Two-Minute Drill

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Resources and the Project Work

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The project manager must know what resources are needed to complete the project work. How will the project ever be completed without the resources? The project manager must know the people, the equipment, materials, and other resources needed to make the vision of the project a reality.

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The resources also must be known so the project manager may predict, monitor, and control what the project costs are expected to be. The relation between the project vision and the needed resources can help the project manager work within the predicted costs.

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Resources to complete a project also include services, leases, real estate, and other components that contribute to the project work being completed.

Creating Project Estimates

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The identified resource requirements and the WBS are two key tools to identify what resources are needed for what component of the project. The cost of the resources help the project manager calculate the estimated costs based on the duration of the project activities or the amount of materials applied to the project.

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Analogous estimating uses a similar project to predict what the costs of the current project should be. It is less accurate, but easier and faster to complete than other methods.

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Bottom-up estimating starts with zero, and each component of the WBS is accounted for to reach a grand total of the project. It is the most accurate method, but it takes longer to complete.

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Parametric estimating uses a parameter for units of goods and time to calculate what the project will cost. For example, cost per hour, cost per metric ton, or cost per cubic yard.

Management Project Costs

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The cost management plan documents how the project manager will react to cost variances within the project. The performing organization will likely have policies and procedures on unacceptable variances.

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Variances that cross a given threshold may require the project manager to create a variance report to explain the variance, why it has happened, and what corrective action has been applied to prevent the variance from recurring.

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Cost control is the process of monitoring and documenting cost changes, whether they are allowed to occur or prevented from occurring. The project manager studies the cost changes to understand why the change has happened and then makes corrective actions to the project if needed.

Applying Earned Value Management

Earned value management is a method to measure project performance. The formulas we covered in this chapter are

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BAC=Our predicted budget at completion

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EV=%Complete X BAC

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PV= What the project should be worth at this point in the schedule

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AC=The actual costs of the project work to date

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CPI=EV/AC

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EAC=BAC/CPI

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ETC=EAC-AC

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Inside the Exam

The PMP examination requires the exam candidate to know how to estimate, budget, and manage costs. The WBS is an input to estimating costs, as it reflects the whole of the project. When creating the estimates, rely on documented historical information over team members’ recollections. There are three estimating approaches:

  • Analogous A top-down approach that is less costly and less accurate than others and provides just an idea of what the project will cost.

  • Bottom-up Starts with zero and adds up all the expenses. This is more costly and takes longer, but gains team buy-in to the project.

  • Parametric modeling Uses a parameter for labor and goods to calculate the cost of the project.

The accuracy of the estimates is based on available information. As the project manager and the project team progressively elaborate the project plan, more details become available. The more details a project has, the more accurate the estimate. Know these facts on estimating:

  • Rough order of magnitude The accuracy of the estimate is –25 percent to +75 percent and is used in the initiation process and in top-down estimating.

  • Budget estimate The accuracy of the estimate is –10 percent to +25 percent. This is used early in the planning process and also in top-down estimating.

  • Definitive estimate The accuracy of the estimate is –5 percent to +10 percent. This is used late in the planning process and in bottom-up estimating.

The resources on a project can include people, materials, and equipment. If the people on a project do not have the necessary skill set to complete the work, either hire an SME to guide the project implementation, outsource the project work, or train the current people for the needed skills.

Earned value management is a tool to measure project performance. Earned value is the budget at completion multiplied by the percentage of the project work that has been completed. The Cost Performance Index shows how well the project is performing financially. It is calculated by dividing EV by the actual costs spent on the project. Use the most common formula for finding the estimate at completion, EAC=BAC/CPI.

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PMP Project Management Professional Study Guide
PMP Project Management Professional Study Guide, Third Edition (Certification Press)
ISBN: 0071626735
EAN: 2147483647
Year: 2004
Pages: 209

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