Time, Resource, and Cost Management

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Integrated Project Management
By Earl Hall, Juliane Johnson
Table of Contents
Chapter 10.  Budget and Cost


Discussions of project management are often broken down into time management, resource management, and cost management. In IPM, these three considerations are all addressed in one package the project Gantt chart. A task leader in discussion with the task workgroup determines the individual task time. A project's time is displayed as the project manager and the team put these time estimates on the Gantt chart. Additional time management is involved when risk management is done, and the risk factors are added to the project's timeline. Using the risk factors to absorb task overruns must be thought of as part of time management.

Resource management is developed as task leaders report on the team members and other resources that will be needed for each task. This information is recorded on the Gantt chart. If project management software is used the software package captures the task resource requirements and can produce a family of reports identifying each resource that is scheduled to be used, when, how long and how intensely (that is, 100 percent per day used or less) it (they) will be needed, and how much the use of each resource will cost.

The resource utilization reports warn the project manager and the team if any resources are overscheduled (scheduled for more than 100 percent of the available time). Resources may be inadvertently overscheduled as the Gantt chart is being constructed. A check of the resource table immediately flags this error. (Microsoft Project 2002® software has several ways of showing this error. One way is immediately changing the color of the resource's display line on the resource table from black to red.) While building the project Gantt chart, the individual performing the data entry frequently checks the basic resource table. If a resource is overscheduled, the team can make instant adjustments.

When project execution is underway and one task overruns, causing a task member's time to be overscheduled, a resource overschedule warning is immediately flashed, and the task leader and the project manager make adjustments. Resource management is tremendously helped by the systems built into the project management software. Its only requirement is that as the Gantt chart is developed in planning and used in managing a project's execution; resource requirements are entered for every task. Entering resource requirements, task by task, when building the Gantt chart using Microsoft Project 2002® software, automatically builds the basic resource tables and reports. The cost of the project then is determined by the number of resources used. The software's resource screens provide entry points for recording the daily, weekly, or monthly rate of each resource. This is the basic information for the cost of the tasks. Rate times duration yields the cost of each resource used for a task.

Figure 10-1shows a Gantt chart for a very short project. Each task duration has been determined by the person(s) who will execute the task. The project begins on Monday, February 4. Task A takes three days and is executed by an engineer. This engineer is paid at the rate of $4,000.00 per month. Figure 10-2 shows this rate entered in the project's resource table. (The name of the project is "Budget Builder.") If 20 days is the standard of work days per month, and if the engineer works three days this month, the budgeted cost of this effort should be 3/20 x 400 = 600.When we turn to the cost table on the cost version of the Gantt chart, we find that without any instructions other than those previously noted, the software has calculated and posted $600.00 as the cost budgeted for this task. It has prorated the engineer's monthly salary in terms of the three days that he worked on the task and has attributed this prorated salary amount to the task. Each task is processed this way. Task B is a four-day task. A designer, who is paid $3,400 per month, and the engineer each work fulltime on this four-day task. The software calculates and posts $1,480.00 for this task: (4/20 x 3,400) + (4/20 x 4,000) = 1,480.The analyst who works two days in Task C is paid by the week: $600.00 per week. His two days of work on Task C are charged at 2/5 x 600 = 240.00. Machinists are paid hourly. We have an eight-hour day set up in the computer as our standard work day. Three machinists work for five days on Task G. Task G is budgeted at $2,220.00 (5 x 8 x 18.5 x 3 = 2,220).


Figure 10-1.

graphics/10fig01.gif



Figure 10-2.

graphics/10fig02.gif


Each task is budgeted according to the amount of time a worker (or workers) is scheduled to spend on it and the worker's rate. It does not matter whether the worker is paid monthly, weekly, or hourly, the software has a program that will prorate the worker's salary to the project according to the time spent working a job.

Table 10-1 shows one way that Microsoft Project 2002® calculates and totals up the cost of this project. The same figures can be displayed, task by task, on the cost version of the project's Gantt chart, which is produced in Microsoft Project 2002®.

The cost of the project, just as the time requirement of the project, is understated until the risk analysis is completed and the risk factor costs are included. The risk factor costs depend upon which tasks overrun and absorb the risk factor(s). Because we have no way of knowing in advance which tasks will overrun, the cost overruns that go along with time overruns absorbed by the risk factor have to be estimated. (Never neglect this. If you neglect it the baseline project cost will be understated.) One way of estimating the risk factor cost is to total up the task costs for all of the tasks that have been executed along the string of tasks used to determine the risk factor. (Be sure to use all of the tasks, not just the critical path tasks, from beginning to end of the sequence. Tasks that are not on the critical path add cost even if they do not extend the project's time.) Dividing this total by the number of days in the sequence gives the average cost per day for the sequence. Now take the number of days for the risk factor and multiply it by the average cost per day of the sequence of tasks. Add this to the baseline no risk cost calculation. It will give you a close cost projection for the actual project. In the example shown in Figure 10-1, the string of tasks lasts 19.5 days. The sum of the costs of the tasks in this string is $7,245. The average cost per day is $371.54, and there is a three-day risk factor. The approximate cost of the overrun that we expect is 3 x 372 = 1,116. In our budget, we add this cost to the cost of the project.

Table 10-1. Budget Report as of Sat 2/2/02 Budget Builder

ID

Task Name

Fixed Cost

Fixed Cost Accrual

Total Cost

Baseline

Variance

7

G

$0.00

Prorated

$2,220.00

$0.00

$2,220.00

2

B

$0.00

Prorated

$1,480.00

$0.00

$1,480.00

4

D

$0.00

Prorated

$1,020.00

$0.00

$1,020.00

1

A

$0.00

Prorated

$600.00

$0.00

$600.00

10

J

$0.00

Prorated

$480.00

$0.00

$480.00

9

I

$0.00

Prorated

$360.00

$0.00

$360.00

5

E

$0.00

Prorated

$350.00

$0.00

$350.00

8

H

$0.00

Prorated

$320.00

$0.00

$320.00

3

C

$0.00

Prorated

$240.00

$0.00

$240.00

6

F

$0.00

Prorated

$175.00

$0.00

$175.00

11

inspect

$0.00

Prorated

$0.00

$0.00

$0.00

12

Risk F

$0.00

Prorated

$0.00

$0.00

$0.00

   

$0.00

 

$7,245.00

$0.00

$7,245.00

Thus, as the Gantt chart is developed, the cost of the project can be directly determined. This determination comes at the end of project planning. However, the project manager and the team can watch it accruing if they add rates to the resource table as they go along.


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    Integrated Project Management
    Integrated Project Management
    ISBN: 0071466266
    EAN: 2147483647
    Year: 2005
    Pages: 190

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