Professional Documents
Culture Documents
Strategic Management
Process
Portfolio lifecycle
Programme lifecycle
Integrated
Management of
Projects
Define the
Project
Estimate
task
durations
4
Time
analysis:
critical path
and float
5
Schedule the
resources (if
necessary)
6
7
Assign tasks
Cost
Performance
Specification
or Scope
Estimating Accuracy
https://podio.com/site/budget-busters
Why do projects fail?
There are many reasons do your own
research
Over budget is one of the more common
failures.
Task: Find a suitable academic paper and
use for your essay
Estimating
Definition of Estimating
Estimating uses a range of tools and
techniques to produce estimates. An
estimate is an approximation of project time
and cost targets that is refined throughout
the project life cycle.
Tender/Bid Documents
Project phase
Five-year periods
1 Original concept
2 Feasibility study
3 Business plan
4 Risk assessment
5 Public enquiry
6 Authorization
7 Organization
8 Planning
9 Design
10 Procurement
11 Fulfilment
12 Test/commission
13 Handover
14 Economic life
15 Disposal
Project phase
Five-year periods
1 Original concept
2 Feasibility study
3 Business plan
4 Risk assessment
5 Public enquiry
6 Authorization
7 Organization
8 Planning
9 Design
10 Procurement
11 Fulfilment
12 Test/commission
13 Handover
14 Economic life
15 Disposal
Project phase
Five-year periods
1 Original concept
2 Feasibility study
3 Business plan
4 Risk assessment
5 Public enquiry
6 Authorization
7 Organization
8 Planning
9 Design
10 Procurement
11 Fulfilment
12 Test/commission
13 Handover
14 Economic life
15 Disposal
Project phase
Five-year periods
1 Original concept
2 Feasibility study
3 Business plan
4 Risk assessment
5 Public enquiry
6 Authorization
7 Organization
8 Planning
9 Design
10 Procurement
11 Fulfilment
12 Test/commission
13 Handover
14 Economic life
15 Disposal
Ball park
Recorded cost
Project phase
Five-year periods
1 Original concept
2 Feasibility study
3 Business plan
4 Risk assessment
5 Public enquiry
6 Authorization
7 Organization
8 Planning
9 Design
10 Procurement
11 Fulfilment
12 Test/commission
13 Handover
14 Economic life
15 Disposal
Ball park
Recorded cost
Wild guess
Ball park
Informed guess
Comparative
Feasibility
Definitive
Final recorded cost
Increasing
accuracy
Wild guess
Ball park
Informed guess
Comparative
Feasibility
Definitive
Final recorded cost
Wild guess
Ball park
Informed guess
Comparative
Feasibility
Definitive
Final recorded cost
Wild guess
Ball park
Informed guess
Comparative
Feasibility
Definitive
Final recorded cost
Conceptual design is
done and quotations
have been obtained for
major components and
materials.
Wild guess
Ball park
Informed guess
Comparative
Feasibility
Definitive
Final recorded cost
Wild guess
Ball park
Informed guess
Comparative
Feasibility
Definitive
Final recorded cost
Wild guess
Ball park
Informed guess
Comparative
Feasibility
Definitive
Final recorded cost
Top-down estimating
Considers
the
whole
project
first.
Greater
detail
might
not be
possible
The project
Intuitive
Probably ball-park
Useful when there is:
- little time available
- little information
Bottom-up estimating
Prime cost
Prime cost
Prime cost
Overhead
Contingency (grey area)
Escalation
P C sums (if any)
Mark-up for profit
Selling price
Prime costs
Direct labour cost
Labour burden
Direct materials cost
Materials burden
Direct expenses
100 000
20 000
150 000
20 000
10 000
300 000
200 000
500 000
Below-the-line items
Escalation allowance 2%
Contingency 5%
10 000
25 000
535 000
214 000
749 000
Provisional items
Add below
the line items
Estimates are
now budgets
Review / agree
the estimates
Make initial
estimates
List all the
cost items
Define and
code the WBS
Define
the project
Logical
stages for
a bottom-up
cost estimate
Budgets
Why do we need a budget?
identified
classified
allocated
recorded
Measure
Action
Monitor
address variances.
