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Project Management in Practice ISV

Fourth Edition
4-1

Mantel, Meredith, Shafer, and Sutton


Prepared by
Scott M. Shafer,
Updated by
William E. Matthews and
Thomas G. Roberts,
William Paterson University

John Wiley and Sons, Inc.


Copyright 2011 John Wiley & Sons, Inc.

The Use of Budgets


4-2

Budgets are plans for allocating organizational

resources to project activities

forecasting required resources, quantities needed,


when needed, and costs

Budgets help tie project to overall organizational

objectives
Budgets can be used as a tool by upper management
to monitor and guide projects.
Copyright 2011 John Wiley & Sons, Inc.

Top-Down Budgeting
4-3

Based on collective judgments and


experiences of top and middle managers
Overall project cost estimated by
estimating the costs of major tasks
Advantages

accuracy of estimating overall budget


errors in funding small tasks need not be
individually identified
Copyright 2011 John Wiley & Sons, Inc.

Bottom-Up Budgeting
4-4

Work Breakdown Structure (WBS) identifies


elemental tasks
Those responsible for executing these tasks
estimate resource requirements
Advantage

more accurate in the detailed tasks

Disadvantage
risk of overlooking tasks

Copyright 2011 John Wiley & Sons, Inc.

Work Element Costing


4-5

Determine resource requirements and then

costs for each task

fixed costs (e.g., materials)


labor time and labor rate
equipment time and equipment rate
overhead
general, sales, and administrative (GS&A)

Copyright 2011 John Wiley & Sons, Inc.

The Impact of Budget Cuts


on Type 1 and Type 2 Project Life Cycles
4-6

Copyright 2011 John Wiley & Sons, Inc.

Activity Versus Program Budgeting


4-7

Activity oriented budgeting are based


on historical data accumulated through
an activity-based accounting system

expenses assigned to basic budget lines

With Program budgets, each project is


divided by task and time period

allows for aggregation across projects

Copyright 2011 John Wiley & Sons, Inc.

Accountability
4-8

Each person who has a task to do must own


the design and execution of that task and
must be held responsible for its timely
achievement.
Accountability is the twin of empowerment.
Jim McCarthy, Dynamics of Software Development , Microsoft Press,
1995
Copyright 2011 John Wiley & Sons, Inc.

Improving Estimates and Forecasts


4-9

Forms
Learning curves
Tracking signals

Copyright 2011 John Wiley & Sons, Inc.

Forms
4-10

A form for gathering data on project resource needs might

include:
people managers, technical and non-technical
money
materials facilities, equipment, tools, space, etc.
special services
And might identify:
person to contact
how many/much needed
when needed
whether available
Copyright 2011 John Wiley & Sons, Inc.

Learning Curves
4-11

Tn T1n

where
Tn = the time required to complete the nth unit
T1 = the time required to complete the first unit
r = log(learning rate)/log(2)
Copyright 2011 John Wiley & Sons, Inc.

Tracking Signals
4-12

A tracking signal number can reveal


(tell) if there is a systematic bias in cost
and other estimates and whether the
bias is positive or negative
By observing their own errors a project
manager can learn to make unbiased
estimates

Copyright 2011 John Wiley & Sons, Inc.

Other Factors Influencing the Success of a


Project
4-13

Changes in resource prices

estimate rate of price change individually for inputs


that have significant impact on costs

Waste and spoilage


Team member turnover costs
Using mythical man-months by Fred Brooks.
Organization climate
Just bad luck

Copyright 2011 John Wiley & Sons, Inc.

Estimate of Project Cost - Made at Project Start


4-14

Copyright 2011 John Wiley & Sons, Inc.

Three Basic Causes for


Change in Projects and Their Budgets
4-15

Errors made by cost estimator as to how to

achieve tasks.
New knowledge about the nature of the
performance goal or setting.
A mandate a new law or standard, etc.

Copyright 2011 John Wiley & Sons, Inc.

Handling Changes
4-16

Accept a negative change and take a loss on the

project (least preferred)


Prepare for change ahead of time include
provisions in the original contract that allow for
renegotiated price and schedule for client-ordered
changes in performance (best practice)

Copyright 2011 John Wiley & Sons, Inc.

Key Elements of Risk Management


4-17

Risk management planning


Risk identification
Qualitative risk analysis
Quantitative risk analysis
Risk response planning
Risk monitoring and control

Copyright 2011 John Wiley & Sons, Inc.

Failure Mode and Effect Analysis (FMEA)


4-18

List ways project might potentially fail


Evaluate severity (S) of each failure
1 represents failure with no effect and 10 represents
very severe and hazardous failure

Estimate likelihood (L) of each failure


occurring
1 indicating that failure is rather remote and not likely
to occur and 10 indicating that failure is almost certain
to occur

Copyright 2011 John Wiley & Sons, Inc.

Failure Mode and Effect Analysis (FMEA)


4-19

Copyright 2011 John Wiley & Sons, Inc.

Other Approaches to Risk Management


4-20

Game theory
Assume that competitors and the environment are
your enemies
Select a course of action that minimizes the
maximum harm

Expected value
The value of the outcome multiplied by the
probability of the outcome occurring

Simulation
Copyright 2011 John Wiley & Sons, Inc.

Copyright
4-21

Copyright John Wiley & Sons, Inc.


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