Centre for

Continuing Education

Session conducted by

Dr Rajesh Gupta
B Tech, PGDOM, PhD

Area of interest
• Operations management
• Project Management
• Quantitative Techniques
• Quality Management
UPES – The Nation Builders University

PROJECT MANAGEMENT

29th February 2020

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PROJECT BUDGETING AND COST ESTIMATION

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A budget is a plan for resource allocation

• Also it acts as a control mechanism

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Allocation on the basis of forecast of

resources, quantities needed and when
needed

• Uncertainties are involved

• No past budget is available for use as a
base

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Expert Judgment Expert judgment uses the experience and knowledge of

experts to estimate the cost of the project. This
technique can take into account unique factors specific
to the project. However, it can also be biased.

Analogous Estimating Analogous estimating uses historical data from similar

projects as a basis for the cost estimate. The estimate can
be adjusted for known differences between the projects.
This type of estimate is usually used in the early phases of
a project and is less accurate than other methods.

Parametric Estimating Parametric estimating uses statistical modeling to

develop a cost estimate. It uses historical data of key cost
drivers to calculate an estimate for different parameters
such as cost and duration. For example, square footage is
used in some construction projects.

Bottom-Up Estimating Bottom-up estimating uses the estimates of individual

work packages which are then summarized or "rolled up"
to determine an overall cost estimate for the project. This
type of estimate is generally more accurate than other
methods since it is looking at costs from a more granular
perspective.

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TOP DOWN BUDGETING

• Collecting the judgment and experience of top

managers
• Collecting available past data in similar activities
• Estimation of overall project cost and cost of
major components by senior managers
• Cost estimates given to lower level managers
• Budget broken into estimates for specific tasks
and work activities

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BOTTOM UP BUDGETING

• Elemental tasks, their schedules and budgets are

constructed
• People doing the work are consulted
• Difference of opinion resolved by discussion
between junior and senior managers
• Advocate participative management

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WORK ELEMENT COSTING

• Each work element is evaluated for its

resource requirement
• Cost of each resource is estimated

Considers

• Overheads
• Allowances
• General and administrative costs

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Creating Baseline Cost Curve
Project X

A B C D

Activity Time Predecessors

A 5 - A
B 2 -
B C
C 4 B
D 6 B
D

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0 1 2 3 4 5 6 7 8 9 10
Cost
A 100
B 70
C 200
D 150

Activity Budgeted 1 2 3 4 5 6 7 8
cost
A 100 30 20 20 20 10
B 70 20 50
C 200 70 30 40 60
D 150 40 20 30 30 20 10
Period Total 50 70 130 70 80 90 20 10
Cumulative 50 120 250 320 400 490 510 520

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1 2 3 4 5 6 7 8

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Mr. and Mrs. Tolstoy are building a house on a hill. It is a wooden house with a
slanted tiled roof. The size of the house is 3000 sq. feet, and will cost Rs. 1000
per sq. foot (including the plot and the construction).
The activities in building the house, the precedence, the durations and the
percentage of total cost are given below.
ACTIVITY DESCRIPTION PRECEDENCE DURATION %AGE OF TOTAL
ID (WEEKS) COST

A Excavation and framing - 4 24

B Roof and Fireplace A 3 8
C Wiring roughed in A 1 3
D Plumbing roughed in B,C 2 6
E Siding on D 2 5
F Windows, insulation, walks, plaster and E 8 17
garage

G Furnace B 1 9
H Plumbing fixtures installed D 2 4
J Exterior paint, light fixtures, hardware F,G,H 6 10
installed

K Floors laid and finished H 4 6

L Carpet and trim installed K 1 4
M Interior decoration J,L 2 4

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G1
B3
J6 M2
A4

F8
C1 E2
L1
D2
H2
K4

Activities                                                      
A
B
C
D
E
F
G
H
J
K
L
M

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Time (weeks)
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Activities                                                      

A 1.80 1.80 1.80 1.80                                              

B         0.80 0.80 0.80                                        

C         0.90                                            

D               0.90 0.90                                    

E                   0.75 0.75                                

F                       0.64 0.64 0.64 0.64 0.64 0.64 0.64 0.64                

G               2.70                                      

H                   0.60 0.60                                

J                                       0.50 0.50 0.50 0.50 0.50 0.50    

K                       0.45 0.45 0.45 0.45                        

L                               1.20                      

M                                                   0.60 0.60

                                                     
Week Cost
1.80 1.80 1.80 1.80 1.70 0.80 0.80 3.60 0.90 1.35 1.35 1.09 1.09 1.09 1.09 1.84 0.64 0.64 0.64 0.50 0.50 0.50 0.50 0.50 0.50 0.60 0.60
Cum. Cost
1.80 3.60 5.40 7.20 8.90 9.70 10.50 14.10 15.00 16.35 17.70 18.79 19.88 20.97 22.06 23.90 24.54 25.18 25.82 26.32 26.82 27.32 27.82 28.32 28.82 29.42 30.02

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Time (weeks)

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35

30

25

20

15

10

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ACTIVITY DESCRIPTION IMMEDIATE DURATION TOTAL COST RS. ‘000

PREDECESSORS (WEEKS)

