ELC 347/BUS 348/PSA 347

Day 13ELC 347/BUS 348/PSA 347 Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCh 1 -2AgendaQuestions?IP Part 2 Corrected, Feedback Posted in Group section in BlackboardIP Part 3 (Risk Management)Due Oct 24 (Next Class)Assignment 5 posted Due Next ClassAssignment 6 will be posted by Next class (only two more after!) No Class on Oct 31 and Nov 7 I will be traveling, alternative arrangements will be made Exam 2 Chaps 5-9 will be on Nov. 7 Exam 3 Chap 10-14 will be on Finals Day No Class On Nov. 11 Veterans Day.Cost Estimation and BudgetingCopyright 2013 Pearson Education, Inc. Publishing as Prentice Hall2Finals Rescheduling Options Do IP Project presentation on Dec 12Exam 3 done asynchronously sometime during finals weekDo both presentation and exam 3 Wednesday, Dec 18 (any time)Thursday, Dec 19 after 2PMFriday, Dec 20 (any time)

3Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallChapter 8Cost Estimation and Budgeting08-04Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall8-5

5Chapter 8 Learning ObjectivesAfter completing this chapter, students will be able to:Understand the various types of common project costs.Recognize the difference between various forms of project costs.Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

08-06Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallChapter 8 Learning ObjectivesAfter completing this chapter, students will be able to:Discern the various reasons why project cost estimation is often done poorly.Apply both top-down and bottom-up budgeting procedures for cost management.Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.Recognize the appropriateness of applying contingency funds for cost estimation.

08-07Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCost ManagementCost management has been defined to encompass data collection, cost accounting, and cost control.Cost accounting and cost control serve as the chief mechanisms for identifying and maintaining control over project costs.Cost estimation processes create a reasonable budget baseline for the project.08-08Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCommon Sources of Project CostLaborMaterialsSubcontractorsEquipment & facilitiesTravel

08-09Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallTypes of CostsDirect Vs. IndirectRecurring Vs. NonrecurringFixed Vs. VariableNormal Vs. Expedited08-010Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCost ClassificationsDirect LaborXXXXBuilding LeaseXXXXExpediteXXXXMaterialXXXXNon-recurringDirectIndirectFixedRecurringVariableNormalExpeditedCosts08-011Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCost EstimationBallpark (order of magnitude) 30%Comparative 15%Parametric estimation Feasibility 10%Definitive 5%08-012Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallFIGURE 8.2

Parametric Estimate for Design Costs for Concorde08-13Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCopyright 2013 Pearson Education, Inc. Publishing as Prentice HallLogarithm Review1410X=YGiven Y , Determine XLog Y = XeX=Ye = 2.718281828Ln Y = XCopyright 2013 Pearson Education, Inc. Publishing as Prentice Hall8-15Learning CurvesEach doubling of output results in a reduction in time to perform the last iteration.

Curvilinear Handout.docLearning curve results.xlsUSE Excel and log(#,base) functions Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall15

FIGURE 8.4Unit Learning Curve Log-Linear Model08-16Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCopyright 2013 Pearson Education, Inc. Publishing as Prentice HallSoftware Project Estimation Function PointsFunction Point Analysis is a system for estimating the size of software projects based on what the software does.Function points are a standard unit of measure that represents the functional size of a software application.08-17Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallFIGURE 8.5

Software Project Development Activities as a Function of Size08-18Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCopyright 2013 Pearson Education, Inc. Publishing as Prentice HallComplexity Weighting Table for Function Point Analysis08-19

Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCopyright 2013 Pearson Education, Inc. Publishing as Prentice HallFunction Point Calculations for Restaurant Reorder System08-20

Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCopyright 2013 Pearson Education, Inc. Publishing as Prentice HallProblems with Cost EstimationLow initial estimatesUnexpected technical difficultiesLack of definitionSpecification changesExternal factors08-21Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCreating a Project BudgetTop-downBottom-upActivity-based costing (ABC)Project PlanWBSSchedulingBudgetingThe budget is a plan that identifies the resources, goals and schedule that allows a firm to achieve those goals08-22Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallActivity-Based CostingProjects use activities & activities use resources

Assign costs to activities that use resourcesIdentify cost drivers associated with this activityCompute a cost rate per cost driver unit or transactionMultiply the cost driver rate times the volume of cost driver units used by the project

08-23Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallSample Project Budget08-24

Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallTable 8.6Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallSample Budget Tracking Planned and Actual Activity Costs08-25

Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallTable 8.7Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallExample of a Time-Phased Budget08-26

Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallTable 8.8Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

Cumulative Budgeted Cost of the ProjectFigure 8.708-27Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallCopyright 2013 Pearson Education, Inc. Publishing as Prentice HallBudget ContingenciesThe allocation of extra funds to cover uncertainties and improve the chance of finishing on time.

Contingencies are needed becauseProject scope may changeMurphys Law is presentCost estimation must anticipate interaction costsNormal conditions are rarely encountered08-28Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall8-29Tonys View of Cost EstimatesMuch more of an art than a scienceExperience counts Cost estimates usually turn into actual budgets used for cost controlThings you should discover prior to developing a budgetWhat is the highest possible budget you can get away withWhat the customer/sponsor/management will bearWhat is the cheapest budget possibleAll things work out perfectlyAll budgets must be between these two numbers for the project to be successful Watch Variances! It is the most important part of cost control!Going over in one part of the project is fine if you have banked enough positive variance Example estimate budget csrd budget.xls

Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall29ExamplesSolved problems on page 267 (1 & 3)6-30NameHours NeededOverhead ChargePersonal Time RateHourly RateTotal Direct Labor CostJohn401.801.12$21/hr.Bill401.801.12$40/hr.J.P.601.351.05$10/hr.Sonny251.801.12$32/hr.Total Direct Labor Cost =

Functon Point.xlsxCopyright 2013 Pearson Education, Inc. Publishing as Prentice Hall30Examples3114 iterations, learning rate is 0.90, 15 hours to complete the first a = 51 , X = 14 , b = (log 0.90)/(log 2)

Yx =aXb where b = log2 (learning rate) log X / log2 == Log2Xlearning curve estimates.xls Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallSummaryUnderstand the various types of common project costs.Recognize the difference between various forms of project costs.Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

08-32Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallSummaryDiscern the various reasons why project cost estimation is often done poorly.Apply both top-down and bottom-up budgeting procedures for cost management.Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.Recognize the appropriateness of applying contingency funds for cost estimation.

08-33Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall

08-34Copyright 2013 Pearson Education, Inc. Publishing as Prentice HallSheet1Software Function Point AnalysisLow Medium HighTotalInputs3690outputs26100Interfaces1350Queries 48120Files4680total function point0

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