Activity : Complete the following individually and attach your

completed work to your workbook.

Answer each question in as much detail as possible, considering

your organisational requirements for each one.

 Give examples of budgeting processes, tools and techniques.

The tools are techniques for the Determine Budget process aren’t rocket
science. In fact, the whole process is really about adding up your estimates,
making sure nothing is overlooked and then presenting the total as a
summary figure.

Having said that, it does help to work through the process because it is
remarkably easy to overlook something and getting the budget wrong is
embarrassing (trust me, I’ve been there).

The tools and techniques you can draw on to prepare your project budget
are:

• Cost aggregation

• Reserve analysis

• Expert judgement

• Historical relationships

• Funding limit reconciliation.

 Outline how you have applied these to a project in the past.

PERT is a planning and control tool used for defining and controlling the
tasks necessary to complete a project. PERT charts and Critical Path
Method (CPM) charts are often used interchangeably; the only difference is
how task times are computed. Both charts display the total project with all
scheduled tasks shown in sequence. The displayed tasks show which ones
are in parallel, those tasks that can be performed at the same time. A
graphic representation called a "Project Network" or "CPM Diagram" is
used to portray graphically the interrelationships of the elements of a
project and to show the order in which the activities must be performed.

PERT planning involves the following steps:

• Identify the specific activities and milestones. The activities are the
tasks of the project. The milestones are the events that mark the
beginning and the end of one or more activities.

• Determine the proper sequence of activities. This step may be

combined with #1 above since the activity sequence is evident for
some tasks. Other tasks may require some analysis to determine the
exact order in which they should be performed.

• Construct a network diagram. Using the activity sequence

information, a network diagram can be drawn showing the sequence
of the successive and parallel activities. Arrowed lines represent the
activities and circles or "bubbles" represent milestones.

• Estimate the time required for each activity. Weeks are a commonly
used unit of time for activity completion, but any consistent unit of
time can be used. A distinguishing feature of PERT is it's ability to
deal with uncertainty in activity completion times. For each activity,
the model usually includes three time estimates:

o Optimistic time - the shortest time in which the activity can be

completed.

o Most likely time - the completion time having the highest probability.

o Pessimistic time - the longest time that an activity may take.

  Outline methods and tools for costing and cost analysis.
Fortunately, there are some tools and techniques used by professional project
managers that you can use to develop more accurate cost estimates.

Expert Expert judgment uses the experience and knowledge of

Judgment experts to estimate the cost of the project. This technique can
take into account unique factors specific to the project.
However, it can also be biased.
Analogous Analogous estimating uses historical data from similar projects
Estimating as a basis for the cost estimate. The estimate can be adjusted
for known differences between the projects. This type of
estimate is usually used in the early phases of a project and is
less accurate than other methods.
Parametric Parametric estimating uses statistical modeling to develop a
Estimating cost estimate. It uses historical data of key cost drivers to
calculate an estimate for different parameters such as cost and
duration. For example, square footage is used in some
construction projects.
Bottom-Up Bottom-up estimating uses the estimates of individual work
Estimating packages which are then summarized or "rolled up" to
determine an overall cost estimate for the project. This type of
estimate is generally more accurate than other methods since
it is looking at costs from a more granular perspective.
Three-Point Three-point estimates originated with the Program Evaluation
Estimates and Review Technique (PERT). This method uses three
estimates to define an approximate range for an activities cost:
Most Likely (Cm), Optimistic (Co), and Pessimistic (Cp). The cost
estimate is calculated using a weighted average: Cost Estimate
= (Co + 4Cm + Cp)/6
Reserve Reserve analysis is used to determine how much contingency
Analysis reserve, if any, should be allocated to the project. This funding
is used to account for cost uncertainty.
Cost of Cost of Quality (COQ) includes money spent during the project
Quality to avoid failures and money spent during and after the project
due to failures. During cost estimation, assumptions about the
COQ can be included in the project cost estimate.
Project Project management estimating software includes cost
Manageme estimating software applications, spreadsheets, simulation
nt applications, and statistical software tools. This type of
Estimating software is especially useful for looking at cost estimation
Software alternatives.
Vendor Bid Vendor analysis can be used to estimate what the project
Analysis should cost by comparing the bids submitted by multiple
vendors.

