Project Management & Analysis Chapter 7 - Defining the Project Budget and Risk Plans

For CSN - CNA PPD

Analogous Estimating

An estimating technique that uses a similar past project as the approximate cost estimate. It is also known as top-down estimating or order-of-magnitude estimating.

Parametric Estimating

An estimating technique that uses math. Quantity of work times the rate.

Dependant on the accuracy of the data.

Bottom-up Estimating

An estimating technique which uses work effort estimates, which is the total time it will take to complete the task if you did nothing else. Must know the rate for each resource.

Starts at the Work Package Level in the WBS

Three-Point Estimates

An estimating technique which is an average of the most likely, optimistic, and pessimistic estimates. 

Three-Point Estimates - Most Likely

Assumes that cost will be as expected

Three-Point Estimates - Optimistic

Assumes that costs will be less than planned.

Three-Point Estimates - Pessimistic

Assumes costs will be more than planned.

Three-Point Estimates formula

(Most Likely + Optimistic + Pessimistic) / 3

Budgeting

Process of aggregating cost estimates and establishing a cost baseline.

Cost Baseline

Total expected cost for the project.

Contingency Reserve

Money set aside to cover costs resulting from possible adverse events or unexpected issues on the project. All projects should have this.

Is under the discretion of the PM.

Management Reserve

An amount set aside by upper management to cover future situations that cannot be predicted. Typically based on a percentage of total project cost.

Is controlled by upper management.

Expenditure Tracking

Measures the project spending to date. Determines Burn Rate, as well as tracks expenditures to the cost baseline.

Expenditure Reporting

How to report on the current state of the budget.
Can be tracked using a project management software or a spreadsheet.

Earned Value Management

Is a performance measurement technique that compares what the project produced against what was spend

Monitors planned value, earned value, and actual costs.

Planned Value

Cost of work budgeted for an activity or time period.

Actual Cost

Actual cost of completing the work in a given time period.

Earned Value

value of the work completed to date as it compares to the PV for that period.

Cost Variance (CV)

Shows whether costs are higher or lower than budgeted

Cost Variance Formula

CV = EV - AC

Cost Variance / Negative Result

This means that costs are higher than budgeted

Cost Variance / Positive Result

This means that costs are lower than budgeted.

Scheduled Variance (SV)

Compares activity’s actual progress to estimated progress to date in terms of cost.

Scheduled Variance Formula

SV = EV - PV

Scheduled Variance / Negative Result

this means that the project is behind schedule

Scheduled Variance / Positive Result

This means that the project is ahead of schedule.

Cost Performance Index (CPI)

Measures the value of the work completed at the measurement date against the actual cost. Most critical of all EVM measures.

CPI Formula

CPI = EV / AC

CPI Result / Greater

Cost performance is better than expected

CPI Result / Less

Cost performance worse than expected.

Schedule Performance Index (SPI)

Measures the progress to date against the progress that was planned.

SPI Formula

SPI = EV / PV

SPI Results / Less

Performance Schedule is worse than expected

SPI Results / Greater

Schedule performance is better than expected.

Burn Rate

The amount of money being spent over time.

Estimate to Complete (ETC)

Cost estimate for the remaining project work. Estimates are provided by team members.

Risk

Potential future event that can have either a negative or positive impact on the project.

Risk Planning

Managing areas of uncertainty in your project.

Risk Identification

Process of determining and documenting potential risks.

Potential Risk Areas

• Budgets or Funding

• Schedules

• Scope

• Requirement Changes

• Contracts

• Hardware

• Political Concerns

• Management Risks

• Legal Risks

  • Technical Issues

SWOT

Strengths, Weaknesses, Opportunities, and Threats.

Strengths and Weaknesses are generally related to issues that are internal to the organization.

Opportunities and threats are usually external to the organization.

Risk Register

Is a list of risks

Include:

• ID Number

• Risk Name

• Risk Description

• Risk Owner

• Risk Response Plan

Risk Analysis

The process of identifying risks that have the greatest possibility of occurring and the greatest impact if they do occur.

Risk Probability

The likelihood that a risk event will occur.

Measured from 0.0 to 1.0

Risk Impact

Is the consequence or opportunity the risk poses to the project if it occurs.

Measured in High, Medium, and Low

High = 1.0, Med = 0.5, Low = 0.1

Risk Score

The closer it is to 1.0, the more likely it is to occur and have a significant impact on the project.

Risk Response Planning

Process of reviewing the risk analysis and determining what, if any, action should be taken to reduce negative impacts and take advantage of opportunities as a result of a risk event occuring.

Risk Response Strategies – Negative Risks - Avoid

Avoiding the risk altogether or eliminating the cause of the risk event.

Risk Response Strategies – Negative Risks - Transfer

Moving the liability for the risk to a third party by purchasing insurance, performance bonds, and so on

Risk Response Strategies – Negative Risks - Mitigate

Reducing the impact or the probability of the risk.

Risk Response Strategies – Negative & Positive Risks - Accept

Accepting the consequences of the risk.

Risk Response Strategies – Positive Risks - Exploit

Looking for opportunities to take advantage of positive impacts.

Risk Response Strategies – Positive Risks - Share

Assigning the risk to a third party who is best able to bring about the opportunity.

Risk Response Strategies – Positive Risks - Enhance

Monitoring the probability or impact of the risk event to assure benefits are being realized.

Risk Trigger

A sign or precursor signalling that a risk event is about to occur.

How is Burn Rate Typically Calculated?

Using Cost Performance Index (CPI)

Work Effort Estimating

which is the total time it will take for a person to complete the task if they do nothing else from the time they start until the task is complete.