PROJECT

MANAGEMENT

2
GROUP
ND

Ir. Insannul Kamil, PhD,

Lecturer
IPM
2 GROUP
MEMBER
ND

Farizan
1210931012
Mustaqim

2nd GroupSlides
Entrepreneur

Hafizh Jafri
1210932003

IndahAlbani
12110931020
Putri

Focusing Discuss

Project Management

Estimating the Project Cost

process of defining and
documenting stakeholders need to
meet the project objective

First Step in Planning Timescale

As time progresses, the scope of a
project should become clearer and
more specific

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Finansial Appraisal and

the Business Plan
A WBS is a deliverable-oriented grouping of
the work involved in a project that defines
the total scope of the project

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Estimating the Project Cost

Cost Estimate

Direct labour

Direct cost

Direct materials
Direct expenses

Above the line items

Indirect cost

Overhead costs

Contingency sum

Below the line items

Escalation
Mark-up for profit
Selling price

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Terms commonly used in project cost

accounting

Below the line

a collective
name for the various allowances that are added once a total basic cost
costs
estimate has been made. Below-the-line costs typically include allowances for cost
escalation, exchange rate uctuations, contingencies and provisional cost items

Direct costs
costs that can be directly attributed to project work. These are also variable costs,
because their rate of expenditure depends on the intensity of project activity. When
no work is being done on the project, there are no direct costs

Indirect
costs costs
that must be incurred by the organization to
accommodation, insurances, maintenance, accountants,

provide heat, light,

secretaries, welfare,
management salaries, and other general running costs of the business

Direct
The Labour
wages and

salaries of people employed on the project, for time that can be

wholly and specifically attributed to the project.

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Direct materials
Equipment, materials and bought-out services used specifically on the project

Direct expenses
Travel, accommodation and other cost chargeable specifically to the project. Can
include the hiring of external consultant

Contingency sum
Usually calculated as a small percentage of above-the-line cost, in an attempt to
compensate for estimating errors and omissions

Escalation
An addition to allow for costs that increase with time as a result
ination
There are various ways in which
they can be calculated and their
levels
are
often
judged
according to the strength of the
competition and what market
will stand

of annual cost

Mark-up for profit

Selling
price
Provisional sums

The estimated costs of items that are not included in the quoted price which might
have to be charged extra if the need for them is revealed as project work proceeds
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Classification of Estimates
According to Confidence

Ballpark
estimates

Comparative
Estimate

Feasibility
estimates

Definitive
estimates

cannot
be
made
until
most
can be derived only after
as their name implies, are
design
work
has
been
a significant amount of
made by comparing work to
finished, all significant
preliminary
project
design
be done on the new project
purchase
orders
have
been
has been carried out
or one of its tasks with
placed at known prices and
similar work done on
work on the project is well
previous projects
advanced or nearing
completion
The degrees of accuracy quoted in these examples are about as good as could ever be expected. It is very likely
that many organizations will assign wider limits. It is also common to find asymmetric limits, slewed about zero. A
company might, for example, work on the assumption that its ballpark estimates are accurate to within +50 or 10
per cent.

Are those made when

only vague outline
information exist and
when practically all
detail of the work have
yet to be decided

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 Our Philosophy
VERSION CONTROL OF PROJECT COST ESTIMATES

For example, suppose that a project specification were to be developed and given the
serial number X1234. As different strategies and solutions are investigated, the relevant
versions of the project specification would be numbered X1234 case A, X1234 case B

if an error resulted in the re-issue of a cost estimate for project X1234 case B, the
corresponding estimate would be labelled X1234 case B, revision 1 (the original would
be issued at revision 0).