 Explain how you would develop a budget for a project.

Here are seven tips and practices for creating a budget that supports your
project:

 1. The hardest project budget you’ll ever write is the first one. After
that, you have both a model for budgeting similar projects, and the
experience for writing detailed budgets going forward. For your first
budget, get help from an experienced team member or mentor. If you’re
a collaborative group, get input from everyone’s work estimates. The
point is, you don’t have to do this alone.
 2. Learn from other projects. Find a past project that was similar in type
or scope to the current one, and use it a model. Some teams turn to
their project management tool to mine data and information on how
much time and money went into certain projects—and identify where
resources were added or subtracted.
 3. Know your core costs. Start by entering costs—the absolute must-
haves to get the project up and running. They include team members,
equipment, software, travel, etc. Next, compare those core costs to the
total budget. If your costs fit under the total cost figure, you fit under
the cap. If not, you need to have that first conversation with your boss
or stakeholders about how to scale the project to be completed within
the budget—or about expanding the budget.
 4. Prepare to change budget estimates. Most initial estimates are just
that—estimates. With the common occurrences of scope creep,
unexpected surprises and the nature of doing business, at some point in
the project the budget can easily change. This fact just underscores the
need to manage the project budget continually. Vigilant project manager
compares actuals-to-date against the initial budget and then against
anticipated costs toward completion at regular intervals. And then it’s
time to tweak the work plan to bring expenses in line with the total
budget.
 5. Monitor resources. You want your team members working on the
 right tasks to their full potential. Salaries are a big component of the
budget, so review resource usage weekly to make sure that everyone is
working the highest priorities and putting the proper amount of hours
per week into their tasks. A project management tool with strong
resource leveling features can help manage this.
 6. Be transparent. Keep your team informed of the evolving budget
forecast. Communicate what’s expected of them to stay within budget.
People might start watching how they designate hours and other costs
to your project. And they’ll understand any requests to change
directions if they come up.
 7. Manage scope. Scope creep busts budgets. To avoid unplanned work
that leads to cost overruns, create change orders for work that goes
beyond initial project requirements, with accurate projections of
additional cost. Seek additional funding for the project to cover change
orders.

 Suggest ways to evaluate the cost management of a project.

Quite simply, Clarizen completely and clearly understands the importance
of project cost management as a subset of project management. It
demonstrates this by enabling enterprises to efficiently and effectively
assess all costs associated with a project, including (but not limited to):
original budget cost, current approved cost, forecasted vs. actual cost, and
committed cost.

Clarizen project cost management enables enterprises and project

managers to evaluate, optimize, and control all aspects of cost
management, so they can:

• Chart out team-based and task-based costs

• Monitor all costs and ensure that they remain aligned with the
forecasted budget

• Set hourly and task-based rates as necessary, in order to stay on

budget

• Keep track of actual productivity to accurately estimate billable

hours
The bottom line is that enterprises cannot afford to underestimate the
importance of project cost management. With Clarizen, instead of worrying
and wondering, they'll be safely on-track and confidently headed in the
right direction.
Activity : This is major activity – your instructor will let you know
whether you will complete in during class or in your own time.

