Principles of Project Management

Presented By: Hisham Rafik, MBA, PMP

Course Outline
1. Project Management Framework
2. Project Initiation
3. Project Planning - Scope Definition
4. Project Planning - Schedule Development
5. Project Planning - Risk Management
6. Project Planning - Budgeting

© Knowledge 2008 Principles of Project Management 2

 Section Six

Project Planning Budgeting

© Knowledge 2008 Principles of Project Management 3

Project Planning Process

Scope Definition

Schedule Development

Risk Management Plan

Budgeting

Plan Compilation and Approvals

© Knowledge 2008 Principles of Project Management 4

The Profit Equation

Revenue Æ Set by sales

- Costs Æ PM responsibility

Profits Æ Company Target

© Knowledge 2008 Principles of Project Management 5

 Types of Cost
… Direct costs
1. Fixed costs
2. Variable costs COGS = Cost Of Goods Sold
3. Other project-related costs

… Indirect costs
† General & Admin (G&A)
† Marketing & Sales (M&S)
† Research and Development (R&D)

© Knowledge 2008 Principles of Project Management 6

Direct Costs
1. Fixed Costs (Task independent)

† Initial Costs
„ Project office setup costs
„ Project insurance
„ Project financing
† Costs incurred across the whole project duration
„ PM & all fixed resources
„ Depreciation of fixed assets
„ Rentals
† Allocated project contingency/risk reserve

© Knowledge 2008 Principles of Project Management 7

Direct Costs
2. Variable costs (Task dependant)

† Manpower
„ Own resources:
„ Use Fully loaded rates to accommodate other
costs needed/utilized by your team:
„ Salaries + benefits + computer + office +
training + company car + …
„ Outsourced labor:
„ Extra costs for utilization of resources
„ computer + office space + training
© Knowledge 2008 Principles of Project Management 8
Direct Costs
2. Variable Costs (continued)

† Subcontractors
„ Turn-key services (might include equipment/material
supplies)
† Materials
„ Equipment sold in the project and constitute a part
of the final product/deliverable
„ Turn-key Equipment Supplies
„ Material consumed in the project
† Machines
„ Depreciation of temporarily used Company assets
„ Rentals of tools used upon need
© Knowledge 2008 Principles of Project Management 9
Direct Costs
3. Other project-related costs

† Warehousing

† Customs and custom clearance

† Some task-specific insurances

† Transportation

© Knowledge 2008 Principles of Project Management 10

Indirect costs
… General & Admin (G&A)
† HR, CFO, Supply Chain, Administration

… Marketing & Sales (M&S)

… Research and Development (R&D)

© Knowledge 2008 Principles of Project Management 11

Process Orientation

Planning
7.1 Cost Estimating
7.2 Cost Budgeting

Controlling
7.3 Cost Control

© Knowledge 2008 Principles of Project Management 12

Cost Estimating
Process of developing an approximation (or estimate) of the
cost of the resources needed to complete each the schedule
activity.

Difference between cost estimating and pricing:

… Cost estimating: Assessing how much it will cost the organization to
provide the product or service
… Pricing: Assessing how much the organization will charge for the
product or service

© Knowledge 2008 Principles of Project Management 13

 Cost Estimating
Inputs Tools Outputs
1. Enterprise environmental
&Techniques 1. Activity Cost
estimates
factors 1. Analogous Estimating
2.Organizational Process 2. Determine Resource
Cost Rate 2. Activity Cost
Assets estimates Supporting
3. Bottom-up Estimating detail
3.Project Scope
Statement 4. Parametric Estimating
5. Project Management 3. Requested Changes
4.WBS Software
5.WBS Dictionary 6. Vendor bid analysis
4. Cost management
6.Project Management Plan 7. Reserve analysis plan (updates)
• Schedule 8. Cost of Quality
management plan
• Staffing
management plan
• Risk register
© Knowledge 2008 Principles of Project Management 14
Cost Estimating, Inputs
1. Enterprise environmental factors
† Marketplace conditions
† Commercial database
2. Organizational Process Assets
† Cost estimating policies
† Cost estimating templates
† Historical information
† Project files
† Project team knowledge
† Lessons learned

© Knowledge 2008 Principles of Project Management 15

Cost Estimating, Tools & Techniques
1. Analogous estimating (Expert judgment)
Used to estimate total project costs if there is a limited
amount of detailed information

2. Bottom-up estimating
Estimating the cost of individual work items and then
rolling up the costs to arrive at a project total

3. Parametric estimating
Using project characteristics (or parameters) in a
mathematical model to predict costs (e.g., price per square
foot)

© Knowledge 2008 Principles of Project Management 16

Cost Estimating, Outputs
1. Cost estimates:
Quantitative assessments of the cost of
resources (e.g., units of currency or staff
hours)
- Types of estimates
† Order of magnitude (-50% to + 100%) from actual
- used during the initiating process
† Budget estimate (-25% to + 70%)
† Definitive estimate (-10% to + 15%) from actual
– used in a later stage

© Knowledge 2008 Principles of Project Management 17

Cost Estimating, Output
2. Supporting detail
† Description of estimated scope of work
† Documentation of the basis for the estimate
† Documentation of any assumptions made
† An indication of the range of possible results
3. Requested changes
4. Cost management plan (updates)

© Knowledge 2008 Principles of Project Management 18

Cost Budgeting
Aggregating the estimated cost of the
individual schedule activities or work
packages, to establish a total cost baseline
for measuring project performance

© Knowledge 2008 Principles of Project Management 19

 Cost Budgeting
Inputs Tools Outputs
&Techniques
1. Project scope 1. Cost baseline
statement 1. Cost
aggregation 2. Project funding
2. WBS requirements
3. WBS dictionary 2. Reserve analysis
3. Cost management
4. Activity cost estimates 3. Parametric plan (updates)
5. Activity cost estimating 4. Requested changes
estimates 4. Funding limited
supporting details reconciliation
6. Project schedule
7. Resource calendars
8. Contract
9. Cost management
plan
© Knowledge 2008 Principles of Project Management 20
 Cost Budgeting, Outputs

1. Cost baseline
Time phased budget that will be used as a
basis against which to measure, monitor
and control the overall cost performance
on the project

© Knowledge 2008 Principles of Project Management 21

 Thank You

© Knowledge 2008 Principles of Project Management 22