QMDS400 Ch9

Topics: Costs, Cost, Variable cost Pages: 24 (3397 words) Published: October 30, 2014
Budgeting Projects
Chapter 9
Contemporary Project Management
Kloppenborg

1
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Introduction to Project Budgeting
• Involves developing a cost management plan for a
project
• For small projects
• Ensure accurate cost estimates
• Secure the funding
• Develop cost reporting procedures

• For large projects
• AND develop and use accurate cash flow estimates
Cost management plan – “the document that sets out the
format and establishes the activities and criteria for
planning,
structuring, and controlling the project costs.”
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted PMBOK®
Guide
to a publicly accessible
website, in whole or in part.

2

Introduction to Project Budgeting
Purposes of the Cost Management Plan





How to develop and share relevant, accurate and timely
information for decision making
Provides feedback linking the project to business
objectives
Provides detail and summary information
Helps project stakeholders focus on schedule,
performance, and cost.

3
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Estimate Cost

• Cost estimating is linked to scope, schedule, and
resource planning
• Never lie to yourself
• You must understand what the project costs really are

• Never lie to anyone else
• Avoid shading the truth to secure necessary funding

Cost estimating – “the process of developing an
approximation of the cost of the resources needed to
complete project activities.” PMBOK® Guide
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

4

Estimate Cost

• For accurate project cost estimation, project
managers must understand
• Types of costs
• Timing & accuracy of cost estimates
• Different methods for cost estimation
• Various cost estimating issues

5
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Types of Costs

Reserve

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Types of Costs – Fixed vs. Variable
• Fixed costs remain the same regardless of
volume of work
• Variable costs vary directly with volume of use
• Project manager will try to determine how to
complete the project for the least cost
• E.g., a choice between machine and labour

• Cost curve reflects as low a total cost as possible
at the current project size
• Fixed and variable costs involve consideration of
the project scope

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

7

Project cost and volume curve

8
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Types of Costs – Direct vs. Indirect
• Direct costs only occur because of the project
• Direct labor
• Other direct costs – material, travel, consultants,
subcontracts, purchased parts, computer time

• Indirect costs are necessary costs not associated
with one specific project
• Salaries of company executives, buildings, utilities,
insurance, clerical assistance
• Costs allocated across projects
9
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Direct & Indirect Costs In a Work Package
Exhibit 9.3

10
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Types of Costs –
Recurring vs....
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