Week 07 - PMGT5871 - 2018 Sem 1 - Planning Cost Quality-FHN PDF

PMGT 5871 Project Process
Planning and Control
Week 7 –
Planning Cost & Quality
Kestrel Stone
The University of Sydney Page 1

Lecture Topics
1. PM in today’s workplace 8. Planning HR & Governance
2. PM Bodies, Methodologies, 9. Planning Risk & Procurement

Standards & Simulation Preview
10. Soft Skills for Project Managers
3. Business Case, Initiating Projects &
Developing the Project Charter 11. Implementation Phase
4. Scoping Projects, Stakeholders & 12. Earned Value Management
Planning Communication
13. Closure & Simulation – Part 1
5. [BREAK] (Initiation & Planning)
6. Scheduling 14. Simulation – Part 2
(Implementation Phase)
7. Planning Cost & Quality

Planning Cost
4
Growth
Do more & do it better
Continuously Diversify, offer more

improve products & products & services
services
Invest profits
Profit from original Profit from How does

contract scope contract variations good PM lead
to profit?
Win more
work with
Successful Good
existing
customers
projects reputation
Win-Win
Customer Win new

satisfaction customers
© Elemental Projects 2016
Cost categories
Direct costs
• Attributable wholly and directly to the achievement of specific project outcomes
• Examples: labour, materials, travel, consulting fees
Indirect costs / Overhead / On-costs

• Costs incurred by all projects but not directly attributable to any of the project outcomes
• Examples: facilities, utilities, accounting/HR/procurement departments
Fixed costs
• Independent of the quantity of inputs or outputs (e.g. equipment lease)
Variable costs
• Vary with the quantity of inputs or outputs (e.g. labour, materials)
Sunk costs (retrospective as opposed to prospective costs)

• Costs that have already been incurred and cannot be recovered

Cost sub-plans
Project Cost Estimate Time-Phased Budget Cash-Flow
– Project Cost Estimate …….. indicates total cost of project

– Time-Phased Budget ……… enables costs to be monitored/controlled
– Cash-Flow ……………………… determines when access to funds will be needed

Project Cost Estimate
– The Project Cost Estimate is the total estimated cost of the project
Time-Phased Budget Direct Cost - i.e. the cost of doing the work in
the WBS (e.g. Goods, services, labour, etc.)
Cash-Flow
Contingency – i.e. funds for the Indirect Cost (AKA overhead, on-cost)
unknown work (e.g. activities – i.e. costs incurred by all projects that
taking longer than planned, issues, can not be traced back to any single
etc.). Not for new scope. Can be project or work package (e.g. utilities,
further broken into Management
Reserve (for “unknown unknowns”)
Project rent, procurement department, software
licenses, security, workers compensation,
and Project Contingency (for Cost etc.). Sometimes broken into specific
“known unknowns”). Estimate amortized costs. May be included in
labour rates for internal resources and
thus included in Direct Costs.

8
Bid Price
Cost breakdown
Project Cost Profit Cost of bid project
Estimate
Direct Costs Management Indirect Cost

(“Project Budget”) Reserve
Project Cost Baseline /

Contingency Overhead Amortized Costs
BAC
e.g. marketing
Control Control Control
Account 1 Account 2 Account 3
Time-Phased Budget
e.g. R&D
Cash-Flow
Work Package Work Package
Contingency Cost Estimates e.g. fines/
settlements
Activity Cost
Estimates
Bid = quote, proposal, tender response
BAC = Budget at Completion Activity
Contingency
R&D = Research & Development
9
Bid Price
Cost breakdown
Project Cost Cost of bid
Profit
Estimate project
Contingency /
Direct Cost Management Indirect Cost
Reserve
Cost Baseline / Amortized

Contingency Overhead
BAC Costs
e.g.
Control Control Control marketing
Account 1 Account 2 Account 3
Time-Phased Budget e.g. R&D
Cash-Flow
Contingency Work Package
Cost Estimates e.g. fines/
settlements
Activity Cost
Estimates
Bid = quote, proposal, tender response
BAC = Budget at Completion Activity
Contingency
R&D = Research & Development
Example Cost Baseline

