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EP 702 Unit 7

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Title: EP 702 Unit 7


1
EP 702Unit 7
  • Cost Management

Dr. J. Michael Bennett, P. Eng., PMP UNENE,
McMaster University, The University of Western
Ontario Version 2K6-X-10
2
Revisions
  • 2K6-X-10 Initial Creation

3
EP 704 Road Map
  • Unit 1 Introduction to Project Management
  • Unit 2 The Project Management Context
  • Unit 3 Project Management Processes
  • Unit 4 Project Integration Management
  • Unit 5 Project Scope Management
  • Unit 6 Project Time Management
  • Unit 7 Project Cost Management
  • Unit 8 Project Quality Management
  • Unit 9 Project Human Resource Management
  • Unit 10 Project Communications Management
  • Unit 11 Project Risk Management
  • Unit 12 Project Procurement Management

4
Unit 7
  • Includes all of the processes necessary to plan,
    estimate, budget and control costs
  • Normally this is one area in which the Org excels
  • Main Areas are
  • 7.1 Cost Estimating
  • 7.2 Cost Budgeting
  • 7.3 Cost Control
  • 7.4 MCCP
  • 7.5 Productivity Measures
  • 7.6 Cost Overrun Causes

5
PCM
  • Primarily concerned with the cost of resources
    necessary to get the work done.
  • Note that 6 and 7 are often combined as a single
    activity.
  • Can also consider the effect of changes on the
    final product (life cycle costing or TCO).
  • Note that the Cost Management Plan flows out of
    the PMP development (again iterated elaboration)

6
Cost Management Plan
  • Precision Level of data (rounding for example)
  • Units of measure
  • Org Procedures linkages
  • Control Thresholds
  • Earned Value Rules
  • Reporting Formats
  • Process Descriptions

7
History, Org Policies
Marketplace conditions Commercial databases
Project Scope Stmt
Project Management Plan
Cost Management Plan
Approved Change Reqs
WBS Dictionary
Activity Cost Estimates detail
Contract
CMP updates Requested Changes
Requested Changes, CMP UPs
Resource Calendar
Cost baseline Project funding reqs
Proj Schedule
Performance Reports
PMP UDs, Requested Changes
Work Performance Information
Cost Est UDs, Perf Measurements, Forecasted
Completion
OPA updates
8
PMI Project Cost Management
7.1 Cost Estimation .1 Inputs .1 EEF .2
OPA . 3 Scope Statement .4 WBS .5
WBS Dictionary .6 PMP .2 Tools and
Techniques .1 Analogous Estimating .2
Determine resource cost rate .3 Bottom-up
Estimating .4 Parametric Estimating .5
PMP Software .6 Vendor Bid Analysis .7
Reserve Analysis .8 Cost of Quality .3
Output . 1 Activity Cost Estimates
.2 ACE Supporting Detail . 3 Requested
Changes .4 Cost Man Plans UDs
7.3 Cost Control .1 Inputs .1 Cost Baseline
.2 Project Funding Requirements .3
Performance Reports .4 Work Performance
Information .5 Approved Change Requests
.6 PMP .2 Tools and Techniques . 1 Cost CCS
.2 Performance Measurement Ana .3
Forecasting .4 Project Performance Reviews
.5 PM Software .6 Variance Management .3
Output .1 Cost Estimates (UDs) .2
Cost Baseline (UDs) .3 Performance
Measurements .4 Forecasted Completion
.5 Requested Changes .6 Recommended
Corrective Actions .7 OPAs (UDs0 .8 PMP
(UDs)
7.2 Cost Budgeting .1 Inputs .1 Scope
Statement .2 WBS .3 WBD Dictionary
.4 ACEs .5 ACE Supporting Detail .6
Project Schedule .7 Resource Calendars
.8 Contract .9 Cost Management Plan .2 Tools
and Techniques .1 Cost Aggregation .2
Reserve Analysis .3 Parametric Estimating
.4 Funding Limit Reconciliation .3 Output
.1 Cost Baseline .2 Project Funding
Requirements .3 CMP (Updates) .4
Requested Changes
9
7.1 Cost Estimating
1 Analogous Esting 2 Resource Cost Rate 3
Bottom-up Esting 4 Parametric Esting 5 PMP
Software 6 Vendor Bid Analysis 7 Reserve
Analysis 8 Cost of Quality

1 EEF 2 OPA 3 Scope Statement 4 WBS 5 WBS
Dictionary 6 PMP
1 Activity Cost Ests 2 Supporting Detail 3
Requested Changes 4 Cost Man Plans uds

