Chapter 6: Project Cost Management
Chapter 6: Project Cost Management
Learning Objectives Understand the importance of good project cost management Explain basic cost management principles, concepts, and terms Describe the resource planning, cost estimating, cost budgeting, and cost control processes Explain the different types of cost estimates Understand what is involved in preparing a cost estimate for an information technology project Perform calculations for earned value manageme Understand the benefits of using earned value management Describe how software can assist in project cost management 2021/2/21
2021/2/21 2 Learning Objectives ◼ Understand the importance of good project cost management ◼ Explain basic cost management principles, concepts, and terms ◼ Describe the resource planning, cost estimating, cost budgeting, and cost control processes ◼ Explain the different types of cost estimates ◼ Understand what is involved in preparing a cost estimate for an information technology project ◼ Perform calculations for earned value management ◼ Understand the benefits of using earned value management ◼ Describe how software can assist in project cost management
Chapter outline 6. 1 The Importance of project Cost management 6.2 Basic Principles of Cost management 6.3 Resource Planning 6.4 Cost Estimating 6. 4. 1 Types of Cost Estimates 6.4.2 Cost Estimation Tools and techniques 6.4.3 Typical Problems with Information Technology Cost Estimates 6.4.4 Sample Cost Estimates and Supporting Detail for an Information Technology project 6.5 Cost Budgeting 6.6 Cost Control 6.6. 1 Earned Value Management 6.7 Using Software to Assist in Cost Management 2021/2/21 3
2021/2/21 3 Chapter Outline ◼ 6.1 The Importance of Project Cost Management ◼ 6.2 Basic Principles of Cost Management ◼ 6.3 Resource Planning ◼ 6.4 Cost Estimating ◼ 6.4.1 Types of Cost Estimates ◼ 6.4.2Cost Estimation Tools and Techniques ◼ 6.4.3 Typical Problems with Information Technology Cost Estimates ◼ 6.4.4 Sample Cost Estimates and Supporting Detail for an Information Technology Project ◼ 6.5 Cost Budgeting ◼ 6.6 Cost Control ◼ 6.6.1 Earned Value Management ◼ 6.7 Using Software to Assist in Cost Management
6. 1 The Importance of Project Cost management
6.1 The Importance of Project Cost Management
The Importance IT projects have a poor track record for meeting cost goals Average cost overrun from 1995 CHAOS study was 189% of the original estimates; improved to 45% in the 2001 study In 1995, cancelled i projects cost the U.S. over $81 billion 2021/2/21
2021/2/21 5 The Importance ◼ IT projects have a poor track record for meeting cost goals ◼ Average cost overrun from 1995 CHAOS study was 189% of the original estimates; improved to 45% in the 2001 study ◼ In 1995, cancelled IT projects cost the U.S. over $81 billion
What is Cost and project Cost Management Cost is a resource sacrificed or fore gone to achieve a specific objective or something given up in exchange Costs are usually measured in monetary units like dollars Project cost management includes the processes required to ensure that the project is completed within an approved budget 2021/2/21
2021/2/21 6 What is Cost and Project Cost Management? ◼ Cost is a resource sacrificed or foregone to achieve a specific objective or something given up in exchange ◼ Costs are usually measured in monetary units like dollars ◼ Project cost management includes the processes required to ensure that the project is completed within an approved budget
Project Cost Management Processes Resource planning: determining what resources and quantities of them should be used Cost estimating: developing an estimate of the costs and resources needed to complete a project Cost budgeting: allocating the overall cost estimate to individual work items to establish a baseline for measuring performance Cost control: controlling changes to the project budget 2021/2/21
2021/2/21 7 Project Cost Management Processes ◼ Resource planning: determining what resources and quantities of them should be used ◼ Cost estimating: developing an estimate of the costs and resources needed to complete a project ◼ Cost budgeting: allocating the overall cost estimate to individual work items to establish a baseline for measuring performance ◼ Cost control: controlling changes to the project budget
Quick Quiz on Cost Concepts Suppose you sell 10 widgets per day on average and the average cost per widget is $10. If you sold 11 widgets on day, what would the affect on profits be? Suppose you were buying 10 PCs for your new business. What would some of the life cycle costs be? Give examples of"tangible"vS. "intangible benefits of a new project 2021/2/21 8
2021/2/21 8 Quick Quiz on Cost Concepts ◼ Suppose you sell 10 widgets per day on average, and the average cost per widget is $10. If you sold 11 widgets on day, what would the affect on profits be? ◼ Suppose you were buying 10 PCs for your new business. What would some of the life cycle costs be? ◼ Give examples of “tangible” vs. “intangible” benefits of a new project
6.2 Basic Principles of cost Management
6.2 Basic Principles of Cost Management
Basic Principles of cost Management Most ceos and boards know a lot more about finance than It, IT project managers must speak their language Profits are revenues minus expenses Life cycle costing is estimating the cost of a project over its entire life Cash flow analysis is determining the estimated annual costs and benefits for a project Benefits and costs can be tangible or intangible, direct or indirect Sunk cost should not be a criteria in project selection 2021/2/21 10
2021/2/21 10 Basic Principles of Cost Management ◼ Most CEOs and boards know a lot more about finance than IT, IT project managers must speak their language ◼ Profits are revenues minus expenses ◼ Life cycle costing is estimating the cost of a project over its entire life ◼ Cash flow analysis is determining the estimated annual costs and benefits for a project ◼ Benefits and costs can be tangible or intangible, direct or indirect ◼ Sunk cost should not be a criteria in project selection