Example Cost Baseline

Project Cost Estimate
Cost Baseline (Direct Costs)

WBS Funding Source Labour Goods/materials Sub-total
Planning Control Account 1 $50,000 $4,000 $54,000
Phase 1 pilot Control Account 2 $30,000 $25,000 $55,000
Phase 2 rollout Control Account 2 $380,000 $120,000 $500,000
Phase 3 handover Control Account 2 $20,000 $2,000 $22,000
Closure Control Account 3 $5,000 $500 $5,500
Total direct cost: $636,500
Cost type Cost Project Cost Estimate

Direct Cost $636,500
Indirect Cost (e.g.10% direct cost) $63,650 $827,450
Contingency (e.g. 20% direct cost) $127,300

Accuracy of project cost estimates
– Rough Order of Magnitude (ROM): -25% +75%

– Preliminary (Analogous): -15% +50%
– Budgetary Estimate: -10% +25%
– Definitive: -5% +10%
– Final

Techniques for estimating direct cost
(may also be used to estimate duration)
– Top-down = guess
– Analogous = similar past project, adjusted for current circumstances
– Incremental = similar past project, adjusted for CPI
– Parametric = unit value x number of units
– Monte Carlo Technique = simulation based techniques / ‘what-if’ scenarios
– 3-point-weighted average / PERT = average of optimistic/pessimistic/most likely
estimates, but weight the most likely estimate
– Bottom-up / zero-base = estimate bottom level items on WBS, add together to
calculate next level up… aggregate estimates as you roll up through the WBS
– Expert consultation = ask a subject matter expert (SME)
– Vendor Bid Analysis = request quotes from several vendors, then take the average
– Publications = lists/books of estimates (e.g. Rawlinsons in construction)

Estimating indirect cost
– Arbitrary amount – e.g. $10,000

– Excluded from Cost Baseline
– Arbitrary percentage – e.g. 15% project budget
– Excluded from Cost Baseline
– Factored into the labour rate for internal human resources
– Counted as Direct Cost and thus included in Cost Baseline

Estimating contingency
– Arbitrary percentage
– Arbitrary amount
– Based on project type
– Based on risk
– Qualitative assessment
– Quantitative assessment
– Adjusted as the project progresses based on
fluctuating risk levels

17
Activity
• Develop the Project Cost Estimate

Understanding “quality”
19
ACTIVITY
• List the features and

functions of this product
that make it “fit for purpose”
• How much would you expect
to pay for it?

It is for army officers to navigate and
communicate during combat and other operations It is a birthday present for a friends’ 5-year-old
It is for wait staff at a busy restaurant to It is for farmers to manage crop

capture orders and send to the kitchen/bar planting/harvesting

Quality vs. grade
– Quality = “the degree to which a set of inherent characteristics fulfil

requirements” (ISO 9000) – i.e. how fit for purpose it is
– Grade = “a category assigned to deliverables having the same functional
use but different technical characteristics.” (PMBoK)

Quality vs. grade
– The project team must define the appropriate grade and level of quality of project
deliverables
– Grade too low = not fit for purpose, client and end-user dissatisfaction
– Grade too high = “gold plating”, wasted time and money
– Low grade with high quality: a ‘cheap and cheerful’ software product with just
a few basic features (low grade) that works as advertised with no obvious
defects and a user-friendly manual (high quality).
– High grade with low quality: a ‘bells & whistles’ software product with many
hi-tech features (high grade) that breaks down frequently, has many defects, is
difficult to use with a poorly written user manual (low quality).

Quality vs. grade
Construction hard hat JSF helmet
High
Quality Disposable helmet Recalled motorbike helmet
Low
The University of Sydney

Low Grade High Page 23
24
Defining quality requirements

Quality requirements
The project team must define the quality requirements for the
products and the project process by which they are created.
Features/functions that make the

Features/functions that make the
process fit for purpose.
product fit for purpose.
E.g. standards to be met,
E.g. High-grade components.
methodology to be used, etc.