10
7.1.1 Inputs to Cost Estimating
  • 1 EEF
  • 2 OPA
  • 3 Scope Statement
  • 4 WBS
  • 5 WBS Dictionary
  • 6 PMP

11
1 EEF
  • CEP considers
  • Marketplace Conditions
  • Commercial Databases

12
2 OPA
  • Cost Estimating Policies
  • Cost Estimation templates
  • Historical Information
  • Project Files
  • Project Team Knowledge
  • Lessons Learned

13
3 Scope Statement
  • This hones the budget process
  • A normal constraint is the fixed budget
  • Assumptions may lead to legal ramifications

14
6 Schedule Management Plan
  • Need this to cost out activities appropriately
  • May have to worry about the cost of financing
  • Materials may have seasonal cost variations
  • Same with human resource costing (cf Alberta
    right now)

15
Cost Management
  • Three main processes will occur at least once in
    EACH phase
  • Note the better approach of using Life Cycle
    Costing (aka TCO)
  • Need to separate controllable and
    non-controllable costs if a reward system is in
    place
  • Example of overtime costs

16
Smallies
  • Resource planning, cost estimating and cost
    budgeting are often combined on small projects
    (they are so tightly integrated)

17
General Comments
  • Ability to influence cost is highest earliest in
    the project
  • Need scope and requirements done first and ASAP!

18
Assumptions
  • The 10 economy! If we had 0 for the 3 years, we
    would have made 100K on our investment or 20
  • The assumed income projections. Where did they
    come from and how realistic are they?

19
7.1.2 TT for Cost Estimating
  • 1 Analogous Estimating
  • 2 Resource Cost Rate
  • 3 Bottom-up Estimating
  • 4 Parametric Estimating
  • 5 PMP Software
  • 6 Vendor Bid Analysis
  • 7 Reserve Analysis
  • 8 Cost of Quality

20
1 Analogous Estimating
  • Also called top-down
  • Compare against a similar project
  • Is another form of Expert Judgment
  • Used when we have little information to work
    with, normally at the beginning of the project
  • Least costly of the 5 methods but least accurate
  • Most accurate when the projects really are
    similar and/or people really are experts

21
Comparison (after Kerzner).
22
Internal Rate of Return (IRR)
  • What is the nominal percentage that this
    investment will return?
  • Find the interest rate at which the
    NPVProjectCost
  • Can be done with Excel and iteration
  • Not so common now

23
Return on Investment (ROI)
  • measure of the efficiency of the investment
  • calculated as(total benefits - total costs) x
    100 / total costs

24
Growing Importance of ROIIW 2001-VIII-08, survey
of 200 IT Professionals
25
Measuring PaybackIW 2001-VIII-08, survey of 200
IT Professionals
Q Does your company have formal ROI or informal
payback scenarios?
26
ROI vs. IntangiblesIW 2001-VIII-08, survey of
200 IT Professionals
27
Is ROI Targeted?IW 2001-VIII-08, survey of 200
IT Professionals
28
Breakeven-Payback
  • date when cumulative benefit flow exceeds
    cumulative costs flow
  • normally expressed in months

29
Traditional Cost Reduction Approaches
  • Cost displacement - cost avoidance
  • Work Value Analysis
  • Cost of quality

30
Cost Displacement - Cost Avoidance
  • compares the cost for the proposed system against
    the replaced one
  • most common way to justify IT projects
  • used for CPUs for years

31
Work Value Analysis
  • permits white collar workers to do more
    profitable work
  • increases efficiency of doing same work
  • permits higher valued work to be done
  • Sassone estimates 15 can be saved by such
    recalibration and increase of intellectual
    specialization

32
2 Determine Resource Cost Rate
  • Must know the unit cost rates (staff cost per
    hour, FPPM, cost per cubic meter etc)
  • Get quotes from vendors
  • Normally for stock items, there are standard
    rates plus inflation factors.
  • Can use commercial sources
  • If not, you must estimate and justify the
    estimates

33
3 Bottom Up Estimating
  • Start at the bottom of the WBS and roll up
  • Normally we can estimate very accurately in the
    small
  • Assumes that we have done sufficient breakdown so
    that we can so estimate

34
2 Parametric Estimating
  • Uses a mathematical (arithmetical?) model to
    estimate
  • FPs are a PE method
  • Works best when the method has been used for a
    long time (construction)
  • Great if the model is scalable

35
6 Vendor Bid Analysis
  • Check out the various bids. Are they consistent?
  • If we are bidding and get a contract, may have to
    do additional work to justify the final project
    cost.