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 Our Philosophy
Ways of approaching cost estimating
Top-down
Very early in the project life history, there will be outline proposals for the nature and
scope of the project, but certainly no detailed task list or comprehensive work
breakdown

Bottom-up estimating
This method can only take place when a good project specification exists and a fairly
complete task list has been compiled

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Estimating
Format

General purpose
Cost estimating format

General
purpose
Project cost and
price summary
format

Large Project

Small
project

 Our Services

15

ESTIMATING PROJECT LABOUR COSTS

Grade 1

Grade 2

Grade 3

company directors, divisional

managers and professional
staff of consultant rank

departmental managers and

the chief engineers of
specialist engineering groups

project engineers and senior

engineers in all the specialist
engineering disciplines

Grade 4

Grade 5

Grade 6

engineers in all the specialist

disciplines

drawing office group leaders

and checkers

draughtsmen and women

plus all clerical and general
administrative staff except
managers.

Personal Estimating Characteristic

Optimistic estimator
Pessimistic estimator
Inconsistence estimator
Accurate estimator
Making allowance

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Estimatic for Material and Equipment Cost

total expected cost

including all charges and taxes payable in
transporting the materials to the project location

Total Lead time

which is the time expected to elapse between
issuing the purchase order and receiving the
consignment (failure to get materials on time is
a common cause of delays and late project
completion).

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Reviewing cost estimate

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It goes without saying that cost estimates

for a project are extremely important. Any
serious error could prove disastrous for a
fixed-price contractor and for the
customer too if it leads the contractor into
financial difficulties. A competent person
who is independent of the estimate
compiler should, therefore, always check
estimates as far as possible. Comparisons
with actual cost totals experienced on past
projects (for all materials and labour, not
just engineering design) are valuable in
checking that the new cost estimate at least
appears to be in the right league.
Because the project cost estimate will be
used for many important commercial and
management decisions, it is sensible to
arrange for an authorizing signature from a
responsible senior person who is satisfied
that all reasonable care has been taken.

Planning and scheduling

environment

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Planning and scheduling environment

planning a project of significant size will soon

find that there are a number of factors

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Planning and scheduling environment

External factors
event and conditions that lie outside the control of the project
management organization.
acts of god all project are subject to risk, the following are
just four from a long catalogue of happenings that can be
classified as acts of god :
An earthquake devastates a project organizations
headquarters
A hurricane and flood put a project site under a metre of
water and delay the start or ruin the work in progress
An influenza epidemic puts half the project workforce out of
action
The project manager (a keen golfer) is struck by lightning

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Working Factor
working factors can have a profound effect on the
project outcomes, the project manager will often
find that some or all of them are determined by
managers or circumstances over which the project
manager has no authority or power

Output
External factors

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Contribution of good planning to results

Planning should promote efficient working when it has been done

sensibly and logically. Project workers who are spared the
frustration of constantly trying to overcome crises caused by bad
planning can devote more of their time to achieving the quality
standards expected. Thus a well-planned project stands a far
greater chance of being completed within time and budget. That
should contribute greatly to cost effectiveness and profitability.

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Planning Time Frame

Bottom-up (task-led) planning

Plans produced entirely with well-considered task
duration estimates, with no external pressure to
compress the timescale within preset target completion
dates, should allow the planner to develop a working
schedule that is capable of being achieved with
confidence and a great deal of certainty.

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Top-down (target-led) planning

If a plan has to be suited to a predetermined
target delivery requirement, all the
estimates must be fitted into the available
time frame as best they can. Projects to
meet publicly announced completion dates
fall into this category.

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Planning Time Frame

Bottom-up (task-led) planning

Plans produced entirely with well-considered task
duration estimates, with no external pressure to
compress the timescale within preset target completion
dates, should allow the planner to develop a working
schedule that is capable of being achieved with
confidence and a great deal of certainty.

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Top-down (target-led) planning

If a plan has to be suited to a predetermined
target delivery requirement, all the
estimates must be fitted into the available
time frame as best they can. Projects to
meet publicly announced completion dates
fall into this category.

