Project Management 3 Project Management 3 Future Managers
Module 4: Project estimation and costing Project Management 3 Future Managers
Module 4: Elements and resources to be costed <ul><li>After completing this outcome, you will be able to: </li></ul><ul><u...
1.1 Identifying the work elements of a given project <ul><li>Can you recall what the four phases of a project are? </li></...
Activity 1 <ul><li>As a knowledge refresher, draw a project life cycle and also indicate the four (4) phases or stages on ...
Tasks or activities <ul><li>What is an activity? </li></ul><ul><ul><li>An activity may be defined as any   task,   job   o...
Tasks or activities <ul><li>An activity box </li></ul>Project Management 3 Future Managers Early start Early finish Float ...
Tasks or activities <ul><li>Activities in series </li></ul>Project Management 3 Future Managers Activity 1 Activity 2 Acti...
Tasks or activities <ul><li>Activities in parallel </li></ul>Project Management 3 Future Managers Activity 1 Activity 2 Ac...
Work package <ul><li>Work packages are a way of modularising the project into manageable segments.  Thus, tracking the pro...
1.2 Identify the cost types of a given project <ul><li>Costing </li></ul><ul><ul><li>Design and calculations </li></ul></u...
Activity 2 - Costing <ul><li>Task 1 </li></ul><ul><ul><li>Page through newspapers for advertisements on material such as: ...
Activity 2 - Costing <ul><li>  Task 2 </li></ul><ul><ul><li>The first group of students can go to a shop selling hardware/...
Activity 2 - Costing <ul><ul><li>The second group of students have to organise a 21 st  birthday (event) and get prices fo...
Activity 2 - Costing <ul><li>To   do: </li></ul><ul><ul><li>Write down the items and prices on a cost-template consisting ...
1.2 Identify the cost types of a given project <ul><li>What is cost estimating? </li></ul><ul><ul><li>Cost estimating invo...
Activity 3: Sydney Opera House <ul><li>Read the article on page 90 and answer the following questions: </li></ul><ul><ul><...
1.2 Identify the cost types of a given project <ul><li>What is cost escalation? </li></ul><ul><ul><li>The   amount   by   ...
1.2 Identify the cost types of a given project <ul><li>Components of estimating costs </li></ul><ul><ul><li>Resource ident...
1.2.2 Tools used to identify necessary resources which will determine the cost of a project <ul><li>The work breakdown str...
1.3 Cost estimating techniques <ul><li>Top down estimating </li></ul><ul><ul><li>The top-down estimating technique, also c...
1.3 Cost estimating techniques <ul><li>Bottom-up estimating </li></ul><ul><ul><li>The bottom-up estimating technique requi...
1.3 Cost estimating techniques <ul><li>Phased estimating </li></ul><ul><ul><li>The   phased   estimating   technique   all...
1.3 Cost estimating techniques <ul><li>Supporting details necessary to create cost estimates </li></ul><ul><ul><li>Some ty...
1.3 Cost estimating techniques <ul><li>Project estimating pitfalls </li></ul><ul><ul><li>Poorly defined project scope </li...
1.3 Cost estimating techniques <ul><li>A common response to the possibility of errors when estimating project costs is to ...
1.4 Project costs <ul><li>Direct costs </li></ul><ul><ul><li>What are direct costs? </li></ul></ul><ul><ul><ul><li>Those c...
1.4 Project costs <ul><li>Indirect costs </li></ul><ul><ul><li>What are indirect costs? </li></ul></ul><ul><ul><ul><li>Ind...
1.4 Project costs <ul><li>Other project related costs </li></ul><ul><ul><li>If a project’s duration is reduced or extended...
1.4 Project costs <ul><li>Project office costs </li></ul><ul><li>Preliminary and general costs </li></ul>Project Managemen...
Activity 4: Direct, indirect and time related costs <ul><li>Now that you know and understand the above mentioned three gro...
Practical 5 <ul><li>Link the cost (pg 103) next to the deliverables, activities and sub-activities of your work breakdown ...
Practical 5 (Solution) Project Management 3 Future Managers
Practical 5 (Solution) Project Management 3 Future Managers
Activity 5 – Direct and indirect costs <ul><li>From the cost information of the project, divide the cost into direct and i...
Activity 5 (Answers) Project Management 3 Future Managers
1.6 Determine the resource requirements of the given project <ul><li>What are the resources used to complete projects? </l...
