ISDS 351 Final Exam
Types of cost estimates
- Rough Order of Magnitude (ROM) - Budgetary - Definitive
Free slack or free float
Amount of time an activity can be delayed without delaying the early start of any immediately following activities
Total slack or total float
Amount of time an activity may be delayed from its early start without delaying the planned project finish date
Workflow
Automates the various activities in SAP's ERP software; performs task flow analysis and prompts employees via email if they need to take action
ROI
Calculated by subtracting the project costs from the benefits and then dividing by the costs ROI = (total discounted benefits-total discounted costs) / discounted costs The higher the ROI, the better Many organizations have a required rate of return - Minimum acceptable rate of return on investment for projects Internal rate of return (IRR) can by calculated by finding the discount rate that makes the NPV equal to zero
Critical Chain Scheduling
Considers limited resources when creating a project schedule and includes buffers to protect the project completion date - Uses the Theory of Constraints (TOC) Additional concepts: - Buffer - Murphy's Law - Parkinson's Law - Project buffer - Feeding buffers
NPV calculations
Determine estimated costs and benefits for the life of the project and the products it produces Determine the discount rate Calculate the net present value
Forward pass
Determines the early start and finish dates
Backward pass
Determines the late start and finish dates
Calculating the critical path
Develop a good network diagram and add the duration estimates for all activities on each path through the network diagram - Longest path is the critical path If one or more of the activities on the critical path takes longer than planned, the whole project schedule will slip unless the project manager takes corrective action
Estimating activity duration
Duration includes the actual amount of time worked on an activity plus elapsed time - Effort is the number of workdays or work hours required to complete a task and does not normally equal duration People doing the work should help create estimates - An expert should review them
Enterprise Systems
Ensures that business transactions are processed efficiently and accurately - Employs a database of key operational and planning data that can be shared with authorized users across the organization Examples: - Enterprise resource planning system - Customer relationship management system - Product life cycle management system
Types of dependencies or relationships between activities
Finish-to-start Start-to-start Finish-to-finish Start-to-finish
Enterprise Resource Planning (ERP) System
Set of integrated programs that manage a company's vital business operations
Analogous or top-down estimates
Use the actual cost of a previous, similar project as the basis for estimating the cost of the current project
Parametric estimating
Uses project characteristics (parameters) in a mathematical model to estimate project costs
Developing the schedule
Uses results of the other time management processes to determine the start and end date of the project - Ultimate goal is to create a realistic project schedule that provides a basis for monitoring project progress for the time dimension of the project Important tools and techniques - Gantt charts - Critical path analysis - Critical chain scheduling - PERT analysis
Budgetary
When Done: Early, 1-2 years out Why Done: Puts dollars in the budget plans Typical Range: -10% to +25%
Definitive
When Done: Later in the project, less than 1 year out Why Done: Provides details for purchases, estimates actual costs Typical Range: -5% to +10%
Rough Order of Magnitude (ROM)
When Done: Very early in the project life cycle, often 3-5 years before project completion Why Done: Provides estimate of cost for selection decisions Typical Range: -50% to +100%
To-complete performance index (TCPI)
a measure of the cost performance that must be achieved with the remaining resources to meet a specific goal
Sequencing activities
a process which involves evaluating the reasons for dependencies and the different types of dependencies
What is Cost?
a resource sacrificed or foregone to achieve a specific objective or something given up in exchange - Usually measured in monetary units like dollars that must be paid to acquire goods and services
Milestone
a significant event that normally has no duration - It often takes several activities and a lot of work to complete a milestone They're useful tools for setting schedule goals and monitoring progress - Examples: obtaining customer sign-off on key documents or completion of specific products
Activity list
a tabulation of activities to be included on a project schedule - Activity name, activity identifier or number, and brief description of the activity
Feeding buffers
additional time added before tasks on the critical path
Project buffer
additional time added before the project's due date
Buffer
additional time to complete a task
Determining the budget
allocating the overall cost estimate to individual work items to establish a baseline for measuring performance Budgeting involves allocating the project cost estimate to individual work items over time - Material resources or work items are based on the activities in the WBS for the project Important goal is to produce a cost baseline - Time-phased budget that project managers use to measure and monitor cost performance
Management reserves
allow for future situations that are unpredictable (sometimes called unknown unknowns)
Contingency reserves
allow for future situations that may be partially planned for (sometimes called known unknowns) and are included in the project cost baseline
Three-point estimate
an estimate that includes an optimistic, most likely, and pessimistic estimate - Needed for PERT and Monte Carlo simulations
Estimate at completion (EAC)
an estimated cost of completing a project based on performance to date
Life cycle costing
considers total cost of ownership, or development plus support costs, for a project
Controlling costs
controlling changes to the project budget Activities involved in controlling project costs - Monitoring cost performance - Ensuring that only appropriate project changes are included in a revised cost baseline - Informing project stakeholders of authorized changes to the project that will affect costs Several tools and techniques assist in project cost control - Expert judgment, data analysis, project management information systems, and the to-complete performance index
Tangible costs or benefits
costs or benefits that an organization can easily measure in dollars
Intangible costs or benefits
costs or benefits that are difficult to measure in monetary terms
Indirect costs
costs that are not directly related to the products or services of the project, but are indirectly related to performing the project
Direct costs
costs that can be directly related to producing the products and services of the project
Discretionary dependencies
defined by the project team, sometimes referred to as soft logic, and should be used with care since they may limit later scheduling options
Arrows (on Gantt Charts)
dependencies between tasks
Cash flow analysis
determines estimated annual costs and benefits for a project and resulting annual cash flow
Planning cost management
determining the policies, procedures, and documentation that will be used for planning, executing, and controlling project cost The first step in project cost management is planning how the costs will be managed throughout the life of the project - The project team uses expert judgment, analytical techniques, and meetings to develop the cost management plan
Estimating costs
developing an approximation or estimate of the costs of the resources needed to complete a project Project managers must take cost estimates seriously if they want to complete projects within budget constraints
Reserves
dollars included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict
Light gray horizontal bars (on Gantt Charts)
durations of tasks
Murphy's Law
if something can go wrong, it will
What is Project Cost Management?