Product vs process requirements
Fun, aesthetically pleasing,

long-lasting, safe,
PRINCE2 methodology environmentally friendly
to be used
Walls to be made of treated

hardwood timber, minimum
Design to comply with 10mm thick
council regulations
Ladder rungs to be 300mm

Window to be 600mm high apart with rubber grips
x 1200mm wide with
aluminium frame
Builder to comply with
Australian construction
standards.
Understanding quality from different perspectives
– Think about quality

from the point of
view of your client,
your client’s client,
end users, etc.
– Step into their shoes

and understand
their situation,
issues, needs,
agendas and
motivation
– May need to
manage competing
requirements

Quality considerations
– Specifications, contract documentation

– Risks and opportunities
– Regulations/legal constraints in relevant jurisdictions
– Standards – e.g. formal (e.g. ISO 9000); exemplar (e.g. Art Gallery of NSW)
– Product lifecycle (e.g. 2 years? 20 years?), through-life costs, obsolescence
– Quantitative acceptance criteria for intangible features/functions – e.g.:
– Beautiful – e.g. expert opinion; focus group survey
– User-friendly – e.g. average time users stay online; focus group survey
– Reliable – e.g. Mean Time Between Failure (MTBF) metrics; calls to help-desk
– Durable – e.g. stress tests; pilots
– Intuitive – e.g. average time taken by new users to perform a task

Defining quality in the context of project constraints
Who do we have to work

with? What is the team’s
capability and capacity?
Human Resources
Can we afford high-
grade components,
human resources and
processes?
Time
Cost
Scope
Do we need the
What does quality
product urgently, or
cost? ……
can we take our time?
Quality
What is the cost of
quality?
Increasing quality means increasing cost
– Due to:
– Taking more time to do the work
properly drives up labour costs
– High-grade components cost more
– Independent checks, tests, reviews,
prototypes, pilots, etc, all cost money
– Highly skilled and qualified people
tend to charge more

Cost of Quality (COQ)
COQ = Cost of Conformance + Cost of Non-Conformance
Money spent during the project to avoid Money spent during and after the project
defects/failures (QA) because of defects/failures (QC)
– Prevention Costs (cost of building quality – Internal Failure Costs (failures found by the
products) project)
• Training • Rework
• Documenting processes • Scrap
• Equipment – External Failure Costs (failures found by the
• Time to do it right customer)
– Appraisal Costs (cost of appraising the quality) • Liabilities
• Testing • Warranty work
• Destructive testing loss • Lost business, reputational damage
• Inspections

Quality costs; but beware the “1:10:100 rule”
Every dollar spent on prevention of $1

defects (QA) saves 10 dollars in (prevention &
finding and fixing defects (QC) and appraisal costs)
100 dollars if defective products reach

your customers/end users.
$10
(Internal Failure Costs)
$100
(External Failure Costs)

Cost of Quality (COQ)
“You buy something expensive;

you cry once.
I wish this
You buy something cheap; you cry thing had a
every day”
higher MTBF!
– Indian proverb

34
Planning quality
Planning quality involves
– 1. Defining quality requirements

– 2. Planning Quality Assurance activities
– 3. Planning Quality Control activities

QA and QC
– Quality Assurance (QA) = “the process of auditing

the quality requirements and the results from quality
QA is like control measurement to ensure appropriate quality
standards and operational definitions are met” -
preventative PMBoK
medicine – Translation: taking steps to ensure that the product
and processes are both of an acceptable standard of
quality
– Quality Control (QC) = “the process of monitoring

and recording results of execution the quality
QC is like activities to assess performance and recommend
diagnosis necessary changes.” - PMBoK
and cure – Translation: checking the completed products and
processes to make sure that they ARE of an
acceptable standard of quality. Where defects are
discovered, removing/fixing these and adjusting the
QA process to prevent further defects.
Quality Plan
Quality Definition: Quality Quality

Assurance: Control:
Product / Definition of Technical/functio Acceptance How will the How will the
process ‘quality’ for this nal standards to Criteria team meet the team identify
item (features/ be met by the (measure of Quality and rectify
functions that product and the minimum Definition? defects?
will make it ‘fit process by acceptable
for purpose’) which it is standard of
produced quality)
Tablet case Camouflage, Military Standard Weight <300g; MTBF Specialist provider, Independent
waterproof, 810F Test Standards 100 weeks; research inspections, lab
lightweight, single- withstand 3m drop conditions, test, field test,
handed opening, and 120kg crush; monthly quality operational pilot
durable splash/rain proof reviews