H Basic design - 10 100

I Hardware design for A H 8 64
J Hardware design for B H 6 96
K Drawings for B J 4 16
L Software specifications J 2 36
M Parts purchase for B J 4 84
N Parts purchase for A I 4 80
O Drawings for A I 5 50
P Installation drawings I,J 5 60
Q Software purchases L 5 80
R Delivery of parts for B M 5 0
S Delivery of parts for A N 3 0
T Software delivery Q 3 0
U Assembly of A O,S 1 14
V Assembly of B K,R 5 80
W Test A U 2 24
X Test B V 3 36
Y Final Installation P,W,X 8 104
Z Final system test Y 6 66

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Q5
L2
T3
M4
R5
I8 K4 V5 X3
H 10
P5 Y8
Z6
J6
N4
W2
S3

O5
U1

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IMMEDIATE PREDECESSORS

DURATION (WEEKS)
ACTIVITY

DESCRIPTION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47

H Basic design - 10
I Hardware design for A H 8
J Hardware design for B H 6
K Drawings for B J 4
L specifications J 2
M Parts purchase for B J 4
N Parts purchase for A I 4
O Drawings for A I 5
P Installation drawings I,J 5
Q Software purchases L 5
R Delivery of parts for B M 5
S Delivery of parts for A N 3
T Software delivery Q 3
U Assembly of A O,S 1
V Assembly of B K,R 5
W Test A U 2
X Test B V 3
Y Final Installation P,W,X 8
Z Final system test Y,T 6

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IMMEDIATE PREDECESSORS

TOTAL COST RS. ‘000

DURATION (WEEKS)

COST/WEEK
ACTIVITY

DESCRIPTION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47

H Basic design - 10 100 10 10 10 10 10 10 10 10 10 10 10

I Hardware design for A H 8 64 8 8 8 8 8 8 8 8 8

J Hardware design for B H 6 96 16 16 16 16 16 16 16

K Drawings for B J 4 16 4 4 4 4 4
Software
L specifications J 2 36 18 18 18
M Parts purchase for B J 4 84 21 21 21 21 21
N Parts purchase for A I 4 80 20 20 20 20 20
O Drawings for A I 5 50 10 10 10 10 10 10
P Installation drawings I,J 5 60 12 12 12 12 12 12
Q Software purchases L 5 80 16 16 16 16 16 16
R Delivery of parts for B M 5 0 0 0 0 0 0 0

S Delivery of parts for A N 3 0 0 0 0 0

T Software delivery Q 3 0 0 0 0 0
U Assembly of A O,S 1 14 14 14
V Assembly of B K,R 5 80 16 16 16 16 16 16
W Test A U 2 24 12 12 12
X Test B V 3 36 12 12 12 12
Y Final Installation P,W,X 8 104 13 13 13 13 13 13 13 13 13
Z Final system test Y,T 6 66 11 11 11 11 11 11 11
990 10 10 10 10 10 10 10 10 10 10 24 24 24 24 24 24 51 51 83 83 58 58 38 0 0 30 28 28 16 16 12 12 12 13 13 13 13 13 13 13 13 11 11 11 11 11 11
100

172
196
220
244

429
512
570
628

666
696
724
752

796
808
820
833

872
885
898
911

957
968
979
124
148

295
346

666
666

768
784

846
859

924
935
946

990
10
20
30
40

60
70
80
90

Cumulative Cost
50
0

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1200

1000

800

600

400

200

0
1 2 3 4 5 6 7 8 9 10111213141516171819202122232425262728293031323334353637383940414243444546

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Alpha solutions private limited – Planning for new office

building
“Anil, you can consider the budget as approved. Schedule a
meeting with Mr. Arya and prepare the complete plan for
construction” Mehra told Anil while crossing his cabin. “You
can involve Anuj with you if you want”
“Yes sir I would like Anuj with me. Recently he has been
showing his analytical capabilities. I plan to raise him to senior
project assistant shortly.” Anil said.
“Please plan for requirement of cash also with timeline so we
can arrange it when required”
“I will do that sir” Anil responded
In a detailed meeting with Mr. Arya, 3 days later, Anil and Anuj
arrived at the time estimates of the project activities. They
also established the interrelationship of the activities.
The details were presented to Mehra in a meeting a few days
later.
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Activity Activity Code Budgeted cost (in Time estimate (in weeks)
number lakhs)
Optimistic Most likely Pessimistic

A Advertisement for architect P11A 1.75 3 3 3

B Selection of architect P11B 0.75 2 4 6

C Design by architect P12A 2.25 5 9 13

D Design approval from P12B 2.00 6 12 24

regulatory body

E Advertisement for contractor P22A 1.50 3 3 3

F Selection of Contractor P22B 0.50 2 5 8

G Specification development P23A 1.25 4 9 14

H Order placement P23B 0.55 2 3 10

I Building construction P23C1 65.45 30 42 48

J Wood work P23C2-1 32.50 6 9 14

K Furnishing P23C2-2 20.50 3 7 12

L Upholstery P23C2-2 5.50 3 5 9

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Activity Activity Code Predecessor

number activities

A Advertisement for architect P11A _

B Selection of architect P11B A

C Design by architect P12A B
D Design approval from P12B C
regulatory body

E Advertisement for contractor P22A _

F Selection of Contractor P22B E, G

G Specification development P23A D

H Order placement P23B F

I Building construction P23C1 D, F
J Wood work P23C2-1 I
K Furnishing P23C2-2 I
L Upholstery P23C2-2 J,K

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QUESTIONS
• Prepare a weekly cash requirement for the project.
(Consider that the cost of activities is uniformly spread over
its duration)
• What is the expected time of project completion?
• Develop a PERT network for the project.
• Prepare a S curve for the project.

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