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DISTINCTION BETWEEN PLANNING

AND SCHEDULING
Plan
A plan can be considered as the listing or visual display
that results when all project activities have been
subjected to estimating, logical sequencing, target
timing and the determination of priorities

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Schedule
A schedule is obtained by doing additional
work on the initial plan, so that resources
needed to carry out all the project activities
are taken into account

Finansial Appraisal and

the Business Plan

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Project Feasibility Analysis

Managers frequently have to make decisions on

whether or not to authorize investment in a project, or
they might be asked to decide between two or more
different project options.

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DIFFERENT VIEWING PLATFORMS FOR THE PROJECT

INVESTOR AND THE PROJECT CONTRACTOR
++
the organization that perceives a need for the project and
then finds
the motivation and the money that allows it to happen.

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-The organization hired to undertake the work

(the contractor)

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Relevance of project financial appraisal to the potential

investor

None of the money invested in the failed IT software and systems design will be
recoverable.
IT hardware is not best known as an investment proposition, and depreciates so rapidly
that it becomes obsolete and worthless in a matter of a year or two, if not worse.
Staff who have been affected by the failed project, some of whom might have resisted the
proposed changes, will be demotivated, demoralized.
Far from achieving the expected benefits, the failed project will have damaged the
organizations performance, prestige and prospects.
Customers will suffer reduced or interrupted service.

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 4 Important Areas
INTRODUCTION TO PROJECT FINANCIAL
APPRAISAL
METHODS
the simple payback method
uses one of a range of techniques based
on discounting the forecast cash flows

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The main cash outflow elements of a project

the initial acquisition cost of software, plant or equipment needed for the project (this
might be a single purchase payment, a series of phased payments, or payments scheduled
against a leasing or rental plan; the differences between these options are important not
only for the timing of payments, but also for the tax implications);
interest payable on financing loans;
if the project is for new machinery or plant, the costs of operating and maintenance;
commissioning, debugging and other implementation costs;
staff or operator training costs;
all other expenses and fees payable as a result of the new project.

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Against these items of expenditure must be balanced all the savings and
revenues (the project benefits) that the new project is expected to generate
savings in operating and maintenance costs achieved by replacing old methods with the
new project (for example, although a stainless steel tower bought to replace an old steel
tower might be expensive initially it would have a longer life and would not need regular
repainting);
revenue from the sale of products or services made possible by the new project;
proceeds from the sale of assets no longer required as a result of the new project;
proceeds from the eventual sale of the new project hardware, some time in the future,
after
the new project has reached the end of its economic life.

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 Individual Service
SIMPLE PAYBACK METHOD

Simple payback is the appraisal

method familiar to most managers.
It seeks to answer the blunt
question How long would this
project take to pay for itself?

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DISCOUNTED CASH FLOW

The discounting rate used for a particular project is a matter for management
judgement, subject to the following influences:
prevailing interest rates
the rate of return on capital invested expected in corporate financial
objectives (thedominant factor)
advice from the companys financial director or senior accountants.

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HOW MUCH CONFIDENCE CAN WE

PLACE IN THE DATA?

sensitivity analysis

The process consists of repeating the

discounted cash flow calculations with
a changed value for one or more of
the parameters to test the effect
(sensitivity) on the predicted net
present value.

Two commonly used

methods are

Monte Carlo analysis

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Monte Carlo analysis is a

statistical method, associated
with some very impressive (but
to most of us not very helpful)
mathematics.

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 4 Important Areas
PROJECT FUNDING

Project owners
viewpoint
Project funding from
the contractors
viewpoint

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A contracting company will be able to reduce its

borrowing requirement if it can improve its cash
flow. The following are some of the methods
that might be considered:
reducing inventory (stocks and work-in-progress);
using trade creditors to advantage, negotiating longest possible credit terms
for the payment of suppliers and subcontractors invoices;
keeping trade debtors to a minimum through prompt and accurate invoicing,
asking for progress payments where appropriate, and applying rigorous
credit control.

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THANK YOU
2ND GROUP