copyright © 2013 pearson education, inc. publishing as prentice hall day 14

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Day 14

ELC 347/BUS 348/PSA 347

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice HallCh 1 -2

AgendaQuestions? IP Part 3 (Risk Management) DUE IP Part 4 Due Nov 4 (Changed from original date)

Cost estimates and budget Assignment 5 Due Assignment 6 Posted

Problems at end of chapter 8 Due Nov 4

No Class on Oct 31 Use class time for Group Work

Exam 2 will be on Nov. 7 Chaps 6-9, 20 M/c and 4 short essays

Exam 3 Chap 10-14 will be on Finals Day No Class On Nov. 11 Veterans Day.Finish Cost Estimation and Budgeting


Finals Rescheduling Options Do IP Project presentation on Dec 12

Exam 3 done asynchronously sometime during finals week

Do both presentation and exam 3 Wednesday, Dec 18 (any time)Thursday, Dec 19 after 2PMFriday, Dec 20 (any time)

3


Chapter 8Cost Estimation and

Budgeting

08-04

8-5

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Logarithm Review

6

10X=Y

Given Y , Determine X

Log Y = X

eX=Ye = 2.718281828

Ln Y = X

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 8-7

Learning Curves

Each doubling of output results in a reduction in time to perform the last iteration.

x

:

Y = time required for the x unit of output

a = time required for the initial unit of output

X = the number of units to be produced

b = learning curve slope = log(learning %)/log(2)

bxY aX

Where

Curvilinear Handout.docLearning curve results.xls

USE Excel and log(#,base) functions

Learning_Curves_Supplement.doc


Chart of Common “b’s” (solved for specific unit time)

8

units factor (x^b)Learning

Rate b 5 10 15 20 25 30 3595.00% -0.074 0.887720 0.843334 0.818406 0.801167 0.788046 0.777485 0.76866790.00% -0.152 0.782987 0.704688 0.662568 0.634219 0.613068 0.596311 0.58250185.00% -0.23447 0.685671 0.582820 0.529965 0.495397 0.470145 0.450471 0.43448080.00% -0.32193 0.595637 0.476510 0.418199 0.381208 0.354784 0.334559 0.31836275.00% -0.41504 0.512745 0.384559 0.324996 0.288419 0.262907 0.243747 0.22864170.00% -0.51457 0.436846 0.305792 0.248208 0.214055 0.190835 0.173745 0.16049665.00% -0.62149 0.367789 0.239063 0.185812 0.155391 0.135268 0.120778 0.10974460.00% -0.73697 0.305410 0.183246 0.135913 0.109948 0.093275 0.081548 0.07279155.00% -0.8625 0.249540 0.137247 0.096744 0.075486 0.062270 0.053209 0.04658550.00% -1 0.200000 0.100000 0.066667 0.050000 0.040000 0.033333 0.02857145.00% -1.152 0.156597 0.070469 0.044171 0.031711 0.024523 0.019877 0.01664340.00% -1.32193 0.119127 0.047651 0.027880 0.019060 0.014191 0.011152 0.00909635.00% -1.51457 0.087369 0.030579 0.016547 0.010703 0.007633 0.005792 0.00458630.00% -1.73697 0.061082 0.018325 0.009061 0.005497 0.003731 0.002718 0.00208025.00% -2 0.040000 0.010000 0.004444 0.002500 0.001600 0.001111 0.00081620.00% -2.32193 0.023825 0.004765 0.001859 0.000953 0.000568 0.000372 0.00026015.00% -2.73697 0.012216 0.001832 0.000604 0.000275 0.000149 0.000091 0.00005910.00% -3.32193 0.004765 0.000477 0.000124 0.000048 0.000023 0.000012 0.0000075.00% -4.32193 0.000953 0.000048 0.000008 0.000002 0.000001 0.000000 0.000000

Learning Curve Charts.xlsx

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice HallFIGURE 8.4

Unit Learning Curve Log-Linear Model

08-9Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall


Software 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.

