Lecture # 14

ENGINEERING Project Cost &

PROJECT MANAGEMENT Resource
Management

DR AFSHAN NASEEM

DEPARTMENT OF ENGINEERING MANAGEMENT

NUST COLLEGE OF E&ME
PROJECT COST
MANAGEMENT
 Cost

• Cost is a resource sacrificed or foregone to achieve

a specific objective or something given up in
exchange
• Costs are usually measured in monetary units like
dollars, rupees etc
 Project Cost Management

• It includes the processes required to ensure that the

project is completed within an approved budget
Reasons for Cost Overruns

• Not emphasizing the importance of realistic project

cost estimates from the outset
• Many professionals think preparing cost estimates is
a job for accountants when in fact it is a very
demanding and important skill that project managers
need to acquire
• New technology or business processes which
involve untested products and inherent risks
Project Cost Management Processes
Cost Estimates
It is important to provide supporting details
(assumptions, project scope, WBS, etc) used in
computing estimates so that it will be easier to
prepare updates as needed or similar estimates
on other projects.
Types of Cost Estimates
Surveyor Pro Project Cost Estimate
PROJECT MONITORING &
CONTROL
Earned value analysis
Project Monitoring and Control
Earned Value - What is it?

• Simply, it is a project monitoring and

measurement system that:
1. establishes a clear relationship between
planned accomplishments and actual
accomplishments
2. reinforces and rewards good planning
practices
 Earned Value - What is it?
• Basic concepts of Earned Value Management
(EVM)
• Each task in a project earns value as planned
work is completed
• Earned value can be compared to actual cost
and budgeted cost to determine variance and
predict future performance
Earned Value - What is it?
• The budgeted cost (e.g., dollars, person-hours,
person-days, etc.) in terms of your baseline
plan/budget of the work performed up to a specified
point in time
• Also known as Budgeted Cost of Work
Performed (BCWP)
• Each task in the Work Breakdown Structure (WBS)
is assigned a BCWP based on its individual cost.
• Project BCWP is total of BCWP for all tasks
required to complete the project
 Earned Value Components
• Planned Value (BCWS)
• How much work (person-hours) you planned to have
accomplished at a given point in time (this is from the
WBS in your plan)
• Actual Cost (ACWP)
• How much work (person-hours) you have actually
spent at a given point in time
• Earned Value (BCWP)
• The value (person-hours) in terms of your base budget
of what you have accomplished at a given point in time
Variance

• Any schedule or cost deviation from a specific

plan.
• Used within an organization to verify the budget
and schedule for a project
• Frequently used as a key component of plan
reviews and performance measurement
 Variance

• Must compare scheduling and budget variance at the

same time
• Schedule variance: deviations from work
planned – not a measure of changes in cost
• Cost variance: deviations from the
budget – not a measure of work scheduled vs.
work completed
Earned Value Formulas
Earned Value Analysis Performance Indices

• Cost Performance Index (CPI)

• CPI = BCWP/ ACWP
• CPI > 1.0 indicates good progress, and a project
under budget in terms of earned value.
• CPI < 1.0 indicates that the project is overspent
for the amount of work which has been done
• Schedule Performance Index (SPI)
• SPI = BCWP/ BCWS
• SPI > 1.0, project is ahead of schedule
• SPI < 1.0 project is behind schedule
Earned Value & Variance: Example
18

14

On Day X:
• PLANNED VALUE (BCWS) = 18 + 10 + 16 + 6 = 50
• EARNED VALUE (BCWP) = 18 + 8 + 14 + 0 = 40
• ACTUAL COST (ACWP) = 45 (from your project tracking)
Therefore:
• Schedule Variance = BCWP – BCWS = 40 - 50 = -10 (behind schedule)
• Schedule Performance Index = 40 / 50 = 0.8, or 80% of plan
• Cost Variance = BCWP - ACWP = 40 - 45 = -5 (over budget)
• Cost Performance Index = 40/45 = .8923
 Example Project
• Suppose BCWP is $300K & BCWS is $400K
ACWP = $325K

• What conclusions can you draw?

