Budgeting the Project4-1

Budget

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Homework #17

Overview Approaches for gather data Budgeting & Estimating costs Budget uncertainty and risk management CB Homework

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$10,000$ 5,000$ 2,000

$17,000

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Budgets are plans for allocating organizational resources to project activities.• forecasting required resources, quantities

needed, when needed, and costs Budgets help tie project to overall

organizational objectives. Budgets can be used as tool by upper

management to monitor and guide projects.

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Analogous estimation

Parametric estimationIt will take 20 hours of a programmer’s time to write this module. The historical average rate for this type of programmer has been $100/hour. Therefore, the module cost will be $2,000.

Bottom-up estimation

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Estimate

Uncertainty

Uncertainty

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Simulation Technique for Uncertainty in Project Costs

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What is the probability the project comes in at $5000 or less?

Simulation Technique for Uncertainty in Project Costs

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Simulation Technique for Uncertainty in Project Costs

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Simulation Technique for Uncertainty in Project Costs

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€

EV = pii

∑ (Oi)

  Materials          Very Low Low Medium High  Probability 0.1 0.1 0.5 0.3            Alternatives         EVIn-house 12,500 13,800 15,200 22,000 16830Outsource 15,000 15,000 15,000 15,000 15000Combo 11,200 12,100 14,000 16,800 14370

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BAC

EV or BCWP – value of the actually performed work for a given period of time.

AC or ACWP

PV or BCWS

Example: Project is the construction of a 16-mile road. The work is uniformly distributed over 12 weeks.Total budgeted amount is $600,000. At the end of the first 4 weeks, $125,000 has been spent, and 4 miles of road completed.

$

Work Perform

ed

Schedule/Time

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•Why did FoxMeyer initiate the Delta III project?

•What was the solution? What was FoxMeyer implementing as part of the project?

•What were the problems and issues?

•What can we learn about managing projects?