6 - Project Costs and
Quality
Friday, 15 May 2020 3:31 PM
IT Project: Budget Management
• A budget is set during the business case stage when the
decide to go ahead with the project or not
○ If they do decide to go ahead, they basically say, okay
based on your estimates we agree that we will set this
much money aside for the project and that's its budget
○ From then on, the budget has to be managed
Project Budget
- Detailed estimate of all the costs required to complete
project tasks
- By now we know the:
○ List of tasks (from WBS)
○ Sequence of tasks (from precedence diagram)
○ Time to complete the tasks
○ Resources required to complete the tasks
- Then we need to determine the budget as a bottom-up
exercise
○ Starting at the task/activity level
Notes:
- The budget can be considered a very blunt instrument in
terms of managing just one big number
○ So we need to break it down into pieces where we can
manage the pieces in terms of cost
○ The obvious pieces we've bee looking at are the project
tasks that emerged from the WBS
§ Know by this stage:
□ List of tasks
□ Sequence that the tasks are constrained by
in terms of what order they do in ->
retrieved this from the precedence diagram
□ Estimated time required to complete each
of the tasks
□ What resources are required -> especially
the human resources ie who is going to do
the tasks AND how many resources do
have available that will also hinge on the
, □ Estimated time required to complete each
of the tasks
□ What resources are required -> especially
the human resources ie who is going to do
the tasks AND how many resources do
have available that will also hinge on the
completion of the project
§ Can work bottom up to determine what the
budget should be
Developing the Project Budget
For each task/activity
- What are the required resources?
- What quantity of resources are required
- What is the unit cost of each resource
THEN
- We can calculate the estimated cost of the activity
- Ensure the resources are levelled
○ Eg. Avoiding an over allocated staff member
Notes:
- How do we develop the budget? We go right back to the
business case
○ Although note that the business case doesn’t go into
that much detail -> have to be able to provide enough
for them to decide whether they want to go ahead with
the project or not
○ Can't really get into the deep stuff in terms of setting
costs until you've been able to do the WBS
§ Something that you do once you've committed to
the project -> a lot of information you have to
gather to be able to do that
- This is a more detailed approach at looking at what's going to
make up that budget
○ Involves a series of questions that need to be answered
- Once we've broken it down to each task and we have all the
other information about tasks, then we can ask:
○ What are the required resources
○ What quantity of those resources are required
○ What is the unit cost of each resource
- Once we have all of that, we can calculate the estimated cost
of the activity and then ensure that the resources are leveled
low
- "Ensure the resources are levelled" is an interesting step
○ One task requires certain resources, for example
people
, - Once we have all of that, we can calculate the estimated cost
of the activity and then ensure that the resources are leveled
low
- "Ensure the resources are levelled" is an interesting step
○ One task requires certain resources, for example
people
○ Another task requires resources that may involve some
of those same people
○ You can't assume that those people can do both sets of
tasks simultaneously within the same amount of
time -> so you need to balance those resources if
theyre going to be shared across tasks
Developing the Project Budget…Other Costs
Direct costs
- The direct cost of labour or other resources
Indirect costs
- The cost for covering such things as rent, utilities, insurance
etc
- We have a project team and that team has to live
somewhere, they occupy space
- They use utilities and not all those utilities are simply directed
to the project -> could be kitchen facilities etc
Sunk costs
- Costs incurred prior to the project, such as a project that has
been restarted after a failed attempt
- Really important cost -> is basically a cost that you've already
used up
○ Might be a certain way through the project and you've
spent the money
○ Has nothing to do with the money we haven't spent
from the budget yet
- Why is this important?
○ When we come into trouble -> sometimes the project
may be running into such serious trouble that we're
going to fall way behind in terms of schedule
○ May also fall behind in terms of budget planning and if
its looking like its going to basically blow out, in terms
of cost and time, we may have to go back to the people
who govern the project
§ This might be the steering committee
§ May have to ask the senior people (including the
project sponsor) about what to do -> are we just
going to wear the cost?
