1The University of Sydney Page 1
INFS6071 Project
Management in Business
PMBOK Project baselines -
Scope, schedule, cost – Part 1
Peter John Kavalamthara
Business Information Systems
The University of Sydney
Business School
The University of Sydney Page 2
Agenda
– The importance of project planning
– Project management plan
– Project scope definition
– WBS and assigning responsibilities
– Project costing and budgeting
– Prepare project budget
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Project management processes
– Processes
– Initiating
– Planning
– Executing
– Monitoring and controlling
– Closing
[PMBOK, 5th edition]
The University of Sydney Page 4
Initiating process
Initiating
Formally starts a new project by officially authorising it and providing the
project manager with the information necessary to begin the project
Mainly:
– Select a project from set of possible projects
– Select the project manager (PM)
– Determine the authority of the PM
– Determine company culture and existing systems
– Collect processes, procedures and historical information
– Understand how the project fits into the organisation’s strategic
objectives
– Document the business case and the cost benefit analysis
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Initiation: Major outcome project charter
PMBOK 5th edn
The University of Sydney Page 6
Initiation: Major outcome project charter
– Project title and description
– Project manager assigned and authority level (can the PM determine,
manage and approve changes to budget, schedule and staffing etc)
– Business case (describes the project and justification)
– Resources pre-assigned (how many or which resources will be provided)
– Stakeholders (who will affect or be affected by the project)
– Stakeholder requirements (related to both project and product scope)
– Product description/deliverables (including the end result of the project)
– Measurable project objectives (how does the project tie into the
organisation’s strategic goals? What project objectives support those goals?)
– Project approval requirements (what items need to be approved for the
project and who will have sign-off? What designates success?)
– High level risks (potential threats and opportunities for the project)
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Objective
– States how the project will be executed, monitored and
controlled.
General Approach
– It integrates the projects baselines with subsidiary plans
from the planning processes
– Baselines relate to: project scope, schedule and cost.
– Subsidiary plans mainly include detailed plans relating to
each of the knowledge areas.
Project management plan
The University of Sydney Page 8
Contractual Aspects
– agreements with clients and third parties
– reporting requirements
– technical specifications
– project review dates
Schedules
– outline of all schedules and milestones
Resource Requirements
– estimated project expenses
– overhead and fixed charges
✓
Typical aspects addressed in project management plan
Start to build up today (via WBS)
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Personnel
– special skill requirements
– necessary training
– legal requirements
Evaluation Methods
– evaluation procedures and standards
– procedures for monitoring, collecting, and storing data on project
performance
Potential Problems
– list of likely potential problems
Common sense – what is required depends upon specifics e.g.
size of your project – KEY is that project management is
supposed to help!!
Elements of project management plan
The University of Sydney Page 10
Project scope
– Project scope is everything about a project – work content as
well as expected outcomes.
– Scope management is the function of controlling a project in
terms of its goals and objectives
– Good scope definition
– helps improve the accuracy of time, cost, and resource estimates
– defines a baseline for performance measurement and project control
– aids in communicating clear work responsibilities
– What the project includes
– What is not included
– How everyone will know the project is complete
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Project scope statement
The University of Sydney Page 12
Project scope statement
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Work Breakdown Structure
A process that sets a project’s scope by breaking down its overall
mission into a cohesive set of synchronous, increasingly specific tasks.
What does WBS accomplish?
– Echoes project objectives
– Offers a logical structure
– Establishes a method of control
– Communicates project status
– Improves communication
– Demonstrates control structure
[Pinto, 2010]
The University of Sydney Page 14
Work Breakdown Structure and Codes
Work Packages are
individual project activities
1.0
1.2 1.3 1.4
1.2.1
1.2.2
1.2.3
1.3.1
1.3.2
1.2.3.1
1.2.3.2
Deliverables are
major project
components
Subdeliverables are
supporting deliverables
The project is the overall
project under development
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Sample WBS in MS Project
[Pinto, 2010]
The University of Sydney Page 16
Sample WBS (IT Installation Project)
[Pinto, 2010]
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Project costing
The University of Sydney Page 18
Core concepts in cost management
› Cost management has been defined to encompass data collection,
cost accounting, and cost control.
› Cost accounting and cost control serve as the chief mechanisms for
identifying and maintaining control over project costs.
› Cost estimation and budgeting processes create a reasonable budget
baseline for the project.
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Uncertainty
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Cost Estimation
– Ballpark (order of magnitude) ±30%
– Comparative ±15%
– Feasibility ±10%
– Definitive ±5%
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Unit Learning Curve
Log-Linear Model
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– Function Point Analysis is a system for estimating the size of
software projects based on what the software does.
– Function Points are a standard unit of measure that represents
the functional size of a software application.