includes the processes required to ensure that the project is completed within an approved budget
Mandatory dependencies
inherent in the nature of the work being performed on a project, sometimes referred to as hard logic
External dependencies
involve relationships between project and non-project activities
Profits
revenues minus expenditures
Critical path
series of activities that determine the earliest time by which the project can be completed - The longest path through the network diagram and has the least amount of slack or float; amount of time an activity may be delayed without delaying a succeeding activity or the project finish date
Learning curve theory
states that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced
Thick black bars (on Gantt Charts)
summary tasks
Cost overrun
the additional percentage or dollar amount by which actual costs exceed estimates
Payback period
the amount of time it will take to recoup, in the form of net cash inflows, the total dollars invested in a project - Determines how much time will elapse before accrued benefits overtake accrued and continuing costs - Payback occurs when the net cumulative discounted benefits equals the costs - Many organizations have requirements for the length of the payback period of an investment
Cost variance (CV)
the earned value minus the actual cost
Schedule variance (SV)
the earned value minus the planned value
Network diagrams
the preferred technique for showing activity sequencing Schematic display of the logical relationships among, or sequencing of, project activities - Two main formats are the arrow and precedence diagramming methods
Cost performance index (CPI)
the ratio of earned value to actual cost
Schedule performance index (SPI)
the ratio of earned value to planned value
Dependency (or Relationship)
the sequencing of project activities or tasks
Parkinson's Law
work expands to fill the time allowed
Steps to create an AOA network diagram
1. Find all of the activities that start at Node 1. Draw their finish nodes, and draw arrows between Node 1 and each of the finish nodes. Put the activity letter or name on the associated arrow. If you have a duration estimate, write it next to the activity letter or name, as shown in Figure 6-2. For example, A = 1 means that the duration of Activity A is one day, week, or other standard unit of time. Be sure to put arrowheads on all arrows to signify the direction of the relationships. 2. Continue drawing the network diagram, working from left to right. Look for bursts and merges. Bursts occur when two or more activities follow a single node. A merge occurs when two or more nodes precede a single node. For example, in Figure 6-2, Node 1 is a burst because it goes into Nodes 2, 3, and 4. Node 5 is a merge preceded by Nodes 2 and 3. 3. Continue drawing the AOA network diagram until all activities are included. 4. As a rule of thumb, all arrowheads should face toward the right, and no arrows should cross on an AOA network diagram. You may need to redraw the diagram to make it look presentable.
Finish-to-start dependency
A relationship in which the "from" activity or predecessor must finish before the "to" activity or successor can start - Most common type of relationship or dependency - AOA network diagrams use only finish-to-start dependencies For example, you cannot provide user training until after software or a new system has been installed.
Start-to-start dependency
A relationship in which the "from" activity cannot start until the "to" activity or successor is started For example, on IT projects, a group of activities might start simultaneously, such as the many tasks that occur when a new system goes live
Finish-to-finish dependency
A relationship in which the "from" activity must be finished before the "to" activity can be finished - One task cannot finish before another finishes For example, quality control efforts cannot finish before production finishes, although the two activities can be performed at the same time
Start-to-finish dependency
A relationship in which the "from" activity must start before the "to" activity can be finished - This type of relationship is rarely used, but it is appropriate in some cases For example, an organization might strive to stock raw materials just in time for the manufacturing process to begin. A delay in starting the manufacturing process should delay completion of stocking the raw materials Another example would be a babysitter who wants to finish watching a young child but is dependent on the parent's arrival. The parent must show up or "start" before the babysitter can finish the task.
Arrow diagramming method (ADM) (i.e., activity-on-arrow network diagrams)
Activities are represented by arrows Nodes or circles are the starting and ending points of activities Only show finish-to-start dependencies
What is the goal of ERP and how is at achieved?
