IT Project Management: Chapter 4 Resource Plan and Cost Estimation

IT PROJECT MANAGEMENT
Resource Plan and Cost Estimation

Institute of Information and Communication Technology
University of Sindh, Jamshoro
Dr. Zeeshan Bhatti

MPhil (IT)
Chapter 4
BY: DR. ZEESHAN BHATTI
Roadmap to Project Management Success

Statement
of Work
Form
Project
Team
Purpose
Work
Breakdown
Structure
Responsibility
Matrix
R
Project Background
A
S
Resource
Plan
Budget
Resource
Plan
A
Project Deliverables
Gantt
Network
TIME
PROJE
CT
Perform
Tasks
LEADERSHIP
AR
NED
S
RE
EN
LE
PO
RT
Track
Progress
SO
LES
EOS
CL
COMMUNICATION
O
UT
Evaluate
Success
ME
S
I NG
Conduct
Close-Out
Meeting
Share
Lessons
Learned
BOOK
E
T
ET
PLAN
E
L
IM P
Update
Plan
Resolve
Issues
Manage
Change
ASSIGNING RESOURCES
A schedule is not complete until all the resources necessary to complete
the project have been committed or assigned.
NON-LABOR RESOURCES
Lab time
Facilities
Prototype parts/systems
Equipment
Materials
Statement
of Work
Form
Project
Team
Purpose
Work
Breakdown
Structure
Responsibility
Matrix
R
Project Background
Resource
Plan
Resource
Plan
Gantt
Network
A
A
R
Budget
TIME
Track
Progress
P
OR
T
RE
EN
LE
IM P
SO
E
OS
CL
COMMUNICATION
O EARNED
UT
Evaluate
Success
Perform
Tasks
LEADERSHIP
LES
Share
Lessons
Learned
ME
GS
Conduct
Close-Out
Meeting
OK
EB O
IN
PROJE
CT
OT
ET
PLAN
Update
Plan
Resolve
Issues
Manage
Change
WHERE WE ARE NOW
85
THE RESOURCE PROBLEM
Resources and Priorities
Project network times are not a schedule

until resources have been assigned.
The implicit assumption is that resources will be available in the required amounts when needed.
Adding new projects requires making realistic judgments of resource availability and project durations.
Cost estimates are not a budget

until they have been time-phased.
86
THE RESOURCE PROBLEM (CONTD)

Resource Smoothing (or Leveling)
Involves attempting to even out varying demands
on resources by using slack (delaying noncritical activities) to manage resource
utilization when resources are adequate over the life of the project.
Resource-Constrained Scheduling
The duration of a project may be increased by delaying the late start of some of its
activities if resources are not adequate to meet peak demands.
87
TYPES OF PROJECT CONSTRAINTS
Technical or Logic Constraints
Constraints related to the networked sequence

in which project activities must occur.
Physical Constraints
Activities that cannot occur in parallel or are affected by contractual or
environmental conditions.
Resource Constraints
The absence, shortage, or unique interrelationship and interaction
characteristics of resources that require a particular sequencing of project
activities
Kinds of Resource Constraints

People, materials, equipment
88
CONSTRAINT EXAMPLES
FIGURE 8.2
89
CLASSIFICATION OF A SCHEDULING
PROBLEM
Classification of Problem
Using a priority matrix will help determine if
the project is time or resource constrained.
Time-Constrained Project
Must be completed by an imposed date.
Time is fixed, resources are flexible: additional resources are required to ensure project meets schedule.
Resource-Constrained Project
Is one in which the level of resources available cannot be exceeded.
Resources are fixed, time is flexible: inadequate resources
will delay the project.
810
RESOURCE ALLOCATION METHODS
Limiting Assumptions
Splitting activities is not allowedonce an activity is start, it is carried to completion.

