Cost, Tutorial Assignment PDF

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Summary

This Assignment is part of a tutorial course in project management...

Description

152 Chapter 5 Estimating Project Times and Costs

clearly defining project objectives, scope, and specifications vastly improve time and cost estimate accuracy. How estimates are gathered and how they are used can affect their usefulness for planning and control. The team climate, organization culture, and organization structure can strongly influence the importance attached to time and cost estimates and how they are used in managing projects. Finally, large-scale mega projects like subway systems or football stadiums often suffer from underestimated costs and overestimated benefits. They also can evolve into “white elephants” in which the cost of maintenance exceeds benefits. Steps must be taken to remove bias and compare mega project estimates with similar projects that have been done in the past.

Key Terms

Apportionment, 137 Bottom-up estimates, 135 Delphi Method, 136 Direct costs, 145 Function points, 138 Learning curve, 139

Review Questions

1. Why are accurate estimates critical to effective project management? 2. How does the culture of an organization influence the quality of estimates? 3. What are the differences between bottom-up and top-down estimating approaches? Under what conditions would you prefer one over the other? 4. What are the major types of costs? Which costs are controllable by the project manager? 5. Why is it difficult to estimate mega project (e.g., airports, stadiums, etc.) costs and benefits? 6. Define what a “white elephant” is in project management. Provide a real-life example.

Exercises

1. Calculate the direct cost of labor for a project team member using the following data: Hourly rate: $40/hr Hours needed: 80 Overhead rate: 40% 2. Mrs. Tolstoy and her husband, Serge, are planning their dream house. The lot for the house sits high on a hill with a beautiful view of the Appalachian Mountains. The plans show the size of the house to be 2,900 square feet. The average price for a lot and house similar to this one has been $120 per square foot. Fortunately, Serge is a retired plumber and feels he can save money by installing the plumbing himself. Mrs. Tolstoy feels she can take care of the interior decorating.

Overhead costs, 145 Phase estimating, 141 Range estimating, 140 Ratio methods, 137 Reference class forecasting (RCF), 151

Template method, 140 Time and cost databases, 148 Top-down estimates, 134 White elephant, 149

Chapter 5 Estimating Project Times and Costs 153

The following average cost information is available from a local bank that makes loans to local contractors and dispenses progress payments to contractors when specific tasks are verified as complete. 24% Excavation and framing complete ฀ 8% Roof and fireplace complete ฀ 3% Wiring roughed in ฀ 6% Plumbing roughed in ฀ 5% Siding on 17% Windows, insulation, walks, plaster, and garage complete ฀ 9% Furnace installed ฀ 4% Plumbing fixtures installed 10% Exterior paint, light fixtures installed, finish hardware installed ฀ 6% Carpet and trim installed ฀ 4% Interior decorating ฀ 4% Floors laid and finished a. What is the estimated cost for the Tolstoys’ house if they use contractors to complete all of the house? b. Estimate what the cost of the house would be if the Tolstoys use their talents to do some of the work themselves. 3. Exercise Figure 5.1 is a project WBS with cost apportioned by percentages. If the total project cost is estimated to be $600,000, what are the estimated costs for the following deliverables? a. Design b. Programming c. In-house testing What weaknesses are inherent in this estimating approach? EXERCISE FIGURE 5.1

Router systems project Cost: $600,000

WBS Figure

Definition

Design

Implementation

10%

40%

50%

Objectives

Requirements

4%

6%

In-house testing

Customer testing & review

40%

10%

Inputs

Outputs

Files

Interfaces

Programming

3%

3%

4%

10%

20%

154

Chapter 5 Estimating Project Times and Costs

4. Firewall Project XT. Using the “complexity weighting” scheme shown in Table 5.3 and the function point complexity weight table shown below, estimate the total function point count. Assume historical data suggest five function points equal one person a month and six people can work on the project. Complexity Weight Table Number of inputs Number of outputs Number of inquiries Number of files Number of interfaces

    10 20     10 30 50

Rated complexity low Rated complexity average Rated complexity average Rated complexity high Rated complexity high

a. What is the estimated project duration? b. If 20 people are available for the project, what is the estimated project duration? c. If the project must be completed in six months, how many people will be needed for the project?

References

Buehler, R., D. Griffin, and M. Ross, “Exploring the ‘Planning Fallacy’: Why People Underestimate Their Task Completion Times,” Journal of Personality and Social Psychology, vol. 67, no. 3 (1994), pp. 366–81. Dalkey, N. C., D. L. Rourke, R. Lewis, and D. Snyder, Studies in the Quality of Life: Delphi and Decision Making (Lexington, MA: Lexington Books, 1972). Flyvbjerg, Bent, “From Nobel Prize to Project Management: Getting Risks Right,” Project Management Journal, August 2006, pp. 5–15. Flyvbjerg, Bent, “Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice,” European Planning Studies, vol. 16, no. 1 (January 2008), pp. 3–21. Flyvbjerg, Bent, N. Bruzelius, and W. Rothengatter, Mega Projects and Risk: An Anatomy of Ambition (Cambridge Press, 2003). Flyvbjerg, B., “What You Should Know about Megaprojects and Why: An Overview,”฀Project Management Journal, vol. 45, no. 2 (April/May 2014), pp. 6–19. Gray, N. S., “Secrets to Creating the Elusive ‘Accurate Estimate,’” PM Network, vol.฀15, no. 8 (August 2001), p. 56. Hirschman. A. O., “The Principle of the Hiding Hand,”฀The Public Interest, Winter 1967, pp. 10–23. Jeffery, R., G. C. Low, and M. Barnes, “A Comparison of Function Point Counting Techniques,” IEEE Transactions on Software Engineering,฀vol. 19, no. 5 (1993), pp. 529–32. Jones, C., Applied Software Measurement (New York: McGraw-Hill, 1991). Jones, C., Estimating Software Costs (New York: McGraw-Hill, 1998). Kharbanda, O. P., and J. K. Pinto, What Made Gertie Gallop: Learning from Project Failures (New York: Von Nostrand Reinhold, 1996)....