• Under budget?
• Is project on schedule?
• What conclusions now?
• SV = BCWP – BCWS
• SV = $300k - $400K = -$100K
• Behind schedule?
• CV = BCWP – ACWP = $300K - $325K
• Over budget by $25K
Critical Ratio

• Sometimes, especially large projects, it may be

worthwhile calculating a set of critical ratios for all
project activities
• The critical ratio is
actual progress x budgeted cost
scheduled progress actual cost
• If ratio is 1 everything is probably on target
• The further away form 1 the ratio is, the more we
may need to investigate
Critical Ratio Example
Calculate the critical ratios for the following
activities and indicate which are probably on target
and need to be investigated.
Activity Actual Scheduled Budgeted Actual Critical
progress Progress Cost cost ratio
(CR)
A 4 days 4 days 60 40
B 3 days 2 days 50 50
C 2 days 3 days 30 20
D 1 day 1 day 20 30
E 2 days 4 days 25 25
PROJECT TEAMS
The Need for Project Teams
Many roles / Functions required during a
Project
Secretary Procurement

Project Manager Accountant

Planner

Engineer
Designer
Why Work in Teams?

 Distributing the workload

 Reinforcing individual capabilities

 Creating participation and involvement

Team Development
• Collecting a group of people together does not
constitute a “team”

• Need to develop the team - team development

“Enhancing the ability of stakeholders to

contribute as individuals as well as enhancing
the ability of the team to function as a team ”
Form - Storm - Norm - Perform
Effectiveness

Perform Tribal ?
Groupthink!

Form Norm

Storm

Time
We believe in teamwork because…
 RESOURCE
MANAGEMENT
Resource

• Resources are commonly thought of as sources

of supply or support such as money, people,
materials, technology and space.
• Types of Resources:
• Capital
• Human
Managing Resources

 Efficient and effective use of resources can

often make or break a project. Because
resources are limited some hard to obtain,
expensive or both.
 The allocation of resources can have a major
influence on project influences.
 Resource Estimating
 The goal of activity resource estimating is to
estimate the resources needed for each activity so
they can be deployed in the most effective manner.
RESOURCE PLANNING
Estimating Schedule Activity Resource
Requirements
• Determining what resources will be required
(labor, equipment, material)
• What quantity for each resource will be
required.
• When are resources available to perform
project activities.
RESOURCE HISTOGRAM

Week 8
Week 7 Resource Histogram
Week 6
Week 5
Week 4
Week 3
Week 2
Week 1

40 hrs
4.0

3.0

B B B B E E F J J G

2.0

C C C C C F E E J

1.0

A A A A D D G G H H

W1 W2 W3 W4 W5 W6 W7 W8 W9 W10

Resource Histogram
Resource Histogram - Leveling
Example
Time and resource estimates for a breakfast in bed project
Activity Effort Duration
(person-min) (min)
Butter toast 1 1
Pour orange juice 1 1
Boil egg 0 4
Slice bread 1 1
Fill pan with water 1 1
Bring water to boil 0 3
Toast bread 0 2
Take loaded tray to bedroom 1 1
Fetch tray, plates, cutlery 1 1
Initial project plan for a simple project

7 mins
Orange

4 mins
Bread Toast Butter

Water Boil water Boil egg Bedroom

7 mins
Tray
Plan with resource allocation
Activities requiring operator time
0 1 2 3 4 5 6 7 8 9

Orange
Bread Toast Butter

Water Boil water Boil egg Bedroom

Tray
Staff required

4
3
2
1

0
0 1 2 3 4 5 6 7 8 9
Time (min)
Revised plan with levelled resources
Activities requiring operator time
0 1 2 3 4 5 6 7 8 9

Orange
Bread Toast Butter
Water Boil water Boil egg Bedroom
Tray
Staff required

4
3
2
1
0 0 1 2 3 4 5 6 7 8 9
Time
(min)
Revised plan with levelled resources and warm
toast Activities requiring operator time
0 1 2 3 4 5 6 7 8 9

Orange Bread Toast Butter

Water Boil water Boil egg Bedroom
Tray
Staff required

4
3
2
1
0 0 1 2 3 4 5 6 7 8 9
Time
(min)
Discussion