36
7 Reserve Analysis
  • Many cost estimators add in the reserve (or
    contingency fund) as part of the project cost
    which of course make it higher.
  • This is the known unknown (risks anticipated but
    not known for certain).
  • Sometimes, all of the K-Us are aggregated into a
    single activity item with zero time duration.

37
8 Cost of Quality
  • Based on observation that organizational
    resources can be split into value-added
    services and cost-of-quality activities.
  • CoQ include costs associated with LACK of quality
  • Reducing quality costs can save a bundle. Good
    justifier!

38
7.1.3 Cost Estimating Outputs
  • 1 Activity Cost Estimates
  • 2 Activity Cost Supporting Detail
  • 3 Requested Changes
  • 4 Cost Management Plans updates

39
1 Activity Cost Estimates
  • A quantitative assessment of the likely costs of
    the resources to complete the work activity
  • Can be in summary or detailed form
  • Can include
  • Labour
  • Materials
  • Equipment
  • Services
  • Facilities
  • IT
  • Inflation allowance
  • Contingency reserve

40
2 Activity Cost Supporting Detail
  • Catch-all to include all information necessary to
    understand, the costing of the scheduled activity
  • Description of the activitys scope of work
  • Documentation of how the estimate was developed
  • Documentation of all assumptions made
  • Documentation of all constraints
  • Indication of the range of the estimates ()

41
7.2 Cost Budgeting
  • Involves aggregating the estimated costs of all
    the work packages to establish a cost baseline.
  • The Scope Statement provides the summary budget.
  • But these are necessary before detailed budget
    requests and work authorization can occur.

42
7.2 Cost Budgeting
1 Scope Statement 2 WBS 3 WBD Dictionary 4 ACEs 5
Supping Detail 6 Project Schedule 7 Res
Calendars 8 Contract 9 Cost Man Plan
1 Cost Aggregn 2 Reserve Analysis 3 Parametric
Estg 4 Funding Limit Reconciliation
1 Cost Baseline 2 Project Funding Rs 3 CMP
(Updates) 4 Requested Changes

43
7.2.1 Cost Budgeting Inputs
  • 1 Scope Statement
  • 2 WBS
  • 3 WBD Dictionary
  • 4 ACEs
  • 5 ACE Supporting Detail
  • 6 Project Schedule
  • 7 Resource Calendars
  • 8 Contract
  • 9 Cost Man Plan

44
7.2.2 Cost Budgeting Tools Techniques
  • 1 Cost Aggregation
  • 2 Reserve Analysis
  • 3 Parametric Estimating
  • 4 Funding Limit Reconciliation

45
.5 Methods of Costing
  • 5.1 Time-based Measures
  • 5.2 New Strategic (non-) Initiatives

46
Time-based Cost Approaches
  • Net Present Value (NPV)
  • Internal Rate-of-Return (IRR)
  • Return on Investment (ROI)
  • Breakeven/Payback

47
Net Present Value
  • the value today of a future payment discounted at
    an assumed rate
  • if that rate is positive, will make money
  • also called the Discounted Cash Flow

48
NPV Example
  • We will make 100K in a year
  • That amount today must be discounted by 10
  • For example, if we invested 100K at 10, in a
    year it would be worth 110K
  • Therefore the NPV of 100K in a year at 10 is
    100,000/(10.1) 90,909.
  • The NPV of 100K in 2 years at 10 is
    100,000/(10.1)2 84,645.

49
NPV Example
  • Suppose that a project will cost 500K and take a
    year to build
  • In years 2,3 and 4, it will return 100K, 200K and
    300K
  • Assume a 10 economy (that is, the cost of living
    is estimated to be 10 per year)
  • Question should we do the project?