RESULTS
STANDARDS
TOTAL VALUE
PLANNED
COSTS
TOTAL COSTS
PROFITS
ACTUAL
COSTS
PROJECTED TOTAL
COSTS
ACTUAL
PROJECTED TOTAL
VALUE
VALUE
indicates
a projection
PROJECTED
ACTUAL
PROFITS
indicates a
comparison
WHO is involved?
Estimator sets cost/price in the first place
Financial or Commercial managers produce
budgets and codes
Production staff generate the data from the
project work executed
Project commercial team measure/monitor
Production staff implement any actions
required
In other words -just about everyone!
Cost Management
Variable
costs
Fixed
costs
Direct labour
Own personnel
Temporary hired labour
Overheads
Indirect purchases
Indirect expenses
Indirect labour
Costs
committed with
each order
Costs
dependent
upon
progress
and time
Variable
costs
Costs
committed with
each order
Direct labour
Own personnel
Costs
Temporary
hired in
labour
One of the biggest
factors
controlling the
dependent
costs of bought-out materials is to have upon
Overheads
efficient purchasing
procedures and control progress
the
and time
Fixed
Indirect
purchases
costs at or just
before
the time when each
costs
Indirect expenses
order is committed
Indirect labour
Fixed
costs
Direct labour
Own personnel
Temporary hired labour
Overheads
Indirect purchases
Indirect expenses
Indirect labour
Costs
dependent
upon
progress
and time
000s
500
400
Planned expenditure
300
Fixed cost element
200
100
10
Fixed costs:
add cost to the project but not value
accumulate remorselessly with time
can be the deciding profit or loss factor
12
14
16
Months
000s
350
Total materials budget
300
250
200
150
100
A: Job costing
50
2
10
12
14
16
Months
000s
350
Total materials budget
300
250
B: Invoices
200
150
100
A: Job costing
50
2
10
12
14
16
Months
000s
350
Total materials budget
300
250
C: Orders
200
B: Invoices
150
100
A: Job costing
50
2
10
12
14
16
Months
Project phase
Five-year periods
1 Original concept
2 Feasibility study
3 Business plan
4 Risk assessment
5 Public enquiry
6 Authorization
7 Organization
8 Planning
9 Design
10 Procurement
11 Fulfilment
12 Test/commission
13 Handover
14 Economic life
15 Disposal
Total budget
500
400
300
200
100
10
12
14
16 Months
This has no practical use because the actual cost graph bears no time
relation to the linear budget graph the budget could never be spent
at a linear rate but always follows an S curve (see the next slide)
Total budget
500
400
Scheduled cash outflows
300
200
100
10
12
14
16 Months
The budget graph has been plotted from the project cash outflow schedule.
The plot of actual costs should follow that graph but here they are below
budget. That might signify an insufficient rate of working but the graph is
meaningless unless we know what has been achieved for the money spent
700
600
Total budget
500
Scheduled
cash outflows
400
300
200
100
2
10
12
14
16 Months
700
600
M5
Total budget
M4
500
M3
400
M2
300
M1
200
100
2
10
12
14
16 Months
Step 2: identify milestones in the project plan, find their time and cost
details from the cash outflow schedule, and plot them at their relevant
positions on the graph. They will all lie on the cash outflow curve.
700
600
M5
Total budget
M4
500
M3
400
M2
300
Milestone M2 achieved on
budget but three weeks late
M1
200
Milestone M1 achieved
below budget but late
100
10
12
14
16 Months
700
600
M5
Total budget
M4
500
M3
400
M2
300
Milestone M2 achieved on
budget but three weeks late
M1
200
Milestone M1 achieved
below budget but late
100
2
10
12
14
16 Months
Summary
Estimating
Budgets
Cost Control
Financial Management
Project managers need to understand all the
above in order to successfully manage their
projects.
Workshop
End of Lecture 4