QA and QC tools & techniques
QA techniques: QC techniques:
– Developing a Quality Management Plan and – Quality inspections;

Quality Plan;
– Scheduled and random audits;
– Holding regular Quality Review meetings;
– Acceptance decisions
– Analysing lessons learned from previous
projects; – Use of checklists;
– Following organisational manuals/procedures; – Elimination of re-work;
– Hiring qualified and/or experienced – Continuous improvement process;
personnel; – Process adjustment;
– Providing training;
– Performance testing;
– Building a culture of quality through
– Independent assessment;
celebrating/rewarding quality
– Providing safety equipment; – Seeking feedback through interviews, surveys,
evaluation forms, etc.;
– Staff and contractor inductions.
– Rectification of defects.
Configuration Management can support QA & QC…

Configuration Management
Translation…
– “Configuration management (CM) is a process
for establishing and maintaining consistency It is a way of mapping all of the components
of a product’s performance and functional in a product or system.
and physical attributes with its requirements,
design and operational information It provides a record of the current features of
throughout its life.” - Wikipedia a product (e.g. a bolt of certain length and
strength), and their relationship with other
components (e.g. a windshield frame).
It enables changes to these features to be

recorded; and the impact of these changes
on related features to be analysed.
It enables the builder of a product to know that they

have included all of the required features; and the
buyer of the product to know that they’ve got
everything they paid for.
40
Activity
• Develop the Quality Plan for the case study project.

Questions

Week 07 - PMGT5871 - 2018 Sem 1 - Planning Cost Quality-FHN PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Week 07 - PMGT5871 - 2018 Sem 1 - Planning Cost Quality-FHN PDF

Uploaded by

Copyright:

Available Formats

PMGT 5871 Project Process

Planning and Control

The University of Sydney Page 1

1. PM in today’s workplace 8. Planning HR & Governance

2. PM Bodies, Methodologies, 9. Planning Risk & Procurement

The University of Sydney Page 2

Continuously Diversify, offer more

Profit from original Profit from How does

Customer Win new

Indirect costs / Overhead / On-costs

Sunk costs (retrospective as opposed to prospective costs)

The University of Sydney Page 5

Project Cost Estimate Time-Phased Budget Cash-Flow

– Project Cost Estimate …….. indicates total cost of project

The University of Sydney Page 6

The University of Sydney Page 7

Direct Costs Management Indirect Cost

Project Cost Baseline /

Cost Baseline / Amortized

The University of Sydney Page 10

The University of Sydney Page 11

Cost Baseline (Direct Costs)

Closure Control Account 3 $5,000 $500 $5,500

Total direct cost: $636,500

Cost type Cost Project Cost Estimate

The University of Sydney Page 12

– Rough Order of Magnitude (ROM): -25% +75%

The University of Sydney Page 13

The University of Sydney Page 14

– Arbitrary amount – e.g. $10,000

The University of Sydney Page 15

The University of Sydney Page 16

• Develop the Project Cost Estimate

• List the features and

© Elemental Projects 2016

It is for wait staff at a busy restaurant to It is for farmers to manage crop

The University of Sydney Page 20

– Quality = “the degree to which a set of inherent characteristics fulfil

The University of Sydney Page 21

The University of Sydney Page 22

Construction hard hat JSF helmet

Quality Disposable helmet Recalled motorbike helmet

The University of Sydney

Defining quality requirements

© Elemental Projects 2016

Features/functions that make the

The University of Sydney Page 25

Fun, aesthetically pleasing,

Walls to be made of treated

Ladder rungs to be 300mm

– Think about quality

– Step into their shoes

The University of Sydney Page 27

– Specifications, contract documentation

The University of Sydney Page 28

Who do we have to work

The University of Sydney Page 30

COQ = Cost of Conformance + Cost of Non-Conformance

The University of Sydney Page 31

Every dollar spent on prevention of $1

100 dollars if defective products reach

The University of Sydney Page 32

“You buy something expensive;