50
Example cont
  • NPV 100000/1.1 200000/(1.1)2 300000/(1.1)3
    909,090 165,289 225,394 481,593
  • Project costs 500K and will only earn 482K
  • CAN IT

51
.5.2 New Strategic (non-) Approaches
  • Options Values
  • Technological Values
  • Business Objectives
  • Competitive Advantage
  • Research and Development

52
Options Values
  • assigns values to options
  • think of it as a tree of decisions
  • very hard to do but necessary for long-termed
    decisions such as data bases, communications,
    etc.
  • OV are rejected by NPV approaches

53
Technological Values
  • needed to provide infrastructure
  • hard to justify economic payback but mandatory
    for survival
  • installation of a LAN, for example
  • WAN for decentralization
  • e.g..., installing fiber-optics backbone for
    client-server Business Line

54
Business Objectives
  • justifying IT expenditure against business
    alignment (as we have seen)

55
Competitive Advantages
  • Can the project build in switching costs?
  • Can the project change the basis of competition?
  • Can the project change the balance of power in
    supplier relationships?
  • Can the project generate new products?
  • Can we do it cheaper?
  • Can we delight our clients?

56
Examples
  • Canada Trust
  • Bell Mobility

57
Competitive Advantages cont.
  • Some suggestions for positioning the project for
    competitive advantage
  • target the project to core business drivers
  • examine core drivers from the customers
    perspective
  • look for advantage to come from infrastructure
    initiatives rather than individual Business Lines
  • assess options in terms of the time for an
    opportunity to become a necessity

58
7.2.3 Outputs from Cost Estimating
  • 1 Cost estimates
  • 2 Supporting detail
  • 3 Cost management plan

59
1 Cost Estimates
  • are quantitative estimates normally expressed in
  • Every cost must be estimated
  • If there are guidelines, follow them

60
Classes of Estimates (after Kerzner)
61
Classes of Estimates (AACE)
62
1 Cost Aggregation
  • These begin at the WP level and are rolled up to
    higher levels of the WBS to be assigned to
    Control Accounts (and ultimately for the whole
    project)

63
.7 Chart of Accounts
  • Coding structure by which we group expenses
  • Can be per phase
  • Per step of development process
  • will be defined by the bean counters but VIP

64
2 Reserve Analysis
  • Must calculate the management reserves (for
    unknown unknowns).
  • Not part of the project cost baseline but are
    included in the budget.
  • Not used for EV calculations.
  • PM must get approval to apply these from the PHB.

65
3 Parametric Estimating
  • Used to build a mathematical model
  • Simple cost per square meter for house
    construction
  • Complex software model that used 13 factors, 5
    sub factors for each)
  • Most likely reliable is
  • Historical data is accurate
  • Parameters are reliably quantifiable
  • Model can be scaled (look out!)

66
4 Funding Limit Reconciliation
  • A Quandary
  • You do not want to allocate all the resources
    (waterfall)
  • BUUUT, you want to allocate smoothly so that the
    work will not be stalled.
  • FLR tries to find the optimal solution here.

67
7.2.3 Cost Budgeting Outputs
  • 1 Cost Baseline
  • 2 Project Funding Requirements
  • 3 CMP (Updates)
  • 4 Requested Changes

68
1 Cost Baseline
  • The time-phased budget that is used for EV
    control
  • Normally S-based curve
  • Can have many sub cost baselines in large
    projects (for contractors, etc)

69
Risks
  • Need to consider risks at this point too
  • Risks can have a significant impact of cost if
    they raise their hydra heads

70
2 Project Funding Requirements
  • These flow from the Cost Baseline in an orderly
    fashion, to ensure enough money is available to
    continue the work

71
Committed versus Spent (typical)Visualizing PM
Forsberg et al
Funding Requirements
85
70
04
10
40
72
7.3 Cost Control
1 Cost Ests (UDs) 2 Cost BL (UDs) 3 Perf
Meass 4 Forecast Finish 5 Reqd Changes 6 Recd
Corr Actions 7 OPAs (UDs) 8 PMP (UDs)
1 Cost CCS 2 Perf Meas Ana 3 Forecasting 4 Proj
Perf Revs 5 PM Software 6 Variance Man
1 Cost Baseline 2 Proj Funding Reqs 3 Performance
Reports 4 Work Perf. Info. 5 Approved CRs 6 PMP

73
Purpose of Cost Control
  • Influencing the factors that create changes to
    the cost baseline to make sure the changes are
    acceptable
  • Determine that the cost baseline has changed
  • Make the changes in a controlled manner

74
Cost Control includes
  • Influencing factors that can change the BL
  • Ensuring requested changes are agreed on
  • Managing the actual changes
  • Assuring that cost overruns do not exceed
    authorized funding
  • Monitoring and understanding cost variances
  • Recording all changes against the BL.
  • Informing all stakeholders of changes
  • Acting to be sure cost overruns are contained