□ Need to consider the risk that the project
Quality
Friday, 15 May 2020 3:31 PM
IT Project: Budget Management
• A budget is set during the business case stage when the
decide to go ahead with the project or not
○ If they do decide to go ahead, they basically say, okay
based on your estimates we agree that we will set this
much money aside for the project and that's its budget
○ From then on, the budget has to be managed
Project Budget
- Detailed estimate of all the costs required to complete
project tasks
- By now we know the:
○ List of tasks (from WBS)
○ Sequence of tasks (from precedence diagram)
○ Time to complete the tasks
○ Resources required to complete the tasks
- Then we need to determine the budget as a bottom-up
exercise
○ Starting at the task/activity level
Notes:
- The budget can be considered a very blunt instrument in
terms of managing just one big number
○ So we need to break it down into pieces where we can
manage the pieces in terms of cost
○ The obvious pieces we've bee looking at are the project
tasks that emerged from the WBS
§ Know by this stage:
□ List of tasks
□ Sequence that the tasks are constrained by
in terms of what order they do in ->
retrieved this from the precedence diagram
□ Estimated time required to complete each
of the tasks
□ What resources are required -> especially
the human resources ie who is going to do
the tasks AND how many resources do
have available that will also hinge on the
, □ Estimated time required to complete each
of the tasks
□ What resources are required -> especially
the human resources ie who is going to do
the tasks AND how many resources do
have available that will also hinge on the
completion of the project
§ Can work bottom up to determine what the
budget should be
Developing the Project Budget
For each task/activity
- What are the required resources?
- What quantity of resources are required
- What is the unit cost of each resource
THEN
- We can calculate the estimated cost of the activity
- Ensure the resources are levelled
○ Eg. Avoiding an over allocated staff member
Notes:
- How do we develop the budget? We go right back to the
business case
○ Although note that the business case doesn’t go into
that much detail -> have to be able to provide enough
for them to decide whether they want to go ahead with
the project or not
○ Can't really get into the deep stuff in terms of setting
costs until you've been able to do the WBS
§ Something that you do once you've committed to
the project -> a lot of information you have to
gather to be able to do that
- This is a more detailed approach at looking at what's going to
make up that budget
○ Involves a series of questions that need to be answered
- Once we've broken it down to each task and we have all the
other information about tasks, then we can ask:
○ What are the required resources
○ What quantity of those resources are required
○ What is the unit cost of each resource
- Once we have all of that, we can calculate the estimated cost
of the activity and then ensure that the resources are leveled
low
- "Ensure the resources are levelled" is an interesting step
○ One task requires certain resources, for example
people
, - Once we have all of that, we can calculate the estimated cost
of the activity and then ensure that the resources are leveled
low
- "Ensure the resources are levelled" is an interesting step
○ One task requires certain resources, for example
people
○ Another task requires resources that may involve some
of those same people
○ You can't assume that those people can do both sets of
tasks simultaneously within the same amount of
time -> so you need to balance those resources if
theyre going to be shared across tasks
Developing the Project Budget…Other Costs
Direct costs
- The direct cost of labour or other resources
Indirect costs
- The cost for covering such things as rent, utilities, insurance
etc
- We have a project team and that team has to live
somewhere, they occupy space
- They use utilities and not all those utilities are simply directed
to the project -> could be kitchen facilities etc
Sunk costs
- Costs incurred prior to the project, such as a project that has
been restarted after a failed attempt
- Really important cost -> is basically a cost that you've already
used up
○ Might be a certain way through the project and you've
spent the money
○ Has nothing to do with the money we haven't spent
from the budget yet
- Why is this important?
○ When we come into trouble -> sometimes the project
may be running into such serious trouble that we're
going to fall way behind in terms of schedule
○ May also fall behind in terms of budget planning and if
its looking like its going to basically blow out, in terms
of cost and time, we may have to go back to the people
who govern the project
§ This might be the steering committee
§ May have to ask the senior people (including the
project sponsor) about what to do -> are we just
going to wear the cost?
□ Need to consider the risk that the project
