management accounting, fixed costs are defined as expenses that do not change as a function
of the activity of a business, within the relevant period. For example, a retailer must pay rent and
utility bills irrespective of sales.
Along with variable costs, fixed costs make up one of the two components of total cost: total cost
is equal to fixed costs plus variable costs.
[edit]Areas of confusion

Fixed costs should not be confused with sunk costs. From a pure economics perspective, fixed
costs are not permanently fixed; they will change over time, but are fixed in relation to the quantity
of production for the relevant period. For example, a company may have unexpected and
unpredictable expenses unrelated to production; and warehouse costs and the like are fixed only
over the time period of the lease.
By definition, there are no fixed costs in the long run.[citation needed] Investments in facilities,
equipment, and the basic organization that can't be significantly reduced in a short period of time
are referred to as committed fixed costs. Discretionary fixed costs usually arise from annual
decisions by management to spend on certain fixed cost items. Examples of discretionary costs
are advertising, machine maintenance, and research & development expenditures.[2]
In business planning and management accounting, usage of the terms fixed costs, variable costs
and others will often differ from usage in economics, and may depend on the intended use. Some
cost accounting practices such as activity-based costing will allocate fixed costs to business
activities, in effect treating them as variable costs. This can simplify decision-making, but can be
confusing and controversial.[3] [4]
In accounting terminology, fixed costs will broadly include almost all costs (expenses) which are
not included in cost of goods sold, and variable costs are those captured in costs of goods sold.
The implicit assumption required to make the equivalence between the accounting and
economics terminology is that the accounting period is equal to the period in which fixed costs do
not vary in relation to production. In practice, this equivalence does not always hold, and
depending on the period under consideration by management, some overhead expenses (e.g.,
sales, general and administrative expenses) can be adjusted by management, and the specific
allocation of each expense to each category will be decided under cost accounting.

Indirect vs. Direct costs

Direct costs are those for activities or services that benefit specific projects, e.g., salaries for
project staff and materials required for a particular project. Because these activities are easily
traced to projects, their costs are usually charged to projects on an item-by-item basis.
Indirect costs are those for activities or services that benefit more than one project. Their precise
benefits to a specific project are often difficult or impossible to trace. For example, it may be
difficult to determine precisely how the activities of the director of an organization benefit a
specific project. Indirect costs do not vary substantially within certain production volumes or other
indicators of activity, and so are considered to be fixed costs.[1]
It is possible to justify the handling of almost any kind of cost as either direct or indirect. Labor
costs, for example, can be indirect, as in the case of maintenance personnel and executive
officers; or they can be direct, as in the case of project staff members. Similarly, materials such
as miscellaneous supplies purchased in bulk—pencils, pens, paper—are typically handled as
indirect costs, while materials required for specific projects are charged as direct costs.