75
Activities of Cost Control
  • Monitoring the cost performance (EV)
  • Ensuring that all approved changes are reported
    in the Cost Baseline
  • Pre venting unauthorized, incorrect,
    inappropriate costs from being incurred
  • Informing stakeholders (as appropriate) about the
    changes
  • Keeping expected costs within limits

76
3 Work Performance Reports
  • Data collected includes at least
  • Deliverables done and undone
  • Costs authorized and incurred
  • Estimates to complete the schedule activities
  • complete of the schedule activities

77
7.3.2 Cost Control Tools Techniques
  • 1 Cost Change Control System
  • 2 Performance Measurement Analysis
  • 3 Forecasting
  • 4 Project Performance Reviews
  • 5 PM Software
  • 6 Variance Management

78
1 Cost Change Control System
  • Defines the procedures under which the BL is to
    be changed (comes from CMP).
  • Includes all forms, authorizations, tracking
    systems

79
2 Performance Measurement Analysis
  • Must collect
  • PV planned value
  • EV Earned value
  • AC Actual Cost
  • ETC Estimate to Complete
  • CV Cost Variance (CVEV-AC)
  • SV - Schedule Variance (SVEV-PV)
  • CPI Cost Performance Index EV/AC SPIEV/PV
  • Cumulative CPI (CPIC) S (EVC/ACC)

C1,N
80
3 Forecasting
  • Trickery trickery trickery
  • ETC based on atypicals BAC-EVC
  • ETC based on typicals (BAC-EVC)/CPIC
  • Also use EAC ACC ETC
  • Or EAC ACC (BAC EV)
  • Or EAC ACC (BAC EV)/CPIC

81
4 Project Performance Reviews
  • Variance Analysis
  • Trend Analysis
  • Earned Value Technique

82
5 PM Software
  • This automatically tracks variance and EV

83
6 Variance Management
  • Describes how we will manage variances
  • Note that they are larger at the beginning than
    at the end

84
7.3.3 Cost Controls Outputs
  • 1 Cost Estimates (UDs)
  • 2 Cost Baseline (UDs)
  • 3 Performance Measurements
  • 4 Forecast Finish
  • 5 Required Changes
  • 6 Recommended Corrective Actions
  • 7 OPAs (UDs)
  • 8 PMP (UDs)

85
7.4 Management Cost and Control System (MCCS)
Cost Data Collection and Reporting
Planning
Customer Manment Reporting
Cost Accountg
Work Auth and Release
Planning cycle
Operating Cycle
86
The MCCS Planning Tool must be able to
  • Plan and schedule the work
  • ID metrics
  • Establish direct labour budgets
  • Establish overhead budgets
  • ID Management Reserve

87
Operational Requirements
  • Measure resources consumed
  • Measure status and accomplishments
  • Compare metrics to projections, standards
  • Provide basis for diagnosis and replanning

88
MCCS Requirements
  • Common framework to integrate time, cost,
    technical performance
  • Ability to track important metrics
  • Quick response
  • Capability of end-value prediction
  • Accurate, appropriate data for decision-making
  • Full exception reporting with probability
    analysis
  • Immediate quantitative evaluation of alternate
    solutions

89
Cost Reduction Analysis
Possible Reductions

Cost of change
Project Life Cycle Phases
90
Operational Issues
  • Cost account codes
  • Common to organization
  • Should be hierarchical
  • EV as we have seen

91
7.5 Measuring Productivity Current Darlings
  • Economic Value Added
  • Activity-Based Costing
  • Options Analysis
  • Performance-based Budgeting

92
Economic Value Added
  • Measures benefit by applying productivity gains
  • ROI, NPV, Break-even

93
Activity-Based Costing
  • Determines the cost of supplying a service
  • How much should I charge for X.500?

94
Performance-based Budgeting
  • Set up performance metrics
  • Tie budget to those goals to evaluate the
    effectiveness of the technology

95
Options Analysis
  • As we have seen
  • Justify evolving to a client-server environment

96
Ways of Measuring Profitability IW 2001-VIII-08,
survey of 200 IT Professionals
97
Tracking Business Line Demands
  • Whos doing what?
  • Are trends developing?
  • Can we measure Business Line profitability?
  • Can we apportion network costs to Business Line?
  • Are we making it pay?

118
98
Do You Know Where Your BLs Are?
  • Need to understand the business case first
  • Then the Business Lines that drive the biz
  • Then the data that the BLs need
  • Then the network to support that
  • Then the technology model
  • Lastly, the bits and bytes

119
99
Track Those Business Lines!
  • Tie profitability back to Each BL
  • The IT Infrastructure is the means to the end,
    NOT the end
  • That end is PROFITABILITY
  • Is the BL activity increasing, steady decreasing?