Project Management 3 Future Managers Deliverable Activities Resource Quantity Cost 1. Digging and laying the foundations H...
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NCV 3 Project Management Hands-On Support Slide Show - Module 4

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This slide show complements the learner guide NCV 3 Project Management Hands-On Training by Bert Eksteen published by Future Managers Pty Ltd. For more information visit our website www.futuremanagers.net

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NCV 3 Project Management Hands-On Support Slide Show - Module 4

  1. 1. Project Management 3 Project Management 3 Future Managers
  2. 2. Module 4: Project estimation and costing Project Management 3 Future Managers
  3. 3. Module 4: Elements and resources to be costed <ul><li>After completing this outcome, you will be able to: </li></ul><ul><ul><li>Identify the work elements of a given project </li></ul></ul><ul><ul><li>Identify cost types (elements) of a given project; </li></ul></ul><ul><ul><li>Assess a given project for work elements and cost types (elements) of the project; </li></ul></ul><ul><ul><li>Determine the resource requirements of the given project, in terms of type, quantity and unit cost, and document in an agreed format. </li></ul></ul>Project Management 3 Future Managers
  4. 4. 1.1 Identifying the work elements of a given project <ul><li>Can you recall what the four phases of a project are? </li></ul><ul><ul><li>Idea generating or initiation phase </li></ul></ul><ul><ul><li>Planning (and development) phase </li></ul></ul><ul><ul><li>Execution </li></ul></ul><ul><ul><li>Close-out (handover) phase </li></ul></ul>Project Management 3 Future Managers
  5. 5. Activity 1 <ul><li>As a knowledge refresher, draw a project life cycle and also indicate the four (4) phases or stages on the cycle </li></ul>Project Management 3 Future Managers
  6. 6. Tasks or activities <ul><li>What is an activity? </li></ul><ul><ul><li>An activity may be defined as any task, job or operation that must be performed to complete the work package or project </li></ul></ul><ul><ul><li>In a network diagram, an activity is always represented by an identity number and is represented by a box </li></ul></ul>Project Management 3 Future Managers
  7. 7. Tasks or activities <ul><li>An activity box </li></ul>Project Management 3 Future Managers Early start Early finish Float Activity number Description Duration Late start Late finish
  8. 8. Tasks or activities <ul><li>Activities in series </li></ul>Project Management 3 Future Managers Activity 1 Activity 2 Activity 3
  9. 9. Tasks or activities <ul><li>Activities in parallel </li></ul>Project Management 3 Future Managers Activity 1 Activity 2 Activity 4 Activity 3
  10. 10. Work package <ul><li>Work packages are a way of modularising the project into manageable segments. Thus, tracking the progress of work packages is a way to assess and control the work done on a project </li></ul><ul><li>By breaking work into work packages, you can determine the skills you need to complete the work on a project, and you can quantify how many people will be required to do the work </li></ul><ul><li>Work packages allow you to communicate the work that needs to be done to other team members without getting into too much detail </li></ul>Project Management 3 Future Managers
  11. 11. 1.2 Identify the cost types of a given project <ul><li>Costing </li></ul><ul><ul><li>Design and calculations </li></ul></ul><ul><ul><li>Scope of work, bill of materials and parts list </li></ul></ul><ul><ul><li>Detail planning </li></ul></ul><ul><ul><li>Firm prices from subcontractors and suppliers, man hours and labour cost </li></ul></ul><ul><li>Cost budgeting </li></ul>Project Management 3 Future Managers
  12. 12. Activity 2 - Costing <ul><li>Task 1 </li></ul><ul><ul><li>Page through newspapers for advertisements on material such as: bathroom items, building material, hardware, etc. </li></ul></ul><ul><ul><li>Write down a few items and their prices; to add them up and get a total price. </li></ul></ul>Project Management 3 Future Managers
