Seng 610 - Final Exam

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(8) Cost Estimates

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Initial estimate can seal the project’s financial fate. Overestimated, and the contractor risks losing the job to lower bid. Underestimate a fixed price bid, and contractor loses money; often accidental, sometimes intentional. Accidental: overly optimistic. Intentional: trying too hard in a practice called buy in. Low bid can signal buy in or quality issues.

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(8) Cost escalation

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amount by which actual costs grow to exceed initial estimates

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(8) Reasons for Cost Escalation

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Uncertainty and Lack of Accurate Information. New technology, lack of effort, etc… Allow some uncertainty with a contingency fund or reserve. Changes in Requirements or Design – Change our minds. Economic and Social Factors – Inflation, strikes. Poor Management. Inefficiency, Poor Communication, and Lack of Control. Ego Involvement – over-optimistic Estimator. Project Contract Type – FFP, Cost+, Incentive. Bias and Ambition – Human nature

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(8) Project cost estimating happens throughout

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Conception – Least reliable estimate, Definition – More reliable estimate, Execution – More reliable estimate.

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(8) Once Developed and approved, project estimate becomes the _______

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budget

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(8) Project ________ and _________ measured by budget

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progress and performance

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(8) Escalation factors

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force periodic estimate revisions

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(8) Life Cycle Costs

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All costs of a system from cradle to grave Originated in military procurement. Consider LCC for feasibility studies, acquisition, operation, maintenance, and disposal. Time to develop, build, and install end-item determines how soon end-item will generate revenue or capability value

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(8) Cost Estimating Process

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1) Estimate – realistic assessment based on known facts about the proposed project 2) Target/Goal – the desired outcome or commitment (Rarely the same – revise to bring estimate and target closer)

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(8) Classifying Work Tasks & Costs

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Developmental - Uncertainty in design, testing, and fabrication. More difficult, Overruns more common. Off-the-shelf (OTS) - Known prices and Straight forward. Recurring - Periodically repeated (Ex: QA, testing). Non-recurring (NRE) - Occur once One-of-a-kind (Ex: development, fabrication)

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(8) Who is ultimately responsible for the cost estimating?

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The PM

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(8) Cost Estimating (CE) Methods

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Expert Judgment, Analogy, Parametric, Cost Engineering

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(8) Expert Judgment

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Provided by an expert. “Seat of the pants” used whenever lack of information precludes more rigorous estimate. Typically restricted to conception phase w/ poorly-defined or unique and no comparisons

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(8) Analogous Estimate

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Review costs from previous, similar projects. Can be done at any level. Overall, work package, or task. Adjust for time, scale, economic factors. Always ensure the analogy is valid

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(8) Parametric Estimate

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Derived from empirical or mathematical relationship. It can be applied directly or in conjunction with analogy. It can be applied to an analogy estimate to scale up/down. It can be applied directly when costs are a function of the system or project “parameters”

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(8) Cost Engineering

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Detailed cost analysis of individual cost categories. Work package or activity level (“Bottom-up” approach.) Most accurate of all methods, but also most time-consuming. Often not available early in the project as the cost categories come from the WBS. Standards manuals and tables aid in detailed work package and lower level detailed estimates. Estimates broken out into labor types, materials, equipment, subcontracts, etc…

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(8) Contingency Amount

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Added to estimates to offset uncertainty. The more contingency added, the less well-defined the project when the complexity increases. Activity contingency - “known unknowns”. Amount estimated to account for likely sources of cost increases. (Changes in scope, size, weather, etc)

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(8) Top-down versus Bottom-up

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Top-down looks at project as a whole and is used w/ expert opinion or analogy. Bottom-up estimates cost by looking at work packages or end-item components Can combine top-down and bottom up within the same project: Bottom-up for well-defined portions. Top-down for less-defined portions

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(8) Reconciling Estimates

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PM submits final cost estimate. Final cost estimate compared to gross/target/goal estimate. Top management accepts or mandates revision. What if they’re different? Then the PM reviews estimates for over-optimism, padding, and other excess costs or incorrect assumptions

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(8) Reducing Costs

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PM uses diplomacy and negotiation to look for ways to reduce costs. Across-the-board cuts = BAD; it unfairly penalizes fair estimates, and Induces padding to protect your piece of the project. What if mandated budget is just too small? Then take it on and hope for the best. Pass it off/bide your time until PCS? Low risk for contractors under cost-plus contracts. Fixed price should be cancelled to avoid cutting corners or stalling

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(8) Direct labor expense

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The labor charge for the project. For each task or work package, an estimate is made of the number of people needed in each labor grade, and the number of hours or days for each.

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(8) Direct non-labor expense

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The total expense of non-labor charges applied directly to the task. It includes subcontractors, consultants, travel, telephone calls, computer time, material costs, purchased parts, and freight. On smaller projects, the direct non-labor expenses are individually estimated for each work package. In larger projects, a simple percentage rate is applied to cover travel and freight costs.