Level of resources used for an activity cannot be changed.
Risk Assumptions
Activities with the most slack pose the least risk.
Reduction of flexibility does not increase risk.
The nature of an activity (easy, complex) doesnt increase risk.
811
RESOURCE ALLOCATION METHODS (CONTD)

Time-Constrained Projects
Must be completed by an imposed date.
Require use of leveling techniques that focus
on balancing or smoothing resource demands.
Use positive slack (delaying noncritical activities) to manage resource utilization over the
duration
of the project.
Peak resource demands are reduced.
Resources over the life of the project are reduced.
Fluctuation in resource demand is minimized.
812

Resource Demand Leveling Techniques
for Time-Constrained Projects
Advantages
Peak resource demands are reduced.

Resources over the life of the project are reduced.
Fluctuation in resource demand is minimized.
Disadvantages
Loss of flexibility that occurs from reducing slack.

Increases in the criticality of all activities.
813

Resource-Constrained Projects
Resources are limited in quantity or availability.
Activities are scheduled using heuristics

(rules-of-thumb) that focus on:
1.
Minimum slack
2.
Smallest (least) duration
3.
Lowest activity identification number
The parallel method is used to apply heuristics
814
An iterative process starting at the first time period

of the project and scheduling period-by-period the start of any activities using the three priority rules.

Statement
of Work
Form
Project
Team
Purpose
Work
Breakdown
Structure
Responsibility
Matrix
R
Project Background
Resource
Plan
Gantt
Network
Budget
A
A
Budget
TIME
PROJE
CT
Perform
Tasks
LEADERSHIP
AR
NED
S
RE
EN
LE
PO
RT
Track
Progress
TIME
SO
LES
EOS
CL
COMMUNICATION
O
UT
Evaluate
Success
ME
S
I NG
Conduct
Close-Out
Meeting
Share
Lessons
Learned
BOOK
E
T
ET
PLAN
E
L
IM P
Update
Plan
Resolve
Issues
Manage
Change
15
WHERE WE ARE NOW
516
COST BUDGETING
Cost Budgeting involves allocating overall cost
estimates to individual work items in order to
establish a cost baseline for measuring project
performance. Using cost estimates, the WBS, the
project schedule, and cost estimating tools, the
project team develops a time-phased budget.
This budget will be used to measure and monitor
cost performance on the project.
Source: PMI
17
ESTIMATING PROJECTS
Estimating
The process of forecasting or approximating the time and cost of completing project
deliverables.
The task of balancing expectations of stakeholders and need for control while the
project is implemented.
Types of Estimates
Top-down (macro) estimates: analogy, group consensus, or mathematical relationships
Bottom-up (micro) estimates: estimates of elements
of the work breakdown structure
518
WHY ESTIMATING TIME AND COST ARE IMPORTANT

To support good decisions.
To schedule work.
To determine how long the project should take
and its cost.
To determine whether the project is worth doing.

To develop cash flow needs.
To determine how well the project is progressing.
To develop time-phased budgets and establish the
project baseline.
EXHIBIT 5.1
519
FACTORS INFLUENCING THE QUALITY OF

ESTIMATES
Planning Horizon
Other
(Nonproject)
Factors
Organization
Culture
Padding
Estimates
Project
Duration
Quality of
Estimates
People
Project Structure
and Organization
520
ESTIMATING GUIDELINES FOR TIMES,

COSTS, AND RESOURCES
1. Have people familiar with the tasks make the estimate.
2. Use several people to make estimates.
3. Base estimates on normal conditions, efficient methods, and a
normal level of resources.
4. Use consistent time units in estimating task times.
5. Treat each task as independent, dont aggregate.
6. Dont make allowances for contingencies.
7. Adding a risk assessment helps avoid surprises
to stakeholders.
521
TOP-DOWN VERSUS BOTTOM-UP ESTIMATING
Top-Down Estimates
Are usually are derived from someone who uses experience and/or information to
determine the project duration and total cost.
Are made by top managers who have little knowledge of the processes used to
complete the project.
Bottom-Up Approach
Can serve as a check on cost elements in the WBS
by rolling up the work packages and associated cost accounts to major deliverables
at the work package level.
522
TOP-DOWN VERSUS BOTTOM-UP

