1. Project Management in Practice, Fourth Edition
Mantel, Meredith, Shafer, and Sutton
Prepared by
Scott M. Shafer,
Updated by
William E. Matthews and
Thomas G. Roberts,
William Paterson University
John Wiley and Sons, Inc.
Copyright 2011 John Wiley & Sons, Inc.

2. The Use of Budgets
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 a tool by upper management to monitor and guide projects.
Copyright 2011 John Wiley & Sons, Inc.

3. Top-Down Budgeting
Based on collective judgments and experiences of top and middle managers
Overall project cost estimated by estimating the costs of major tasks
Advantages
accuracy of estimating overall budget
errors in funding small tasks need not be individually identified
Copyright 2011 John Wiley & Sons, Inc.

4. Bottom-Up Budgeting
Work Breakdown Structure (WBS) identifies elemental tasks
Those responsible for executing these tasks estimate resource requirements
Advantage
more accurate in the detailed tasks
Disadvantage
risk of overlooking tasks
Copyright 2011 John Wiley & Sons, Inc.

5. Work Element Costing
Determine resource requirements and then costs for each task
fixed costs (e.g., materials)
labor time and labor rate
equipment time and equipment rate
overhead
general, sales, and administrative (GS&A)
Copyright 2011 John Wiley & Sons, Inc.

6. The Impact of Budget Cuts on Type 1 and Type 2 Project Life Cycles
Copyright 2011 John Wiley & Sons, Inc.

7. Activity Versus Program Budgeting
Activity oriented budgeting are based on historical data accumulated through an activity-based accounting system
expenses assigned to basic budget lines
With Program budgets, each project is divided by task and time period
allows for aggregation across projects
Copyright 2011 John Wiley & Sons, Inc.

8. “Accountability is the twin of empowerment.”
“Each person who has a task to do must own the design and execution of that task and must be held responsible for its timely achievement.”
“Accountability is the twin of empowerment.”
Jim McCarthy, Dynamics of Software Development , Microsoft Press, 1995
Copyright 2011 John Wiley & Sons, Inc.

9. Improving Estimates and Forecasts
Forms
Learning curves
Tracking signals
Copyright 2011 John Wiley & Sons, Inc.

10. Forms
A form for gathering data on project resource needs might include:
people – managers, technical and non-technical
money
materials – facilities, equipment, tools, space, etc.
special services
And might identify:
person to contact
how many/much needed
when needed
whether available
Copyright 2011 John Wiley & Sons, Inc.

11. Learning Curves where Tn = the time required to complete the nth unit
T1 = the time required to complete the first unit
r = log(learning rate)/log(2)
Copyright 2011 John Wiley & Sons, Inc.

12. Tracking Signals
A tracking signal number can reveal if there is a systematic bias in cost and other estimates … and whether the bias is positive or negative
By observing their own errors a project manager can learn to make unbiased estimates
Copyright 2011 John Wiley & Sons, Inc.

13. Other Factors Influencing the Success of a Project
Changes in resource prices
estimate rate of price change individually for inputs that have significant impact on costs
Waste and spoilage
Team member turnover costs
Using “mythical man-months”
Organization climate
Just bad luck
Copyright 2011 John Wiley & Sons, Inc.

14. Estimate of Project Cost - Made at Project Start
Copyright 2011 John Wiley & Sons, Inc.

15. Three Basic Causes for Change in Projects and Their Budgets
Errors made by cost estimator as to how to achieve tasks.
New knowledge about the nature of the performance goal or setting.
A mandate … a new law or standard, etc.
Copyright 2011 John Wiley & Sons, Inc.

16. Handling Changes
Accept a negative change and take a loss on the project (least preferred)
Prepare for change ahead of time … include provisions in the original contract that allow for renegotiated price and schedule for client-ordered changes in performance (best practice)
Copyright 2011 John Wiley & Sons, Inc.

17. Key Elements of Risk Management
Risk management planning
Risk identification
Qualitative risk analysis
Quantitative risk analysis
Risk response planning
Risk monitoring and control
Copyright 2011 John Wiley & Sons, Inc.

18. Failure Mode and Effect Analysis (FMEA)
List ways project might potentially fail
Evaluate severity (S) of each failure
“1” represents failure with no effect and “10” represents very severe and hazardous failure
Estimate likelihood (L) of each failure occurring
“1” indicating that failure is rather remote and not likely to occur and “10” indicating that failure is almost certain to occur
Copyright 2011 John Wiley & Sons, Inc.

19. Failure Mode and Effect Analysis (FMEA)
Estimate ability to detect each failure (D)
“1” is used when monitoring and control systems are almost certain to detect the failure and “10” where it is virtually certain the failure will not be detected
Calculate Risk Priority Number (RPN)
Multiply S, L and D together
Sort potential failures by their RPNs
Consider ways of reducing the risk associated with failures with high RPNs
Copyright 2011 John Wiley & Sons, Inc.

20. Other Approaches to Risk Management
Game theory
Assume that competitors and the environment are your enemies
Select a course of action that minimizes the maximum harm
Expected value
The value of the outcome multiplied by the probability of the outcome occurring
Simulation
Copyright 2011 John Wiley & Sons, Inc.

21. Copyright
Copyright 2011John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information herein.
Copyright 2011 John Wiley & Sons, Inc.