  13. 13. Activity 2 - Costing <ul><li>  Task 2 </li></ul><ul><ul><li>The first group of students can go to a shop selling hardware/building material and ask for prices for the following items: </li></ul></ul><ul><ul><ul><li>Cement (per bag) </li></ul></ul></ul><ul><ul><ul><li>Building bricks (cost per brick + cost per 500 / 1000) </li></ul></ul></ul><ul><ul><ul><li>PVC gutters (1.8m or different lengths) </li></ul></ul></ul><ul><ul><ul><li>PVC down pipes; Roof tiles (per tile or per package) </li></ul></ul></ul><ul><ul><ul><li>Building sand (per cubic meter) </li></ul></ul></ul><ul><ul><ul><li>Exterior paint (prices for 500ml, 1 liter, 5 liter, 20 liter); </li></ul></ul></ul><ul><ul><ul><li>2 x claw-hammer; </li></ul></ul></ul><ul><ul><ul><li>2 x jigsaw; </li></ul></ul></ul><ul><ul><ul><li>200 x wooden nails </li></ul></ul></ul>Project Management 3 Future Managers
  14. 14. Activity 2 - Costing <ul><ul><li>The second group of students have to organise a 21 st birthday (event) and get prices for: </li></ul></ul><ul><ul><ul><ul><li>Catering (3 course meal per person/head); </li></ul></ul></ul></ul><ul><ul><ul><ul><li>DJ (music – rate per hour or rate per event) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Venue </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Table clothes (25) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Crockery (25 tables, ten guest per table) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Drinks (50 x 2 liter Coke, 25 cases Beer, 25 Bottles champagne, 75 Bottles White Wine) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Note: Find out best price per unit or per pack (quantity) – e.g. wine per bottle or per 6/12 bottle or 2/5 liters </li></ul></ul></ul></ul>Project Management 3 Future Managers
  15. 15. Activity 2 - Costing <ul><li>To do: </li></ul><ul><ul><li>Write down the items and prices on a cost-template consisting of the following columns: item; quantity; price per unit and cost </li></ul></ul><ul><ul><li>Determine the total cost of the exercise. </li></ul></ul>Project Management 3 Future Managers
  16. 16. 1.2 Identify the cost types of a given project <ul><li>What is cost estimating? </li></ul><ul><ul><li>Cost estimating involves developing an assessment of the likely quantitative result – how much will it cost the performing organisation to provide the product or service involved </li></ul></ul><ul><li>What is pricing? </li></ul><ul><ul><li>Pricing is a business decision – how much will the performing organization charge for the product or service – that uses the cost estimate as but one consideration of many </li></ul></ul>Project Management 3 Future Managers
  17. 17. Activity 3: Sydney Opera House <ul><li>Read the article on page 90 and answer the following questions: </li></ul><ul><ul><li>If you were to plan a project, would you use the work (sketches) of Jorn Utzon? </li></ul></ul><ul><ul><li>What was the cost escalation over the project duration – from start to finish? </li></ul></ul><ul><ul><li>What was the time duration of the project? </li></ul></ul><ul><ul><li>Why did the government of Australia decide to continue with the project? </li></ul></ul><ul><ul><li>From the design of Utzon, what was the first problem encountered when building the Sydney Opera House? </li></ul></ul><ul><ul><li>Could we link this “problem” to an environmental factor, and if so, which environment factor? </li></ul></ul><ul><ul><li>Are you aware of a project (specifically a building) in South Africa which is also under an environmental threat? </li></ul></ul><ul><ul><li>Work out how many times the final cost exceeded the original cost </li></ul></ul>Project Management 3 Future Managers
  18. 18. 1.2 Identify the cost types of a given project <ul><li>What is cost escalation? </li></ul><ul><ul><li>The amount by which actual costs increase to overrun the initial estimated costs is referred to as cost escalation </li></ul></ul><ul><li>Reasons for cost escalation </li></ul><ul><ul><li>Uncertainty and lack of accurate information </li></ul></ul><ul><ul><li>Changes in design or requirements </li></ul></ul><ul><ul><li>Economic and social variables in the environment </li></ul></ul><ul><ul><li>Work efficiency, poor communication, and lack of control </li></ul></ul><ul><ul><li>Ego involvement of the estimator </li></ul></ul><ul><ul><li>Nature of project contract </li></ul></ul>Project Management 3 Future Managers
  19. 19. 1.2 Identify the cost types of a given project <ul><li>Components of estimating costs </li></ul><ul><ul><li>Resource identification - involves planning and deciding what resources are needed to complete project activities </li></ul></ul><ul><ul><li>Cost approximating - entails estimating project costs </li></ul></ul><ul><ul><li>Cost budgeting - involves allocating the estimated project costs to specific project activities </li></ul></ul><ul><ul><li>Cost control - involves identifying the managing changes to project costs. </li></ul></ul>Project Management 3 Future Managers
