Reference no: EM133088260

Project Cost Management

Objectives
• Appreciate the importance of project cost management.
• Understand and use financial language.
• Recognise reasons for creating dependencies.
• Identify different types of cost estimates
• Use cost estimation tools and techniques to prepare different types of cost estimates.
• Identify problems with cost estimates.
• Develop a cost model.
• Develop a cost baseline.

Question 6.1 - Importance of Project Cost
Discuss why many project managers overlook project cost management and how this might affect completing projects within budget?

Question 6.2 - Estimate Costs
Refer to the case study Dog Shelter App. Prepare a cost model for the following 6 month (24 week), Dog Shelter App Project. Use Table 1 (see below), alternatively you can download MS Excel spreadsheet file from moodle: itech 7401_06 tutorial cost model & baseline 6.2-6.3 template.xls.
The total cost estimate should be $350,000. Use the WBS provided. Note the following assumptions and document any additional assumptions you make in preparing the cost model. How much is your contingency reserve?
Note the following assumptions.
1. assume all work a 38-hour week @ 7.6 h/day (pro-rata)
2. assume project manager works on project management tasks only for 2 days p/wk @ $130.00 p/hr
3. assume project development team is composed of 3 members (2 programmers and a MySQL database specialist) @ 95 p/hr, available:
a. 0.5 day p/wk on project management tasks
b. 4.5 days p/wk on product related deliverables
4. assume all liaison and specialists (internal IT liaison, dog save liaison, and dog specialist consultant) are paid for 4-5 days for negotiable rate consultancy fees in week 1
5. assume all product related activities (executing activities) have a F-S relationship
6. assume the gather requirements activities, take 4 weeks commencing in week 1
7. assume the design app, implement app, and verify app activities take 6 weeks each
8. assume the maintain app activity takes 2 weeks
Use a modified version of the WBS from Week 5 (see Figure 1). Note all initiating, planning, control and monitoring and closing tasks have been grouped together under section 1.0 Project Management.

Question 6.3 -Determine Budget
Using the cost model, you created above in question 6.2, prepare a cost baseline by allocating the costs by WBS for each month of the project. Use Table 2 (see below), alternatively you can download MS Excel spreadsheet file from moodle: itech 7401_06 tutorial cost model & baseline 6.2-6.3 template.xls.

Question 6.4 - MS Project Determine Budget
Prepare a cost model for the Dog Shelter App Project. Using MS Project. To get started click the View tab, and then, in the Resource Views group, click the Resource Sheet button.

Watch this you tube video which explains how to set up a project budget (cost model) and cost baseline using MS Project 2013.

Question 6.5 - Types of Cost Estimates
A trainee project manager joins your team. Your role is to train them on the job. Today you are working on project budgets. Give examples of when you would prepare rough order of magnitude, budgetary, and definitive cost estimates for an example project.

Question 6.6 - Cost Estimate Techniques
You are the project manager for your organisation. Your current project is similar to a project you finished recently for your organisation. You decide to base the current project cost estimate on the previous project. What type of estimating are you using in this instance? What other types of cost estimating techniques do project managers use, give examples?

Question 6.7 - Case Study
Read the case study Limerick Nuclear Facility. What technique was used by the project manager in this case to manage the budget? Discuss the validity of the approach taken.