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.

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.

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.

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.

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.

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

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.

“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.

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

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.