Software Project Management (SPM)

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Software Project Management (SPM)

• Lecture 7
• Cost Management
• Dr. Daniel Keret

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Reading Assignment

• Software Project Management, Bob Hughes and Mike
  Cotterell, McGraw-Hill, 3rd Edition.
• Chapter 9
• A Guide to the Project Management Body of
  Knowledge, PMI Publications, 3rd Edition, 2004
• Chapter 7

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Cost Management

• Cost Management includes
• Cost Estimation
• Cost Budgeting
• Cost Control
• Estimation Budgeting Main Tools Techniques
• Estimation Techniques
• Reserve Analysis ( Risk, Unknown, Cost of
  Quality)
• Cost Baseline
• Funding Requirements Cash Flow
• Cost Control.
• Performance Measurement Analysis Planned value,
  Actual Cost, Cost Variance, Cost Performance
  Index, Estimate to Complete
• Approved Change Requests

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Estimating Schedule Activity

• Estimation Cost of the Resources Needed to
  complete the activity
• Includes variations to the cost estimate (Risk,
  Etc)
• Take into consideration Alternative Costing for
  the overall project time period
• Cost of extended design effort VS. additional
  maintenance costs
• Cost estimates include ALL resources that will be
  charged to the project including Inflation
  Forecast, Salary Increase, Contingency cost.
• ROM (Rough Order of Magnitude, E.G 50/100) is
  allowed in the first stages. Refinement is
  required at later stages ( E.G -10/15).

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Activity Estimating Inputs Tools

• Inputs
• External Factors Marketplace Condition, External
  Cost Information Databases
• Organization Assets Historical Information,
  Estimating Policies and Templates, Team Knowledge
• Project Factors Scope, WBS, Management Plan,
  Schedule Plan, Staffing Plan, Risk
• Tools
• Analogous Estimates
• Resource Cost Rates
• Parametric Estimates ( Function Points Etc)
• Vendor Bid Analysis
• Project Management Software

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Activity Estimating Inputs Tools(Cont.)

• Reserve Analysis (Contingency Allowance)
• Will Be Used at the Discretion of the Project
  Manager
• Budgeting Project Unknowns
• Risks
• Will Be budgeted according to their severity
  level and probabilities
• The budget will cover mitigation activities and
  workarounds and will be implemented upon the
  project manager decision.
• Cost of Quality (COQ)
• Costs added to the project in order to ensure
  conformance with quality standards
• Cost of Non Quality Failure Cost/Rework. Costs
  that will added as a result of bugs and
  non-quality project activities

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Activity Estimating - Output

• Activity Cost Estimating Most likely estimates
  of all the activity resources
• Estimate Details
• Basis for the estimate (how it was developed)
• Assumptions made
• Constraints
• Possible range of the estimate ( 100000
  -10/15)
• Requested Changes ( If the estimate analysis
  recommends a change)
• CA Control Account (the corporate accounting
  number that will incur the cost of the activity)
• Cost Management Plan (Update)

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Cost Baseline

• Aggregating the estimated costs of the individual
  scheduled activities to establish a total COST
  BASELINE for measuring and budgeting the project
• Inputs WBS, Activity Cost Estimate, Project
  Schedule, Resource Calendar, Contracts, Cost
  Management Plan
• Tools Techniques Cost Aggregation, Reserve
  Analysis, Parametric Estimating ( adjustment to
  the aggregate cost), Funding Limit Reconciliation
  (can impact the schedule and overall cost)
• Output Cost Baseline, Expected Cash Flow,
  Funding Requirements (including Management
  Reserve), Requested Changes, Updated Cost
  Management Plan

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Cost control

• Assuring the Potential Cost Overrun do not
  exceed the authorized funding PERIODICALLY and in
  TOTAL
• Monitoring cost PERFORMANCE to detect and
  understand Variances from the Baseline
• Detect Changes as they occur
• Prevent unapproved changes
• Ensuring Requested Changes are Agreed Upon
• Report Changes to Stakeholders
• Acting to bring expected overruns within
  acceptable limits
• Influencing factors that creates changes to the
  cost baseline