  20. 20. 1.2.2 Tools used to identify necessary resources which will determine the cost of a project <ul><li>The work breakdown structure </li></ul><ul><li>History </li></ul><ul><li>A description of available services </li></ul><ul><li>Experts </li></ul><ul><li>The scope statement </li></ul>Project Management 3 Future Managers
  21. 21. 1.3 Cost estimating techniques <ul><li>Top down estimating </li></ul><ul><ul><li>The top-down estimating technique, also called analogous estimating, is a technique that requires upper (top) management to examine past data from similar projects to develop a cost estimate for the current project </li></ul></ul><ul><ul><li>In addition to past project data, top-down estimates are based on the manager’s experience, or expert judgment. </li></ul></ul>Project Management 3 Future Managers
  22. 22. 1.3 Cost estimating techniques <ul><li>Bottom-up estimating </li></ul><ul><ul><li>The bottom-up estimating technique requires a cost estimate to be developed for each of the work packages in the WBS. Then, once the cost of each work package is estimated, the estimates can be added together to compile the total project cost estimate </li></ul></ul>Project Management 3 Future Managers
  23. 23. 1.3 Cost estimating techniques <ul><li>Phased estimating </li></ul><ul><ul><li>The phased estimating technique allows a project to be broken into phases, with separate cost estimates being done for each phase, rather than for an entire project. </li></ul></ul><ul><ul><li>Easier to use than other methods </li></ul></ul><ul><ul><li>Results are more accurate </li></ul></ul><ul><ul><li>Decreases the project team’s risk </li></ul></ul>Project Management 3 Future Managers
  24. 24. 1.3 Cost estimating techniques <ul><li>Supporting details necessary to create cost estimates </li></ul><ul><ul><li>Some types of supporting data are: </li></ul></ul><ul><ul><li>A description of the scope of the work for which cost estimates were done </li></ul></ul><ul><ul><li>A description of how the estimates were made for each work package </li></ul></ul><ul><ul><li>Reference to any historical data used to make the estimates </li></ul></ul><ul><ul><li>A list of any assumptions made when creating the estimates. </li></ul></ul><ul><ul><li>Estimates should be expressed in terms of currency </li></ul></ul>Project Management 3 Future Managers
  25. 25. 1.3 Cost estimating techniques <ul><li>Project estimating pitfalls </li></ul><ul><ul><li>Poorly defined project scope </li></ul></ul><ul><ul><li>Inadequately defined schedule </li></ul></ul><ul><ul><li>Incorrect work breakdown structure (WBS) </li></ul></ul><ul><ul><li>Failure to account for information </li></ul></ul><ul><ul><li>Inaccurate use of estimating techniques </li></ul></ul><ul><ul><li>Failure to account for overhead costs </li></ul></ul>Project Management 3 Future Managers
  26. 26. 1.3 Cost estimating techniques <ul><li>A common response to the possibility of errors when estimating project costs is to simply increase all cost estimates by 5% to 10%. </li></ul><ul><li>Some cost estimating problems include: </li></ul><ul><ul><li>The price of resources can change over the course of a project </li></ul></ul><ul><ul><li>Project resources can spoil or be wasted, so you should include a cost allowance for problems and have more resources available than necessary </li></ul></ul><ul><ul><li>Costs are frequently understated in order to make the project seem more attractive to stakeholders </li></ul></ul><ul><ul><li>Sometimes problems occur without any explanation </li></ul></ul>Project Management 3 Future Managers
  27. 27. 1.4 Project costs <ul><li>Direct costs </li></ul><ul><ul><li>What are direct costs? </li></ul></ul><ul><ul><ul><li>Those costs that can be specifically identified with an activity or project </li></ul></ul></ul><ul><ul><li>Direct costs include </li></ul></ul><ul><ul><ul><li>Direct management costs </li></ul></ul></ul><ul><ul><ul><li>Direct labour costs </li></ul></ul></ul><ul><ul><ul><li>Direct material costs </li></ul></ul></ul><ul><ul><ul><li>Direct equipment costs </li></ul></ul></ul><ul><ul><ul><li>Direct expenses </li></ul></ul></ul><ul><ul><ul><li>Travel cost </li></ul></ul></ul><ul><ul><ul><li>Legal fees </li></ul></ul></ul><ul><ul><ul><li>Training </li></ul></ul></ul><ul><ul><ul><li>Marketing / Advertising </li></ul></ul></ul>Project Management 3 Future Managers
