Professional Documents
Culture Documents
Management
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Budgeting (Slide 2 of 2)
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Estimating Project Budgets
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Rules of Thumb
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Budgeting Concepts
• Tradition
• Life cycle costing
• Actual costs and earned value analysis
• Tracing expenses to specific tasks
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Estimating Budgets is Difficult (slide 1 of 2)
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Estimating Budgets is Difficult (Slide 2 of 2)
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Types of Budgeting
• Top-down
• Bottom-up
• Negotiated
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Top-Down Budgeting
7-10
Advantages
7-11
Disadvantages
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Bottom-Up Budgeting
7-13
Reserve Analysis
• Contingency reserve
• Management reserve
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Advantages
7-15
Disadvantages
7-16
Work Element Costing
7-17
Estimation Examples
7-18
An Iterative Budgeting Process–
Negotiation-in-Action
• Most projects use some combination of top-down
and bottom-up budgeting
• Both are prepared and compared
• Any differences are negotiated
7-19
Opposing Views of Superior and
Subordinate
7-20
Category Budgeting Versus
Program/Activity Budgeting
• Organizations are used to budgeting (and collecting
data) by activity
• These activities correspond to “line items” in the
budget
• Examples include phone, utilities, direct labor,…
• Projects need to accumulate data and control
expenses differently
• This resulted in program budgeting
7-21
Typical Monthly Budget
7-22
Project Budget by Task & Month
7-23
Improving The Process of Cost
Estimation
• Inputs from a lot of areas are required to estimate a
project
• May have a professional cost estimator to do the
job
• Their primary job is to reduce uncertainty
• Project manager will work closely with cost
estimator when planning a project
• We are primarily interested in estimating direct
costs
• Indirect costs are not a major concern
7-24
Problems
7-25
Not Always About The Profit
7-26
Project Bids and RFPs
7-27
Questions To Consider
7-28
Project Proposal Contents
• Cover letter
• Executive summary
• The technical approach
• The implementation plan
• The plan for logistic support and administration
• Past experience
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Learning Curves
7-30
Learning Curves
7-31
Learning Curve Calculations
n 1
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A Special Case of Learning –
Technological Shock
• New systems may promise efficiency, but it may
take time to realize
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Other Factors
• Escalation
• Waste
• Bad Luck
7-34
Project Risk Management
7-35
Subprocesses of Risk
Management
1. Risk management planning
2. Risk identification
3. Qualitative risk analysis
4. Quantitative risk analysis
5. Risk response planning
6. Risk monitoring and control
7. The risk management register
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Risk Management Planning
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Risk Management Planning
• Types of risks
1. Preventable
2. Strategy
3. External
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Risk Identification
7-39
Qualitative Risk Analysis
7-40
Risk Matrix
7-41
International Project Risk
Categories
• Cultural
• Political
• Regional
• Virtual
7-42
Quantitative Risk Analysis
7-43
Risk Response Planning
Threats Opportunities
• Avoid • Exploit
• Transfer • Share
• Mitigate • Enhance
• Accept • Accept
7-44
Risk Monitoring and Control
7-45
The Risk Register
7-46
Quantitative Risk Assessment
7-47
Failure Mode and Effect Analysis
7-48
Decision Tree Analysis
7-50
Monte Carlo Simulation
7-51
Sensitivity Analysis
7-52
Dealing With Project Disasters
7-53
Copyright
Copyright © 2018 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up
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no responsibility for errors, omissions, or damages, caused by the use of these programs or
from the use of the information contained herein.
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