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(8) Overhead (or non-direct expenses)

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The costs of doing business. They include whatever is necessary to house and support the labor, including building rents, utilities, clerical assistance, insurance, and equipment. Usually, overhead is computed as a percentage of the direct labor cost. Frequently the rate is around 100 percent, but it ranges from as low as 25 percent for companies that do most of their work in the field to over 250 percent for those with laboratories and expensive facilities and equipment. OH Rate is an arbitrary allocation of costs; this is counterproductive for controlling project costs because most of overhead cost sources are not tied to any particular project.

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(8) Direct overhead costs can be traced…

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to the support of a particular project or work package (such costs are allocated only among the specific projects or activities for which they apply.)

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(8) General and administrative expense, or G&A

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includes taxes, financing, penalty and warranty costs, accounting and legal support, proposal expenses, marketing and promotion, salaries and expenses of top management, and employee benefits. These costs might not be tied to any specific project, so they are allocated across all projects, to certain projects, or to parts of certain projects.

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(8) Project Cost Accounting Systems

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During project conception and definition, cost estimates of work packages are accumulated through the PCAS to produce a cost estimate for the project. This estimate later becomes the basis upon which the project and work package budgets are created. After work on the project begins, the PCAS is used to accumulate, credit, and report project and work package expenditures.

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(8) Control Cost Accounts

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The idea of using smaller accounts for the smaller work packages. This is especially useful for larger projects, where tracking an entire budget is difficult.

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(8) Cost Summaries

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Aggregation and division of high-level summary accounts can be developed by consolidating control accounts for the WBS and organizational hierarchies. Such consolidation is useful for monitoring the performance of individual departments and segments of the project.

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(9) Concept of Quality

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Process of preventing defects and failures rather than inspect for them. Project teams often seek ways to accelerate schedules and cut costs resulting in more mistakes and greater workload (1950s Concept- Process of inspecting products that had already been produced in order to separate the good ones from the bad ones )

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(9) Fitness for Purpose

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Quality implies it is fit for the intended purpose. (Fitness Criteria- Performance, Safety, Reliability, Ease of Handling, Maintainability, Logistical Support, No harmful impacts)

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(9) Total Quality Management

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Set of techniques to improve total effectiveness and competitiveness of an organization

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(9) Just in Time / Lean Production

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Provides methods and tools to analyze processes and expose and eliminate sources of non-value added waste in processes

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(9) Six-Sigma

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Five step process for improving existing processes or designing new processes and products

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(9) The term “Quality Assurance” is sometimes used to describe

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Project Quality Control, Planning for Project Quality, and Quality Assurance

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(9) Project Quality Control (QC)

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Process to ensure conformance to plan (the “medicine” to eliminate existing nonconformities and quality planning and assurance as the “healthy lifestyle” to prevent nonconformities in the first place).

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(9) Planning Project Quality

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Process to plan QA

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(9) Quality Assurance (QA)

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Process to ensure quality

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(9) ISO

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International Organization for Standardization

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(9) ISO 9001 (2008)

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specifies requirements for a quality management system where an organization needs to demonstrate its ability to consistently provide product that meets customer and applicable statutory and regulatory requirements, and aims to enhance customer satisfaction through the effective application of the system, including processes for continual improvement of the system and the assurance of conformity to customer and applicable statutory and regulatory requirements

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(9) Costs of Quality

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Quality is related to value so cost benefit analysis should be conducted Compare costs of Quality Processes to the savings or benefits from fewer or eliminated nonconformities owing to those activities.

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(9) Quality of conformance

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The ability of a product, service, or process to meet its design specifications --> what the customer needs.

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(9) Prevention

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(One of the costs of training) costs of training, design reviews, and any activity aimed at preventing errors; includes cost of quality planning.

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(9) Appraisal and control

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(One of the costs of training) costs of evaluating products and processes, including product reviews, audits, tests, and inspections.

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(9) Internal failure

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(One of the costs of training) costs associated with nonconformities discovered by the producer; includes costs for scrap, rework, and retest.

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(9) External failure

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(One of the costs of training) costs incurred as a result of product failures after delivery to the customer; includes costs for replacements, warranty repairs, liability, lost sales, and damaged reputation.

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(9) QA toolbox

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Used to prevent nonconformance. Training of project team members, Authorization of phases, Configuration management system, Configuration identification, Design reviews, audits & inspections, Classification of characteristics, Failure mode and effect analysis (FMEA), Modeling, prototyping & testing, Quality function deployment & house of quality Technical performance measurement, Checklists

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(9) Quality Control Tools

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Planned (Configuration Control, and Inspection, defect reporting & acceptance tests) and Ad hoc

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(9) Quality control versus scope verification

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Scope verification refers to the acceptability of project deliverables by the customer, Quality control refers to conformance to specifications as set by the contractor (or whomever is doing the work)

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(9) Configuration Management

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Configuration Identification (defining the system) and Configuration Control (defining “as built” status)

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(9) Preliminary Design Review

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Does concept fit requirements?

