Lecture 6_7
Lecture 6_7
Labor
Materials
Subcontractors
Equipment & facilities
Travel
…
8-3
Project Management Cost & Budget
Types of Costs
Direct Vs. Indirect
Direct: clearly assigned
Indirect: overhead, administration, marketing
8-4
Project Management Cost & Budget
Direct vs. Indirect Costs
Hourly rate Hours needed Overhead charge Total direct labor cost
8-6
8-6
Project Management Cost & Budget
Direct vs. Indirect Costs
8-9
8-9
Project Management Cost & Budget
8-10
8-10
Project Management Cost & Budget
Cost estimation
Yx aX b
Where :
Yx = time required for the x unit of output
a = time required for the initial unit of output
X = the number of units to be produced
b = learning curve slope = log(learning %)/log(2)
8-13
Project Management Cost & Budget
Learning Curves
Project Management Cost & Budget
Problems with Cost Estimation
Lack of definition
Specification changes
External factors
8-15
Budgeting
8-16
Project Management Cost & Budget
Creating a Project Budget
Work
Breakdown The budget is a plan
Structure
WBS
that identifies the
resources, goals and
Project
schedule that allows
Plan
a firm to achieve
Scheduling Budgeting those goals
Examples
• What is the variance if the budgeted cost is 200 and the actual
cost is 250?
200 – 250 = variance thus
Variance = -50
• What is the actual cost if the budgeted cost is 2000 and the
variance is 500?
2000 – actual cost = 500 thus
Actual cost = 1500
• What is the planned cost, if the actual cost is 120 and the
variance is -30?
Planned cost – 120 = -30 thus
Planned cost = 90
Project Management Cost & Budget
Example
• There is a project with three activites planned for a year
– ‘a’ with a planned cost of 1000,
– ‘b’ with a planned cost of 500 and
– ‘c’ with a planned cost of 1500.
• ‘a’ activity turned out to be more expensive (with an
additional 200).
• ‘b’ was done as budgeted.
• ‘c’ is not finished in the year, and only 1000 was spent on it.
• An additional ‘d’ activity was needed and performed with a
cost of 300.
8-23
Project Management Cost & Budget
Problem solving
• There is a small project with the
following network diagram: a b d e
a 1 100
b 1 50
c 2 60
d 3 90
e 2 40
Project Management Cost & Budget
• Plot a Gantt chart from the information above and calculate the
BCWS for every day of the project.
a b d e
Solution c
Problem solving
• In the previous project, the project manager receives a
progress report of the first 4 days, with the following
information:
– Activity ‘a’ is completed
– Activity ‘b’ is completed
– Activity ‘c’ is 50% completed
– Activity ‘d’ is 33.33% completed
– Costs are calculated with completition ratio
• Calculate BCWP for the first 4 days
Solution
BCWP = 100 + 50 + 0.5(60) + 0.33(90) = 210