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FIGURE 8.5

Software Project Development Activities as a Function of Size



Complexity Weighting Table for Function Point Analysis

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Complexity Weighting

Function Low Medium High Total

Number of Inputs 2 x _____ = 4 x _____ = 6 x _____ =

Number of Outputs 4 x _____ = 6 x _____ = 10 x _____ =

Number of Interfaces 3 x _____ = 7 x _____ = 12 x _____ =

Number of Queries 5 x _____ = 10 x _____ = 15 x _____ =

Number of Files 2 x _____ = 4 x _____ = 8 x _____ =



Function Point Calculations for Restaurant Reorder System

08-13

Complexity Weighting

Function Low Medium High Total

Number of Inputs 4 x 15 = 60

Number of Outputs 10 x 20 = 200

Number of Interfaces 3 x 3 = 9

Number of Queries 10 x 6 = 60

Number of Files 2 x 40 = 80

Total 409



Problems with Cost Estimation

Low initial estimates

Unexpected technical difficulties

Lack of definition

Specification changes

External factors

08-14


Creating a Project Budget

Top-downBottom-upActivity-based costing

(ABC)

Project Plan

WBS

Scheduling

Budgeting

The budget is a plan that identifies the resources, goals and schedule that allows a firm to achieve those goals

08-15


Activity-Based CostingProjects use activities & activities use

resources

1. Assign costs to activities that use resources

2. Identify cost drivers associated with this activity

3. Compute a cost rate per cost driver unit or transaction

4. Multiply the cost driver rate times the volume of cost driver units used by the project

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Sample Project Budget

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Activity Direct Costs Budget Overhead Total Cost

Survey 3,500 500 4,000

Design 7,000 1,000 8,000

Clear Site 3,500 500 4,000

Foundation 6,750 750 7,500

Framing 8,000 2,000 10,000

Plumb and Wire 3,750 1,250 5,000

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Table 8.6


Sample Budget Tracking Planned and Actual Activity Costs

08-18

Activity Planned Budget Actual Variance

Survey 4,000 4,250 250

Design 8,000 8,000 - 0 -

Clear Site 4,000 3,500 (500)

Foundation 7,500 8,500 1,000

Framing 10,000 11,250 1,250

Plumb and Wire 5,000 5,150 150

Total 38,500 40,650 2,150



Example of a Time-Phased Budget

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Months

Activity January February March April May

Total by

Activity

Survey 4,000 4,000

Design 5,000 3,000 8,000

Clear Site 4,000 4,000

Foundation 7,500 7,500

Framing 8,000 2,000 10,000

Plumb and Wire 1,000 4,000 5,000

Monthly Planned 4,000 9,000 10,500 9,000 6,000

Cumulative 4,000 13,000 23,500 32,500 38,500 38,500



Cumulative Budgeted Cost of the Project

Figure 8.7



Budget ContingenciesThe allocation of extra funds to cover uncertainties and improve the chance of finishing on time.

Contingencies are needed becauseProject scope may changeMurphy’s Law is presentCost estimation must anticipate interaction

costsNormal conditions are rarely encountered

08-21

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Tony’s View of Cost Estimates Much more of an art than a science

Experience counts Cost estimates usually turn into actual budgets used for cost

control Things you should discover prior to developing a budget

What is the highest possible budget you can get away with What the customer/sponsor/management will bear

What is the cheapest budget possible All things work out perfectly

All 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

23

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ExamplesSolved problems on page 267 (1, 2& 3)

6-24

Name Hours Needed Overhead Charge

Personal Time Rate

Hourly Rate Total Direct Labor Cost

John 40 1.80 1.12 $21/hr.

Bill 40 1.80 1.12 $40/hr.

J.P. 60 1.35 1.05 $10/hr.

Sonny 25 1.80 1.12 $32/hr.

Total Direct Labor Cost =

Software Function Point AnalysisLow Medium High Total

Inputs 3 6 9 0outputs 2 6 10 0Interfaces 1 3 5 0Queries 4 8 12 0Files 4 6 8 0

total function point 0

Functon Point.xlsx


Examples

25

14 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


Summary1. Understand the various types of common

project costs.2. Recognize the difference between various

forms of project costs.3. Apply common forms of cost estimation for

project work, including ballpark estimates and definitive estimates.

4. Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

08-26


Summary5. Discern the various reasons why project

cost estimation is often done poorly.6. Apply both top-down and bottom-up

budgeting procedures for cost management.7. Understand the uses of activity-based

budgeting and time-phased budgets for cost estimation and control.

8. Recognize the appropriateness of applying contingency funds for cost estimation.

08-27

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