Goals: - Enable easy access to business data - Create efficient, streamlined work processes Enables people in various organizational units to access and update the same information - Based on permission levels assigned within the system
Importance of Project Cost Management
IT projects have a poor track record for meeting budget goals A 2011 Harvard Business Review study reported an average cost overrun of 27 percent - Most important finding was the discovery of a large number of gigantic overages or "black swans"; a high-impact event that is rare and unpredictable, but not improbable in retrospect
Bottom-up estimates
Involve estimating individual work items or activities and summing them to get a project total
Three-point estimates
Involve estimating the most likely, optimistic, and pessimistic costs for items
Importance of Updating Critical Path Data
It is important to update the schedule with actual data - Note actual activity durations as they are completed - Revise estimates for activities in progress - Monitor changes to make informed decisions
Cost management plan includes:
Level of accuracy Units of measure Organizational procedure links Control thresholds Rules of performance measurement Reporting formats Process descriptions
Sales and distribution
Maintains—and allows access to—customer information, pricing, shipping information, and billing procedures; also records sales orders and scheduled deliveries
Importance of Project Schedule
Managers often cite delivering projects on time as one of their biggest challenges - Time has the least amount of flexibility; it passes no matter what happens on a project Individual work styles and cultural differences may also cause schedule conflicts - Different cultures and even entire countries have different attitudes about schedules
Plant maintenance
Manages maintenance resources and planning for preventive maintenance of plant equipment
Materials management
Manages the acquisition of raw materials from suppliers and the subsequent handling of raw materials from storage to work-in-progress goods; also manages the shipping of finished goods to customers
NPV Analysis
Method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time - Projects with a positive NPV should be considered if financial value is a key criterion - Projects with higher NPVs are preferred
Basic Principles of Cost Management
Most members of an executive board better understand and are more interested in financial terms than IT terms; they need to be able to present and discuss project information in both
Program Evaluation and Review Technique (PERT)
Network analysis technique used to estimate project duration when there is a high degree of uncertainty about the individual activity duration estimates - Uses probabilistic time estimates: duration estimates based on using optimistic, most likely, and pessimistic estimates of activity durations By using the PERT weighted average for each activity duration estimate, total project duration estimate takes into account the risk or uncertainty in the individual activity estimates
Precedence diagramming method (PDM)
Network diagramming technique in which boxes represent activities - It is particularly useful for visualizing certain types of time relationships.
Critical Path Method (CPM)
Network diagramming technique used to predict total project duration
Project time management processes
Planning schedule management Defining activities Sequencing activities Estimating activity resources Estimating activity durations Developing the schedule Controlling the schedule
Earned Value Management (EVM)
Project performance measurement technique that integrates scope, time, and cost data - Given a baseline (original plan plus approved changes), you can determine how well the project is meeting scope, time, and cost goals involves calculating three values for each activity or summary activity from a project's WBS - Planned value - Actual cost - Earned value
Gantt Chart (MS Project)
Provide a standard format for displaying project schedule information by listing project activities and corresponding start and finish dates in a calendar form Adding milestones to Gantt charts - Many people like to focus on meeting milestones, especially for large projects - Milestones emphasize important events or accomplishments on projects SMART Criteria for milestones - Specific - Measurable - Assignable - Realistic - Time-framed
Weighted Scoring method
Provides a systematic process for selecting projects based on many criteria - Identify criteria important to the project selection process - Assign weights (percentages) to each criterion so they add up to 100% - Assign scores to each criterion for each project - Multiply the scores by the weights and get the total weighted scores
Typical Problems with IT Cost Estimates
Reasons for inaccuracies - Estimates are done too quickly - People lack estimating experience - Human beings are biased toward underestimation - Management desires accuracy
Financial accounting
Records all financial transactions in the general ledger accounts and generates financial statements for external reporting
Main techniques for shortening schedules (Using the Critical Path)
Shortening durations of critical activities/tasks by adding more resources or changing their scope Crashing activities by obtaining the greatest amount of schedule compression for the least incremental cost Fast tracking activities by doing them in parallel or overlapping them
Important considerations of NPV
Some organizations refer to the investment year or years for project costs as Year 0 and do not discount costs in Year 0 Discount rate can vary, often based on the prime rate and other economic considerations Costs can be entered as negative numbers and can be listed first (and then benefits)
Controlling
Supports managerial decision making by assigning manufacturing costs to products and cost centers for analysis of the organization's profitability
Growing Grass Can Be on the Critical Path
The fact that its name includes the word critical does not mean that it includes all critical activities - Only accounts for time Example: growing grass for Disney's Animal Kingdom There can be more than one critical path if the lengths of two or more paths are the same - Project managers should closely monitor performance of activities on the critical path to avoid late project completion - Critical path can change as the project progresses
Defining activities
involves identifying the specific actions that will produce the project deliverables in enough detail to determine resource and schedule estimates
Theory of Constraints (TOC)
management philosophy developed by Eliyahu M. Goldratt; attempts to minimize multitasking when a resource works on more than one task at a time
Black diamond (on Gantt Charts)
milestones
Sunk cost
money that has been spent in the past; when deciding what projects to invest in or continue, you should not include this
Activity attributes
provide more information - Predecessors, successors, logical relationships, leads and lags, resource requirements, constraints, imposed dates, and assumptions related to the activity
Profit margin
ratio of profits to revenues
