Presentation on theme: "MEM 612 Project Management"— Presentation transcript:
1 MEM 612 Project Management Chapter 4Budgeting the ProjectMEM 612 Project Management
2 IntroductionBudgets are plans for allocating organizational resources to project activities.forecasting required resources, quantities needed, when needed, and costsBudgets help tie project to overall organizational objectives.Budgets can be used as tool by upper management to monitor and guide projects.
3 MEM 612 Project Management METHODS OF BUDGETINGMEM 612 Project Management
4 Top-Down BudgetingBased on collective judgements and experiences of top and middle managers.Overall project cost estimated by estimating costs of major tasksAdvantagesaccuracy of estimating overall budgeterrors in funding small tasks need not be individually identified
5 Bottom-Up Budgeting WBS or action plan identifies elemental tasks Those responsible for executing these tasks estimate resource requirementsAdvantagemore accurate in the detailed tasksDisadvantagerisk of overlooking tasks
6 MEM 612 Project Management COST ESTIMATINGMEM 612 Project Management
7 Work Element CostingDetermine resource requirements and then costs for each taskcosts (e.g., materials)labor timelabor rateequipment timeequipment rateoverheadGS&A
8 The Impact of Budget Cuts Two project life cycles
9 Activity Versus Program Budgeting Activity oriented budgets are based on historical data accumulated through an activity-based accounting system.expenses assigned to basic budget linesWith program budgets, each project has its own budget.expenses by task and time period are shown
10 IMPROVING COST ESTIMATES MEM 612 Project Management
11 Learning Curves where Tn = the time required to complete the nth unit T1 = the time required to complete the first unitr = log(learning rate)/log(2)
12 Tracking SignalsUsed to determine if there is a systematic bias in cost or other estimates
13 Other Factors Changes in resource prices Waste and spoilage Increase all estimates by same percentageEstimate rate of price change individually for inputs that have significant impact on costsWaste and spoilageTeam member turnover“Mythical man-month”Organization climate
14 BUDGET UNCERTAINTY AND RISK MANAGEMENT MEM 612 Project Management
15 Estimate of Project Cost: Estimate Made at Project Start
16 Three Basic Causes for Change in Projects Errors made by cost estimator about how to achieve tasks.New knowledge about the nature of the performance goal or setting.A mandate.
17 Risk Management Risk Management Planning Risk Identification Qualitative Risk AnalysisRisk Response PlanningRisk Monitoring and Control
18 Failure Mode and Effect Analysis (FMEA) List ways project might failEvaluate severity (S) of each failureEstimate likelihood (L) of each failure occurringEstimate ability to detect each failure (D)Calculate Risk Priority Number (RPN)Sort potential failures by their RPNs
19 Other ApproachesGame theoryExpected valueSimulation
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