Using an example project that relate to your organization, answer

the following :
1. Create a WBS. Use the individual tasks identified within the
WBS to determine the resource requirements.
It merely depends on the project needs, the organization process and the
type, size and complexity of the project. Having said that, even if we use the
WBS process as a standard procedure within the project or not, it is
imperative that the principles of WBS are always used by anybody
estimating for an important project. Otherwise, how would they arrive at
the estimates? If it’s by mere trial and error, the, chances of project failure
are extremely high. In other cases, it’s just that the standard process is not
explicitly followed, but the implementation team would definitely have
arrived at an estimate by implicitly making certain decisions based on the
goals of the project that need to be achieved, project risks, expertise, past
experience, the organization’s process compliance and the project
constraints. As mentioned before, WBS is just an instrument or a tool to
decompose a large or a hypothetical scope into a set of definable,
structured and measurable activities or tasks that are associated to the
respective project deliverables. To add, since a WBS gives an idea of the
effort required for each of the work packages together with the associated
risk and complexity information, it could also be used as an apparatus to
prioritize requirements or deliverables based on the effort required, risk
associated, number of unknowns and complexity involved. Hence, a WBS is
sometimes used as a connecting point between the Sales/Marketing and
implementation teams as it aids them in making scope decisions quickly
and with more precision thereby reducing the risk of losing some
functionality in the system/product that would otherwise have been more
beneficial to the system/product/organization.
 2. Estimate the project costs.
The approximation of the cost of a program, project, or operation. The cost
estimate is the product of the cost estimating process. The cost estimate
has a single total value and may have identifiable component values. A
problem with a cost overrun can be avoided with a credible, reliable, and
accurate cost estimate. An estimator is the professional who prepares cost
estimates. There are different types of estimators, whose title may be
preceded by a modifier, such as building estimator, or electrical estimator,
or chief estimator. Other professional titles may also prepare estimates or
contribute to estimates, such as quantity surveyors, cost engineers, etc.

3. Develop a cost management plan.

The cost management plan is developed using the purchase plan and the
following resources generated during USPS Supplying Practices Process
Step 2: Evaluate Sources:

• SOW or other description of the contract requirement produced

during the Start Request for Proposal Development topic of the
Prepare Project task and the Review and Finalize Request for
Proposals (RFP) topic of the Perform Solicitation-Related Activities
task — indicates client expectations in terms of quantity and quality,
both of which affect cost.

• The latest TCO estimates produced in Section 2-3, Update⁄Refine

Total Cost of Ownership Analysis, estimates total contract cost.

• Funded budget as a result of the Formulate Project Budget and

Request Funding topic of the Prepare Project task — provides the
allowable cost (assuming that budget does not need to be changed)

• Results of ABC analysis performed during the Perform Value Chain

Mapping and Analysis topic of the Prepare Project task — allows the
pricing analyst to better allocate costs associated with specific cost
drivers at various stages of the contract.

Life-cycle support plan developed during the Develop Life-Cycle Support

Plan topic of the Develop Sourcing Strategy task — clarifies the project’s
lifespan and enables the Postal Service to reduce complexity, decrease life
cycle costs, and focus all efforts toward providing best value to the client.

4. Develop a cost management plan.

The following are suggested elements of a cost management plan:

• Introduction⁄Purpose — Describes the purpose of the cost

management plan.

• Contract Management Costs — Summarizes contract management

costs. Detailed cost calculations should appear as appendices.

• Potential Causes of Variances — Defines permitted range for

variances, and lists the factors specific to the project that could lead
to variances.

• Identification of Variances — Describes the procedures that will be

used to identify variances.

• Response to Variances — Describes the mechanisms to be used to

resolve CV problems, including contingency plans to cover increased
costs.
5. Monitor your actual expenditure against your budget using
financial management processes and procedures.
Budget Allocation and Monitoring

Good financial management systems and processes for tracking resource

utilisation are essential for a department to make effective use of its
resources. Effective planning and financial control will help departments
to:

• ensure the efficient and effective use of resources

• make sound business decisions

• demonstrate accountability

• take remedial action where needed

 6. Identify cost variations using cost-analysis methods and
tools. Evaluate any alternative actions.

The Cost-benefit analysis guidelines are designed primarily to support the

evaluation of options and can be used in the Preliminary evaluation and the
Business case development stages of the project lifecycle.

While the primary application of the Cost-benefit analysis guidelines occurs

early in the project life cycle, the resulting evaluation (particularly in relation to
the selected option) should be regularly confirmed throughout the life of the
project. This is essential to enable project decision makers to assess the
ongoing viability of the project throughout its life.

While all cost-benefit analyses have these common characteristics, the level of
analysis required will differ depending on the project’s complexity, risk pro le
and sensitivity and the level of financial and economic resources required to
implement the project.