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(9) Critical Design Review

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Do details meet specifications?

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(9) Functional Readiness Review

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Is manufacturing process OK?

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(9) Product Readiness Review

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Do products meet requirements when manufactured according to design documentation?

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(9) Audits

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Verify that management processes comply requirements, determine project status.

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(9) Failure Mode and Effect Analysis (FMEA)

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A technique to determine the ways (modes) a technical system might fail and the effects.

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(9) FMEA Procedure

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1) List the relevant components of the system 2) Identify all possible ways that the component or system might fail (Best done by team brainstorming) 3) Assign a probability of occurrence to each failure mode; 4) Describe and assess the probable effects of each failure mode on the performance and safety of the system, and on the environment. 5) Assess the severity or seriousness of the effects; 6) Compute the criticality of each failure mode 7) Prepare a plan to circumvent problems, mitigate the effects, or respond to the failure

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(9) FMEA Risk Priority Number

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Severity x probability x detectability (highest RPN’s have the highest priority)

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(9) Techniques for Quality Control

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Run Chart, Control Chart, Pareto Diagram, Cause-effect (fishbone, causal loop, and current reality tree)

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(9) Run Chart

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Results over time

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(9) Control Chart

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Repetitive process creep

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(9) Pareto Diagram

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Hockey Stick (80% fine, 20% cause problems)

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(9) Cause-and-effect Diagrams

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Fishbone (simple), Causal Loop- Relationships of variables, and current reality tree (5 whys)

Front 63

(10) Project Risk

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Possibility or probability that the project will not turn out as planned or desired (includes potential benefits (opportunities) as well as hazards.

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(10) Risk involves two concepts

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The likelihood that some event will occur and the impact of the event if it does occur.

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(10) Risk Management Process

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1) Identify 2) Assess 3) Develop responses 4) Track and control risks (Repeats throughout every phase of the project)

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(10) Sources of Risk

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Internal and External

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(10) Internal Risks

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“Needs and Definition” Risk. Failure to correctly identify and define current or changing customer needs and requirements. And “Technical Risk” which is failure of the end item.

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(10) External Risks

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Risks in the project environment. (Market conditions, government mandate, physical environment, ect).

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(10) Checklists for Identifying Risks

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The project manager should have a good checklist, that provide common causes for risk.

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(10) Identifying Risks for WBS and Work packages

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Each work package is assessed with a certain level of risk

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(10) Common methods of identifying Risk

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Brainstorming, Delphi Technique, and Cause-Effect Analysis (Fishbone diagram)

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(10) Assess the Risk

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Assessing risk significance is a function of likelihood and impact.

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(10) Composite Likelihood factor (CLF)

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CLF = (W1) MH + (W2) CH + (W3) MS + (W4) CS + (W5)D

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(10) Composite impact factor (CIF)

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CIF = (W1)TI + (W2)CI + (W3)SI

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(10) Risk Consequence

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When likelihood and impact are expressed as nominal values (e.g., VH, H, M, L,VL; next three slides)

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(10) Computing Risk Consequence

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Risk Consequence Rating (RCR) RCR = CLF + CIF – CLF (CIF); Risk Consequence (RC): RC = (Likelihood) x (Impact)

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(10) Risk Response Planning

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(Likelihood, Impact) – For High,High- Avoid Risk. For High, Low- Reduce Risk. For Low, High- Transfer the risk. And for Low, Low- Accept Risk

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(10) Transferring Risk

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Buy Insurance, Subcontract Work. Get a CPFF project.

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(10) Avoiding Risk

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Eliminate sources of risk. Micromanage.

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(10) Reduce Risk

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Employ best workers, Use known and tested technology and tools, Use parallel efforts, Employ strong worker incentives, Increase frequency and severity of reviews and tests, Reduce system complexity, Use design margins

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(10) Accept Risk (Do nothing)

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not all impacts are severe. Cost of avoiding, reducing, or transferring risk could be estimated to exceed the benefits.

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(10) Risk Tracking

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Create a Log or Risk Register Risks are rank ordered, greatest risk consequence first. Continuously monitor, project for trigger symptoms of previously identified risks, and for symptoms of risks newly emerging and not previously identified.

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(10) Risk Management Plan

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Specifies methods to identify, profile, assess, monitor, and handle risks; names the risk officer; contains a budget and schedule reserve

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(10) Risk Profile

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the likelihood, impact, trigge symptoms, monitoring methods, and response strategy for each idenfied risk.

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(10) Risk Officer

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Plays devil’s advocate, and is usually not the project manager.

