Cost Analysis
Transcript: COST IN PM PURPOSE Cost analysis is the most important thing to define after a project has been proved feasible Description Cost estimating is the practice of forecasting the cost of completing a project with a defined scope. It is the primary element of project cost management, a knowledge area that involves planning, monitoring, and controlling a project’s monetary costs. The approximate total project cost, called the cost estimate, is used to authorize a project’s budget and manage its costs. Types Cost in a Project can be divided into direct cost and indirect cost. They both affect the project in different ways and need to be considered thoroughly before proceeding with the project Direct costs: Examples of direct costs include fixed labor, materials, and equipment. Indirect costs: Examples of indirect costs include utilities and quality control. Incurred by the organization at large, indirect costs occur at the same time as the project, but are not necessarily caused by it. Next, the project manager will need to undertake the process of cost estimation, which is used to predict the resources needed to complete a project within a defined scope, and determine whether the project will be greenlighted. COST IN IT Redesign costs Coding architecture needs to be as general and decoupled from any technologies implemented. Future updates in outside technologies may cripple the current implementation, and thus create an increase in cost due to redesign hours Poor Planning When a project has a variable that is not considered it may affect the project in a way that it may be catastrophic, forecast and deep analysis must be done in order to achieve a great outcome Downtime Downtime may affect the projects earnings and time. So if you're dependent on outside technologies you need to have a backup plan for the given event these technologies have downtime COST PLANNING Cost in IT may be different due to the nature of the LOB. However, it still needs to be considered and a proper forecast has to be made to avoid unnecessary iterations that will increase the cost. DELIVERABLES Although not many people like it. Deliverables and documentation are extremely important to save time when analyzing software, code, APIs, etc. TIME MANAGEMENT PLANNING DESIGN IMPLEMENTATION RELEASE Any of these iterations needs to be planned to avoid re-iterations. However, there are some design patterns that require re-iterations Time management is really important in IT. The cost may increase significantly if not managed appropriately. SCRUM Trello, Monday, Agile CAUSES INACCURATE PROJECT COST ESTIMATES THE MOST LIKELY CAUSES OF INACCURATE PROJECT COST ESTIMATES Lack of experience Human resources Length of planning OTHER COMMON MISTAKES Not fully understanding the work involved in completing work packages: This is sometimes a problem for inexperienced project teams who have not worked on similar projects before. Expecting that resources will work at maximum productivity: A more appropriate rule of thumb is to assume 80% productivity. Dividing tasks between multiple resources: Having more than one resource working on a task typically necessitates additional planning and management time, but this extra time is sometimes not taken into account. Failing to identify risks and to prepare adequate contingency plans and reserves: Negative risks can both raise costs and extend durations. Not updating cost estimates after project scope changes: Updated cost estimates are an integral part of scope change management procedures, as project scope changes render prior estimates useless. Creating hasty, inaccurate estimates because of stakeholder pressure: Since project managers are held accountable for estimates, order of magnitude estimates are a much better choice than numbers pulled out of thin air. Stating estimates as fixed sums, rather than ranges: Point estimates are misleading. All estimates have inherent degrees of uncertainty, and it is important to adequately communicate these via estimate ranges. Making a project fit a fixed budget amount: The scope of a project should determine its budget, not the other way around. Other Common mistakes CONCLUSION The usefulness of a cost estimate depends on how well it performs in areas like reliability and precision. There are several characteristics for judging cost estimate quality. GOOD COST ESTIMATES Accuracy: A cost estimate is only as useful as it is accurate. Aside from selecting the most accurate estimating techniques available, accuracy can be improved by revising estimates as the project is detailed and by building allowances into the estimate for resource downtime, project assessment and course correction, and contingencies. Documentation: Since project managers are eventually held accountable to cost estimates, it is important that the assumptions underlying estimates are identified and recorded in writing, and that regular budget statements are provided. Thorough documentation precludes
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