Cost Estimation – Function Point Analysis for Software
Projects
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– As the manager of the IT group at your insurance firm, you have
been asked to develop a cost estimate for upgrades to the
computerized accident-reporting and claims adjustment system
you have in place. Your system is basic, without many features,
but it needs some general modifications, based on complaints
from customers and claims adjusters at your firm. You know that
your programmer is capable of handling 3 function points in a
person-month and your programmer makes $60,000, so her cost
is $5,000 per month. The costs for the project are based on the
following requirements:
Function Number of Screens Complexity
Input 8 Low
Output 3 Low
Interfaces 8 Medium
Queries 6 Medium
Files 10 Low
Cost Estimation – Function Point Analysis Exercise
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Complexity Weighting
Function Low Medium High Total
Number of
Inputs
1 ´ _____
=
2 ´
_____ =
3 ´
_____ =
Number of
Outputs
2 ´ _____
=
6 ´
_____ =
10 ´
_____ =
Number of
Interfaces
10 ´ _____
=
15 ´
_____ =
20 ´
_____ =
Number of
Queries
3 ´ _____
=
6 ´
_____ =
9 ´
_____ =
Number of
Files
1 ´ _____
=
3 ´
_____ =
5 ´
_____ =
– The complexity weighting for these functions follows a standard
formula table given below:
– Calculate the total estimated number of function points for this
project.
– What is the total expected cost of the project?
Cost Estimation – Function Point Analysis Exercise
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Problems with Cost Estimation
– Low initial estimates
– Unexpected technical difficulties
– Lack of definition
– Specification changes
– External factors
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– Changes in resource prices
– increase all estimates by same percentage
– estimate rate of price change individually for inputs that
have significant impact on costs
– Waste and spoilage
– Team member turnover
– Using “Mythical Man-Months” – extra reduces capacity
– Organization climate ie penalties for overruns (of time vis-
à-vis cost)
Factors Influencing Cost
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Creating a Project Budget
– Top-down
– Bottom-up
Projec
t Plan
WBS
Scheduling Budgeting
The budget is a plan that
identifies the resources,
goals, and schedule that
allows a firm to achieve
those goals.
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Top down
– Based on collective judgments and experiences of top and middle
managers
– Overall project cost estimated by estimating costs of major tasks
– Advantages
– accuracy of estimating overall budget
– errors in funding small tasks need not be individually identified
Bottom up
– WBS or action plan identifies elemental tasks
– Those responsible for executing these tasks estimate resource
requirements
– Advantage - more accurate since linked to detailed tasks
– Disadvantage - risk of overlooking tasks
Budgeting Approaches
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Sample Project Budget
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Sample Budget Tracking Planned and Actual Activity
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Cost Control
– Project cost control includes
– monitoring cost performance
– ensuring that only appropriate project changes are
included in a revised cost baseline
– informing project stakeholders of authorized changes to the
project that will affect costs
– Earned value management
– Series of calculations to highlight deviations (will examine in
Lab)
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Budget Contingencies
Contingencies are needed because:
– Project scope may change
– Cost estimation must anticipate interaction costs
– Normal conditions are rarely encountered
The allocation of extra funds to cover uncertainties and
improve the chance of finishing on time
Budget Contingencies
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Earned Value Management
– Budget at Completion (BAC) – The total budget authorised for the project
– Planned Value (PV) – Estimated value of the work planned to be
completed as of now
PV = BAC * (time passed / total schedule time)
– Earned Value (EV) – The budgeted cost of the work actually performed
EV = BAC * (work completed / total work required)
– Actual cost (AC) – The actual cost incurred as of now
– Cost variance (CV) = EV – AC (negative is over budget, positive is under
budget)
– Schedule variance (SV) = EV – PV (negative is behind schedule, positive is
ahead of schedule)
– Cost Performance Index (CPI) = EV / AC (We are getting $.. worth of
work out of every $1 spent)
– Schedule Performance Index (SPI) = EV / PV (we are progressing at … %
of the rate originally planned)
The University of Sydney Page 34
You are the project manager for the construction of a four sided fence. Each side is
planned to take one day to complete and budgeted for a cost of $1000. Today is the
end of Day 3.
The current status is that Side 1 was completed as planned. Side 2 is completed but cost
$1200 and Side 3 is half done at a cost of $600.
1. Calculate BAC, PV, EV, AC, CV, SV, CPI and SPI
2. Interpret these measures
BAC = $4000
PV = $4000 * (3/4) = $3000
EV = $4000 * ($2500/$4000) = $2500
AC = $2800
CV = $2500 - $2800 = -$300
SV = $2500 - $3000 = -$500
CPI = $2500 / $2800 = 0.89
SPI = $2500 / $3000 = 0.83
Group discussion/activity 1
Exercise – Earned Value Management
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Key messages
– Project charter is a key outcome of project initiation
– Project plan states how the project will be executed, monitored
and controlled
– Project scope provides work content as well as expected
outcomes
– Project costing may be done using a top-down or bottom-up
approach.