The decision making process for the application of these Cost-benefit analysis
guidelines are listed in Table 1 and are outlined in greater detail in the
following sub-sections of this document.

7. How would you implement and monitor these actions.

To be complete and effective, cost-benefit analysis should:

 Follow the process outlined in the PAF

 Contain concise and relevant information on which to base a decision

about whether or not to implement the project

 Use well defined and consistent terminology

 Include appropriate self-contained quantitative and qualitative

analyses of financial, economic and social risks and impacts, along
with any other identified risks/ impacts associated with the project

 State the assumptions on which of the analyses are based, as well as

the basis for those assumptions

 Specify clearly referenced data sources for validation purposes

  Indicate clearly the range of assumptions used in sensitivity testing
of options

 Provide detailed, clear and logical arguments to substantiate any

conclusions and recommendations.

8. Develop a financial report.

Financial reports are developed for internal use such as monitoring expenses
within the organization and also for external use such as for submitting reports
to donor agencies. In many cases, there can be separate formats for both the
uses. Nevertheless, it is important that the internal financial reports are
properly developed according a guideline. Below is the procedure that can be
adopted for developing internal financial reports:
“14. Reports
14.1 Monthly Accounts
The financial reports and schedules as prescribed below should reach the
relevant persons before the 10th of the following month as per the following
dates:
The following reports on financial information will be produced by Accounts
for internal and external use.
14.2 Monthly Expenditure and Variance Report
A Monthly Expenditures and Variance Report that reflects the expenditures
incurred during the month for each line item and the total expenditure
incurred for the month. It also gives the cumulative expenditures incurred to
date and the available balance on the budget. The report is due to Avert
Society by the 10th day of the ensuing month. See Annexure B for a sample of
the report.
Where there is a budget variance, particularly over spending on a budget line
item, or introduction of a new set of activities in a budget column, the report
should state if the variance is:
1. Permitted under the terms of this grant;
2. Unanticipated and requires approval”

9. What activities should you conduct in order to signify financial

completion?
Finalising costs and financial reports at the end of the project involves ensuring
that all payments have been made and all relevant financial data has been
recorded before preparing the final financial reports and presenting them to
the relevant parties. is involves:

 Making final payments

 Closing financial documents
 Finalising project cost data
 Evaluating project cost performance.

9. Review your project. How effective was your project cost

management
Here are some great project cost management tips for making sure your
project cost stays reasonable:
1. Do your estimates properly
It may sound like a no-brainer, but many projects that go over-budget can
trace their problems back to the initial planning stages. Either the project
manager underestimated the number of hours a project would take, or he
allowed the client to shave off too many hours in order to lower the price and
make the sale.

2. Use the Right People

Not everyone is right for every task. Even though you try to hire well-rounded
team members, there will always be areas where one outperforms the rest.
Know your team’s strengths and weaknesses. Be familiar with their work habits
and attitudes, so that you can accurately predict how long it will take someone
to do a particular task.

3. Use Earned Value Analysis

Many project managers rely on the “planned vs. actual” system, which can
predict how timely a project is, but says nothing about budget management.
Earned Value Analysis is a much more effective method. It uses three factors:
cost, schedule, and scope, in order to predict completion dates, future team
performance and the likely end cost.

4. Move On
When one of your team members gets bogged down in a task, ask yourself this
question: “Is it essential to the project as a whole?” Many project managers
employ the “critical path” method, where there is a “chain” of tasks that are an
absolute requirement for the project to be considered complete. If the
problem is for a secondary (or even tertiary) task, you may be better off
shifting to something else and coming back to it later—even if it means setting
a whole chain of secondary tasks aside.

10. Review any cost-management issues. What

improvements could be made?
Many businesses employ cost management plans for specific projects, as
well as for the over-all business model. When applying it to a project,
expected costs are calculated while the project is still in the planning
period and are approved beforehand. During the project, all expenses are
recorded and monitored to make sure they stay in line with the cost
management plan. After the project is finished, the predicted costs and
actual costs can be compared and analyzed, helping future cost
management predictions and budgets.