120
100
Need to Cost Business Lines
  • Can munge up ROI
  • ROI not only good for projects, but for running
    costs too
  • Economic Value Added (EVA...note overloading) is
    new measure
  • Note there is NO measurable proof that IT is
    correlated with profitability!!!!

121
101
BL EVA (or at least TCO)
  • Total Cost of Ownership is first step
  • Done on PCs. Aberdeen Group found that the TCO is
    about 10K US/year!
  • But you also need to know the EVA of the app.
    What does it add to the bottom line?

122
102
Positives and Negatives
  • SHOW ME THE MONEY
  • Strassmann bah humbug
  • no relationship between IT investment and
    profitability
  • Brynjolffson now starting to see it as we
    understand the the economic

103
TCO (LCC) for PCs (Gartner Group)
123
104
How to Increase TCO (LCC)
  • Make Business Lines more complex
  • Costly maintenance
  • Cost of upgrades
  • Lack of Internal Standards
  • Hardware and software costs

105
How to Lower TCO
  • Standardize on a Platform
  • Purchase cheaper H/W
  • Provide end-user training
  • Use management tools (esp app mans)

106
Can Measure Software
  • Get its Function Point count
  • Can size the software
  • Charge off costs, profits against the FP size
  • Same with all IT costs

124
107
EVA (economic value added) is
  • Companys net operating profit after deducting
    taxes and cost of capital
  • Is the company makin er pay?

125
108
(snooze time)
  • Need to know the true cost of capital and how
    much capital is tied up
  • Capital borrowed and equity
  • loans out plus interest rate
  • equity - 6 points more than prime (14 plus more
    if you are in a risky business)
  • () Cost of capital is weighted average of both

126
109
Tied Up Capital
  • Add up worth of buildings, computers, networks,
    etc etc etc
  • If you have a 20M budget for new products, add
    that to your capital base. If it has a 5 year
    life expectancy, deduct 5M per year from capital

127
110
And the Envelope Please
  • EVA Pretax-earnings - Capital x Cost-of-capital
  • If it is positive, you are adding shareholder
    value BUY
  • If negative, SELL

128
111
So How Are Doing, EVA-wise?
129
Network World Master Series - June 11, 1998
112
Benchmark Your Organization
  • How is your spending relative to the rest of the
    world?
  • Useful in making business cases

113
Common Metrics
  • Benefit/Cost Ratio
  • ROI
  • NPV
  • IRR
  • PM Scorecard

114
7.6 Common Cost Problems
  • Poor estimating
  • Out-of-sequence starting of events
  • Inadequate WBS
  • No Management policy on reporting/control
  • Poor work definition at low levels
  • PHB crashing to make the bid
  • Inadequate formal planning

115
Mo Probs
  • Poor comparison of actuals/planned costs
  • Unforeseen technical problems
  • Schedule delays requiring overtime/idle time
  • Unforeseen material escalation factors
  • Inflation

116
Cost Overrun Causes
  • Proposal Phase
  • Failure to understand requirements
  • Unrealistic appraisal of in-house abilities
  • Underestimating time requirements

117
Cost Overrun Causes
  • Planning Phase
  • Omissions
  • Inaccuracy of WBS
  • Misinterpretation of information
  • Use of wrong estimating techniques
  • Failure to identify major cost elements
  • Failure to to Risk Assessment

118
Cost Overrun Causes
  • Negotiation Phase
  • Settling too quickly
  • Procurement ceiling costs
  • Negotiation team that must win

119
Cost Overrun Causes
  • Contractual Phase
  • Contractual discrepancies
  • SOW different from RFP
  • Proposal team different from project team

120
Cost Overrun Causes
  • Design Phase
  • Accepting customer requests without man approval
  • Problems in customer communications
  • Problems in design review meetings

121
Cost Overrun Causes
  • Production Phase
  • Excessive material costs
  • Specifications not acceptable
  • Manufacturing and engineering disagreement

122
Chapter Seven Cost Management
  • 2000 Edition
  • 7.1 Resource Planning
  • 7.2 Cost Estimating
  • 7.3 Cost Budgeting
  • 7.4 Cost Control
  • Third Edition
  • 7.1 Cost Estimating
  • 7.2 Cost Budgeting
  • 7.3 Cost Control
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