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Performance Measurements

• Planned Value (PV) or Budget Cost of Work
  Schedule (BCWS) baseline budget up to a given
  point in time.
• Earned Value of an Activity
• 0/100 technique ( The Recommended One) 0 if the
  activity is not fully completed. Full Actual Cost
  if the activity was completed.
• 50/50 technique 50 of the planned cost if the
  activity started, 100 of the actual cost if it
  was completed
• Milestone Technique Actual Cost at the milestone
  date.
• Earned Value (EV) or Budget Cost of Work
  Performed (BCWP) the sum of the baseline costs
  of the work performed up to a given point in time
• Actual Cost (AC) or Actual Cost of Work Performed
  (ACWP) up to a given point in time

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Performance Indicators

• Cost Variance The difference between actual and
  budget cost spent up to a given point in time EV
  AC.
• Schedule Variance The difference of the
  baseline budget actually spend up to a given
  point of time and the baseline budget that was
  originally planned up to the same date EV PV
• CPI (Cost Performance\Overrun Indicator) EV/AC
  Earned Value/Actual Cost. CPI lt 1 indicates
  budget overrun
• SPI (Schedule Performance\Overrun Indicator)
  EV/PV Earned Value/Planned Value SPIlt1 indicates
  schedule overrun

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Example
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Forecasting

• Making Predictions or Estimates of the Project
  future Schedule or Cost based on the project
  available information at the time of the
  Forecasting.
• Forecasting is USED TOGETHER with Manual
  Forecasting of the remaining work. (which is
  considered to be more accurate)
• Definitions
• BAC (Budget At Completion) Cost baseline at the
  end of the project
• ETC (Estimate To Complete)
• EAC (Estimate At Completion)
• ADE Activity Duration Estimate

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Forecasting Techniques - Cost

• Recalculate Cost of Future Scheduled Activities
• Based on Typical Variance (History performance is
  a good prediction for the future performance)
  EV(NEW)EV/CPI
• Based On Atypical Variance ( History deviation of
  planned performance is irrelevant for this
  activity) EV(NEW)EV
• ECT SIGMA(Future Activities PV(NEW)). If all
  the future activities are typical then
  ETC(BAC-EV)/CPI
• EAC AC ETC (actual cost to date estimated
  cost to completion)

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Forecasting Techniques - Time

• Recalculate Time of Future Activities
• Based on Typical Variance (History performance of
  activity duration estimate is a good prediction
  for the future performance) ADE(NEW) ADE/SPI
• Based On Atypical Variance ( History deviation of
  planned performance is irrelevant for this
  activity) ADE(NEW)ADE
• Estimate Time To Completion will be calculated
  according to the project work schedule and the
  critical path.
• If the variance is typical across the project we
  can use a rough estimate ADE Planned time to
  completion/SPI

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Example
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Cost Control Workflow

• Input Cost Baseline, Funding Requirements,
  Performance Information and Reports, Approved
  Change Requests, Project Management Plan
• Tools Techniques Cost Change Control System,
  Performance Measurement Analysis, Forecasting,
  Project Performance Review/Meeting, Variance
  Management
• Output Cost Estimate Update, Cost Baseline
  Update, Performance Measurements, Forecasted
  Completion, Requested Changes, Recommended
  Corrective Actions, Organization Process Assets
  (lessons learned), Project Management Plan
  (update)

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Approved Change Requests

• Changes in the Scope of the System
• Requirements Requested By the Users and by
  Project Management.
• May Change the Baseline Cost of the project as
  well as the Planned Completion Date.
• Requires Stakeholders Approval
• Changes that do not affect the project Scope
• Usually Changed due to the project team requests
• Changed in Design, Architecture, Delays, Etc.
• Stakeholders will be notified if the changes are
  significant enough.