Conditions
for Preferring Top-Down or Bottom-up Time and
ESTIMATING
Cost Estimates
Condition
Strategic decision making
Macro Estimates
Micro Estimates
Cost and time important
High uncertainty
Internal, small project
Fixed-price contract
Customer wants details
Unstable scope
TABLE 5.1
523
ESTIMATING PROJECTS: PREFERRED

APPROACH
Make
rough top-down estimates.
Develop the WBS/OBS.
Make bottom-up estimates.
Develop schedules and budgets.
Reconcile differences between top-down
and bottom-up estimates
524
TOP-DOWN APPROACHES FOR ESTIMATING

PROJECT TIMES AND COSTS
Consensus methods
Ratio methods
Apportion method
Function point methods for software and system

projects
Learning curves
Project Estimate
Times
Costs
525
APPORTION METHOD OF ALLOCATING PROJECT COSTS USING THE

WORK BREAKDOWN STRUCTURE
FIGURE 5.1
526
SIMPLIFIED BASIC FUNCTION POINT COUNT PROCESS

FOR A PROSPECTIVE PROJECT OR DELIVERABLE
TABLE 5.2
527
EXAMPLE: FUNCTION POINT COUNT METHOD
TABLE 5.3
528
BOTTOM-UP APPROACHES FOR ESTIMATING

PROJECT TIMES AND COSTS
Template methods
Parametric procedures applied to specific
tasks
Range estimates for

the WBS work packages
Phase estimating: A hybrid
529
SUPPORT COST ESTIMATE WORKSHEET
FIGURE 5.2
530
PHASE ESTIMATING OVER PRODUCT LIFE CYCLE
FIGURE 5.3
531
TOP-DOWN AND BOTTOM-UP ESTIMATES
FIGURE 5.4
532
LEVEL OF DETAIL
Level of detail is different for
different levels of management.
Level of detail in the WBS varies
with the complexity of the project.
Excessive detail is costly.
Fosters a focus on departmental outcomes
Creates unproductive paperwork
Insufficient detail is costly.

Lack of focus on goals
Wasted effort on nonessential activities
533
TYPES OF COSTS
Direct Costs
Costs that are clearly chargeable
to a specific work package.
Labor, materials, equipment, and other
Direct (Project) Overhead Costs

Costs incurred that are directly tied to an identifiable project deliverable or work
package.
Salary, rents, supplies, specialized machinery
General and Administrative Overhead Costs

Organization costs indirectly linked to a specific package that are apportioned to the
project
534
CONTRACT BID SUMMARY COSTS
Direct costs
Direct overhead
Total direct costs
G&A overhead (20%)
Total costs
Profit (20%)
Total bid
$80,000
$20,000
$100,000
$20,000
$120,000
$24,000
$144,000
FIGURE 5.5
535
THREE VIEWS OF COST
FIGURE 5.6
536
REFINING ESTIMATES
Reasons for Adjusting Estimates
Interaction costs are hidden in estimates.
Normal conditions do not apply.
Things go wrong on projects.
Changes in project scope and plans.
Adjusting Estimates
Time and cost estimates of specific activities are adjusted as the risks, resources, and
situation particulars become more clearly defined.
537
CREATING A DATABASE FOR ESTIMATING
FIGURE 5.7
538
KEY TERMS
Apportionment methods
Bottom-up estimates
Contingency funds
Delphi method
Direct costs
Function points
Learning curves
Overhead costs
Padding estimates
Phase estimating
Range estimating
Ratio methods
Template method
Time and cost databases
539
WBS FIGURE
TABLE 5.4
540

Statement
of Work
Form
Project
Team
Purpose
Work
Breakdown
Structure
Responsibility
Matrix
R
Project Background
Gantt
Network
Resource
Plan
Budget
A
A
S
R
TIME
PROJE
CT
Perform
Tasks
LEADERSHIP
AR
NED
S
RE
EN
LE
PO
RT
Track
Progress
SO
LES
EOS
CL
COMMUNICATION
O
UT
Evaluate
Success
ME
S
I NG
Conduct
Close-Out
Meeting
Share
Lessons
Learned
BOOK
E
T
ET
PLAN
E
L
IM P
Update
Plan
Resolve
Issues
Manage
Change
41