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(11) Execution Phase

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includes the stages of design, production/build, implemention (although these may differ, depending on the nature of the project), and ultimately, project termination.

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(11) In addition to planning, scheduling, budgeting, and risk and quality management responsibilities already discussed, during Execution the PM is responsible for ______

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Expanding the project team, Assigning responsibilities, Task integration, Documentation, Change control, Quality control, Production coordination, Inventory control

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(11) Design stage

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system specifications are converted into documents such as plans, sketches, or drawings. Ourputs are usually blueprints, flow charts, or schematic designs, or models showing the system components, dimensions, relationships, and overall configuration.

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(11) What are the two interrelated activities of the design process?

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Preparation of a functional and physical design.

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(11) Technical Review Process

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1) Preliminary Review; 2) Critical Review, 3) Functional Readiness Review; 4) Product Readiness

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(11) Preliminary review

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does concept fit basic requirements?

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(11) Critical Review

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does detailed design reflect functional design?

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(11) Functional readiness review

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Do manufactured items conform to detailed design?

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(11) Product readiness

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Do production documents conform to design documents?

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(11) Production/Build Stage

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System Fabrication/construction/assembly and testing

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(11) The Control Process

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Assessing actual against planned technical accomplishment, reviewing and verifying the validity of technical objectives, confirming the continued need for the project, timing it to coincide with operational requirements, overseeing resource expenditures, and comparing the anticipated value with the costs incurred.

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(11) Internal vs External Control

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Internal exercised by the contractor. External Exercised by the customer (audit of books and records, work inspection, reports, incentives, customer PM).

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(11) Steps of the Control Process

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Authorize work, monitor work (track and report), analyze performance, take action, and repeat.

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(11) System Fabrication

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begins when sufficient design work has been completed.

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(11) Three Groups of System Testing

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(1) meets system requirements, (2) Is being followed by the producer or builder, and (3) tests conducted by the customer to make sure the system meets user requirements and other contractual agreements.

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(11) Project monitoring

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To observe and track how well the project is doing, and to forecast how it will do in the future.

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(11) PCAS

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Project Cost Accounting System

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(11) Change Control system

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Helps to moderate scope creep

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(11) Configuration Management

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Also helps to moderate scope creep.

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(11) PV

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Planned Value. The sum cost of all work and apportioned effort scheduled to be completed within a given time period as specified in the original budget. (also shown as BCWS)

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(11) AC

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Actual Cost of the work performed (also shown as ACWP). The actual expenditure as of a given time period.

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(11) EV

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The earned value (synonimous with BCWP)

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(11) BCWP

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the Budgeted Cost of the Work Performed. (Synonimous with EV).

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(11) SV

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schedule variance = EV − PV

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(11) CV

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cost variance = EV − AC

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(11) BAC

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total budgeted cost of project

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(11) SPI

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schedule performance index = EV/PV

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(11) CPI

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cost performance index = EV/AC

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(11) ETC

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forecast cost to complete = (BAC − EV)/CPI where BAC is the budgeted cost at completion

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(11) EAC

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estimated cost of at completion = AC + ETC

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(11) BCSP

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(budget cost, scheduled performance) = date where PV is same as EV at the status date

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(11) TV

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time variance

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(12) Implementation

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the stage where the end-item system or other deliverable is completed and turned over to user for operation. Typical activities are User Training, User Acceptance Testing, Installation and Conversion.

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(12) Parallel installation

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both new and old systems are operated in parallel until the new system is sufficiently proven

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(12) Pilot operation

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the new system is operated in a limited capacity until proven, and then is phased in as the old system is phased out

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(12) Cold turkey (Big Bang)

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in one fell swoop, the new system is moved in and the old one is moved out.

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(12) Final closeout activities

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Close out all work orders and contracts with subcontractors and completed work. Notify all departments of project completion. Close the project office and all facilities occupied by the project organization. Close project books. Ensure delivery of project files and records to the responsible managers.

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(12) Final Customer acceptance, obligation, and payment activities

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Final Deliverables turned in. Notify customer when all obligations are complete. Ensure all contract documentation is complete. Expedite any final customer activities. Receive/Transfer form payment. Obtain confirmation of formal completion.

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(12) Project Evaluation

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Give project and company management the opportunity to learn from its successes and mistakes in the project.

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(12) Post-completion project review items

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Initial project objectives; Changes in objectives; Activities and relationships of the project team (effectiveness); involvement and performance of all stakeholders; costs/budgeting; successes; failures; lessons learned.

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(12) Post-Installation System Review

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Some months after delivery, the operation end-item or system should be evaluated to assess its performance in the user environment and under ongoing operational conditions.

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(12) Operation

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Depends on whether recurring maintenance is needed. Sometimes the contractor remains involved by either maintaining, or eventually enhancing/replacing the system.