Lab 6 30360416 - dgffgf PDF

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Lab 6 1. Define the following cost management terms profits, profit margin, life-cycle costing, cash flow analysis, tangible costs, tangible benefits, intangible costs, intangible benefits, direct costs, indirect costs, sunk cost, learning curve theory, reserves, contingency reserves, and management reserves. Ans. Cost management terms profits: Includes the process required to ensure that the project is completed within an approved budget. Moreover, cost is a resource sacrificed or foregone to achieve a specific objective, or something given up in exchange. 2. Profit margin: Profit margin, net margin, net profit margin or net profit ratio is a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue 3. Life-cycle costing: It is also known as Whole-cycle costing which involves the process of estimating the money that need to be spend on an asset during the course of its useful life. It tracks and accumulates the actual costs and revenues attributable to cost object from its invention to its abandonment. 4. Cash flow analysis: The cash flow Analysis refers to the examination or analysis of the different inflows of the cash to the company and the outflow of the cash from the company during the period under consideration from the different activities which include operating activities, investing activities and financing activities. 5. tangible costs: A tangible cost is a quantifiable cost related to an identifiable source or asset. Tangible costs can be directly connected to a material item used in production or to conduct business operations. 6. Tangible benefits: Tangible benefits are those listed by the company in a quantifiable form. Such benefits usually are contractual items, such as paid time off, insurance costs, salary and profit sharing. 7. Intangible costs: An intangible cost is an unquantifiable cost emanating from an identifiable source that can impact, usually negatively, overall company performance. Many intangible costs arise from causes that are social, legal, or political - rather than being material in nature. Ignoring intangible costs can have a significant effect on a company's performance. 8. Direct costs:A direct cost is a price that can be directly tied to the production of specific goods or services. A direct cost can be traced to the cost object, which can be a service, product, or department. Direct and indirect costs are the two major types of expenses or costs that companies can incur. 9. Indirect costs:Indirect costs are costs that are not directly accountable to a cost object (such as a particular project, facility, function or product). Indirect costs may be either fixed or variable. Indirect costs include administration, personnel and security costs. 10. Sunk cost:; a sunk cost is a cost that has already been incurred and cannot be

recovered.Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken. 11. learning curve theory: A learning curve is a concept that graphically depicts the relationship between the cost and output over a defined period of time, normally to represent the repetitive task of an employee or worker. 12. contingency reserves: A provision within the Budget and forward estimates for items that either cannot or should not (generally for reasons of commercial sensitivity) be allocated to specific programmes at the time of publication. 13. management reserves.Management Reserve (MR) is the amount of the Total Allocated Budget (TAB) withheld for management control purposes, rather than designated for the accomplishment of a specific task or set of tasks. 2. Discuss why many information technology professionals may overlook project cost management and how this might affect completing projects within budget. Why must IT professionals learn to speak cost management language? Ans. To manage the cost in project is really a complicated.Estimating the various costs that go into an IT project is extremely difficult todo the start. This is an important factor to consider when analyzing the success of costmanagement practices on a particular project, because final costs are measured against the initial estimate.

3. Give examples of when you would prepare rough order of magnitude, budgetary, and definitive cost estimates for an information technology project. Give an example of using each of the following techniques for creating a cost estimate expert judgment, analogous, parametric, bottom-up, and three-point estimates. Ans. ROM estimates are very early in the project life or even before the project. They are done to helpselection decisions, but they are typically inaccurate. Budgetary estimates are still relatively early butfollow ROM estimates. These tend to put actual dollars in the budget for the project costs. Then thereare definitive costs which are normally done later in the project. These are much more precise estimatesof actual cost for the projects. Analogous is also called a top-down estimate. It uses the cost of aprevious project and estimates what the cost of the current project would be.

4. Prepare a cost model, for the following 6 month (24 week) “Rec Centre Web Development Project”. The total cost estimate should be $210,000. 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? Use Table 1 (at end)

a. assume all work a 38 hour week @ 7.6 h/day (pro-rata)

a. assume project manager works on project management tasks only for 2 days p/wk @ $100.00 p/hr a. assume project team is composed of 3 members @ 60 p/hr, available:

· 0.5 day p/wk on project management tasks · 4.5 days p/wk on product related deliverable a. assume all product related activities have F-S relationship a. assume requirements definition will take a week to complete in week 1

a. assume web site design activities will take 1.5 weeks to complete commencing in week 2

a. assume web site development activities will take 3 weeks to complete a. assume testing will take 2 weeks

a. assume training and support will take 3 weeks to complete

b.

Work Breakdown Structure – Rec Centre Web Development Project

1.

Project management

1.

Requirements definition

1.

Web site design

1.

1.

Registration for recreational programs

1.

Registration for classes and programs

1.

Tracking system

1.

Incentive system

Web site development

1.

Registration for recreational programs

1.

Registration for classes and programs

1.

Tracking system

1.

Incentive system

1.

Testing

1.

Training, roll out, and support Ans. – Rec

Centre Web Development Project

1.0 Project management 2.0 Requirements definition

3.0 Web site design 3.1 Registration for recreational programs 3.2 Registration for classes and programs 3.3 Tracking system 3.4 Incentive system 4.0 Web site development 4.1 Registration for recreational programs 4.2 Registration for classes and programs 4.3 Tracking system 4.4 Incentive system 5.0 Testing 6.0 Training, roll out, and support Ans

5.Using the cost model you created above, prepare a cost baseline by allocating the costs by WBS for each month of the project. Use TABLE 2 (at end) Ans

5. Assume you have completed three months of the project. The BAC was $200,000 for this six-month project. Also assume the following, and answer the questions below. Term

Formula

Calculation

planned value (PV)

PV

$120,000

earned value (EV)

EV

$100,000

actual cost (AC)

AC

$90,000

budget at completion (BAC)

BAC

$200,000

cost variance (CV)

CV = EV – AC

$100,000 - $90,000 = $10,000

schedule variance

SV = EV – PV

$100,000 - $120,000 = ($20,000)

cost performance index (CPI)

CPI = EV / AC

$100,000 / $90,000 = 111% or 1.11

schedule performance index (SPI)

SPI = EV / PV

$100,000 / $120,000 = 83% or 0.83

estimate at completion (EAC)

EAC = BAC / CPI

$200,000 / 1.11 = $180,180.18

A. How is the project doing? Is it ahead of schedule or behind schedule? Is it under budget or over budget? Ans. This project is doing good. Its behind the schedule.It shows$10,000 budget surplus and $20,000 loss of schedule variance.

B. Review the estimate at completion (EAC) figure for this project. Is the project performing better or worse than planned? Ans. EAC = $180,180.18 This project is performing good. It shows that the project will be finished in $180,180.18 g and the rest of the amount will be saved. So, it is going better than planned.

C. Review the schedule performance index (SPI) figure for this project. How long it will take to finish this project? Ans. The SPI =0.83. The project will take more than 6 months to complete. Also, 1.02 months more would be taken than the planned schedule. So, almost 7.03months would be taken to complete the project....