Statement
of Work
Form
Project
Team
Purpose
Work
Breakdown
Structure
Responsibility
Matrix
R
Project Background
Gantt
Network
Resource
Plan
Budget
A
A
S
R
TIME
PROJE
CT
Perform
Tasks
LEADERSHIP
AR
NED
S
RE
EN
LE
PO
RT
Track
Progress
SO
LES
EOS
CL
COMMUNICATION
O
UT
Evaluate
Success
ME
S
I NG
Conduct
Close-Out
Meeting
Share
Lessons
Learned
BOOK
E
T
ET
PLAN
E
L
IM P
Update
Plan
Resolve
Issues
Manage
Change
42
REFERRED NOTES
REFERRED BOOK
A Short Course in Project

Management, by Nayda G.
Santiago
43
THANKYOU
Q&A
For Course Slides and Handouts
Blog:
http://zeeshanacademy.blogspot.com/
Facebook:
https://www.facebook.com/drzeeshanacademy
44

IT Project Management: Chapter 4 Resource Plan and Cost Estimation

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IT PROJECT MANAGEMENT

Resource Plan and Cost Estimation

Dr. Zeeshan Bhatti

Roadmap to Project Management Success

BY: DR. ZEESHAN BHATTI

BY: DR. ZEESHAN BHATTI

BY: DR. ZEESHAN BHATTI

WHERE WE ARE NOW

BY: DR. ZEESHAN BHATTI

THE RESOURCE PROBLEM

Resources and Priorities

Project network times are not a schedule

Cost estimates are not a budget

BY: DR. ZEESHAN BHATTI

THE RESOURCE PROBLEM (CONTD)

BY: DR. ZEESHAN BHATTI

TYPES OF PROJECT CONSTRAINTS

Technical or Logic Constraints

Constraints related to the networked sequence

Kinds of Resource Constraints

BY: DR. ZEESHAN BHATTI

BY: DR. ZEESHAN BHATTI

BY: DR. ZEESHAN BHATTI

RESOURCE ALLOCATION METHODS

Splitting activities is not allowedonce an activity is start, it is carried to completion.

BY: DR. ZEESHAN BHATTI

RESOURCE ALLOCATION METHODS (CONTD)

BY: DR. ZEESHAN BHATTI

RESOURCE ALLOCATION METHODS (CONTD)

Peak resource demands are reduced.

Loss of flexibility that occurs from reducing slack.

BY: DR. ZEESHAN BHATTI

RESOURCE ALLOCATION METHODS (CONTD)

Resources are limited in quantity or availability.

Activities are scheduled using heuristics

Smallest (least) duration

Lowest activity identification number

The parallel method is used to apply heuristics

An iterative process starting at the first time period

BY: DR. ZEESHAN BHATTI

Roadmap to Project Management Success

BY: DR. ZEESHAN BHATTI

WHERE WE ARE NOW

BY: DR. ZEESHAN BHATTI

BY: DR. ZEESHAN BHATTI

WHY ESTIMATING TIME AND COST ARE IMPORTANT

To determine whether the project is worth doing.

FACTORS INFLUENCING THE QUALITY OF

BY: DR. ZEESHAN BHATTI

ESTIMATING GUIDELINES FOR TIMES,

TOP-DOWN VERSUS BOTTOM-UP ESTIMATING

BY: DR. ZEESHAN BHATTI

TOP-DOWN VERSUS BOTTOM-UP

Cost and time important

Internal, small project

Customer wants details

ESTIMATING PROJECTS: PREFERRED

BY: DR. ZEESHAN BHATTI

TOP-DOWN APPROACHES FOR ESTIMATING

Function point methods for software and system

BY: DR. ZEESHAN BHATTI

APPORTION METHOD OF ALLOCATING PROJECT COSTS USING THE

SIMPLIFIED BASIC FUNCTION POINT COUNT PROCESS