  28. 28. 1.4 Project costs <ul><li>Indirect costs </li></ul><ul><ul><li>What are indirect costs? </li></ul></ul><ul><ul><ul><li>Indirect costs, also called overhead costs, are those costs that cannot be directly booked to an activity or project, but are required to keep the company operational </li></ul></ul></ul><ul><ul><li>Indirect costs include </li></ul></ul><ul><ul><ul><li>Indirect management costs </li></ul></ul></ul><ul><ul><ul><li>Indirect labour costs </li></ul></ul></ul><ul><ul><ul><li>Indirect materials </li></ul></ul></ul><ul><ul><ul><li>Indirect equipment </li></ul></ul></ul><ul><ul><ul><li>Indirect expenses </li></ul></ul></ul><ul><ul><ul><li>Facilities </li></ul></ul></ul>Project Management 3 Future Managers
  29. 29. 1.4 Project costs <ul><li>Other project related costs </li></ul><ul><ul><li>If a project’s duration is reduced or extended how will the costs change? To do this calculation you need to determine how costs are affected by time. The following have to be considered: </li></ul></ul><ul><ul><ul><li>Rent increases with time </li></ul></ul></ul><ul><ul><ul><li>Running costs increase with time </li></ul></ul></ul><ul><ul><ul><li>If the project’s duration is reduced, employee labour rate will increase if the workers have to work overtime </li></ul></ul></ul><ul><ul><ul><li>Contract labour on a fixed rate is not affected by time, but their productivity may reduce if they have to work long hours </li></ul></ul></ul><ul><ul><ul><li>Fixed price contracts may not be affected by time </li></ul></ul></ul>Project Management 3 Future Managers
  30. 30. 1.4 Project costs <ul><li>Project office costs </li></ul><ul><li>Preliminary and general costs </li></ul>Project Management 3 Future Managers
  31. 31. Activity 4: Direct, indirect and time related costs <ul><li>Now that you know and understand the above mentioned three groups/types of cost (direct, indirect and time-related cost) divide into your groups and do the following: </li></ul><ul><ul><li>Imagine that you are working on a project – list all the sub-costs from the three main groups of cost. </li></ul></ul><ul><ul><li>Link a cost (or price) to each of the sub-costs (try to stay realistic) and add it up </li></ul></ul><ul><ul><li>The total amount of your cost is your “budget” (remember this is just an exercise and need not be 100% correct!) </li></ul></ul>Project Management 3 Future Managers
  32. 32. Practical 5 <ul><li>Link the cost (pg 103) next to the deliverables, activities and sub-activities of your work breakdown structure (WBS) – you may either do it in your manual or you may re-do the WBS and then add the cost next to the deliverables, activities or sub-activities </li></ul><ul><li>Calculate a cost estimation for the project – on the given template on page 104 (Annexure A) </li></ul>Project Management 3 Future Managers
  33. 33. Practical 5 (Solution) Project Management 3 Future Managers
  34. 34. Practical 5 (Solution) Project Management 3 Future Managers
  35. 35. Activity 5 – Direct and indirect costs <ul><li>From the cost information of the project, divide the cost into direct and indirect costs and complete the template on page 105 </li></ul>Project Management 3 Future Managers
  36. 36. Activity 5 (Answers) Project Management 3 Future Managers
  37. 37. 1.6 Determine the resource requirements of the given project <ul><li>What are the resources used to complete projects? </li></ul><ul><ul><li>People </li></ul></ul><ul><ul><li>Facilities </li></ul></ul><ul><ul><li>Equipment </li></ul></ul><ul><ul><li>Expenses </li></ul></ul><ul><ul><li>Materials </li></ul></ul><ul><li>Careful resource planning allows you to know what resources are required for each work package </li></ul>Project Management 3 Future Managers
  38. 38. Project Management 3 Future Managers Deliverable Activities Resource Quantity Cost 1. Digging and laying the foundations Hire a trencher for the digging work Cement Machine + Operator 1 R500 p/h 2. Building of house Building of walls Put up roof Labour Labour; Material 4 x Builders 4 x Brick layers 8 x Labourers Rate per hour Rate per hour 3. Plumbing work Bathrooms; kitchen; Laundry Labour; Material 1 x Plumber 2 x Labourer Rate per hour 4. Electricity work Pipes; wire and plugs; light fittings Labour; material 2 x Electricians 2 x Labour Rate per hour 5. Paint work (outside and inside) Paint of outside and inside walls Labour; material 4 x Painters Rate per hour

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