Uploaded by tinedayot

Module 2

Module 2: Project Preparation and Design
§ Goal Hierarchy
The Goals breakdown structure (GBS)
The term "goal breakdown structure" was coined by Stephen
Gershenson, working with Michael B Bender and Stuart Syme in the late
1990s. The concept was first presented in project management seminars
during this period.
 The first publication introducing the GBS was in Bender's first book:
Setting Goals and Expectations.
 Mr. Bender embellished on the topic in his second book, A
Manager's Guide to Project Management
 In the latter publication, Bender expanded the concept to apply to
the organization as a whole, based partly on the works of David P.
Norton and Robert S. Kaplin in The Balanced Scorecard.
 is a hierarchical structure linking high-level objectives or goals to
more detailed goals.
 was originally developed for project management, but applies to
product development and the organization as a whole.
 The concept is based on the Work Breakdown Structure (WBS)
popular in the project management discipline.
 Like the WBS, project goals exhibit a hierarchical structure.
 The highest-level defines the overall goal or mission for the project.
 The next level down sets the goals the organization intends to
achieve from the project.
 These might include such items as profit, market share, etc.
 The next layer down defines the features the products must exhibit
to achieve the organization's goals.
 The next layer down defines the specifications each product or
component of the product must have to meet the products features.
The GBS is the culmination of three concepts:
 the hierarchical relationship of product development,
 The concept of a hierarchical relationship among objectives in
product development was identified by Joseph M. Juran in
Juran's Quality Control Handbook[3] where he states in section
2.2, subsection Hierarchy of Product Features, "Products exist in
a sort of hierarchical or pyramidal organization. At the apex is the
overall product or system. Below the apex are multiple layers
made up of subsystems, components, etc. At each layer, the
products have features which must be defined by specifications
and procedures." The project work that creates the product,
therefore, contains similar characteristics.
 the work breakdown structure and
 The work breakdown structure is a hierarchical decomposition of
the work to be done in a project.
 requirements traceability.
 Requirements traceability also became popular in the mid 1980s,
particularly regarding medium and large-scale government
projects. The idea of requirements traceability is to demonstrate
the need for a particular project requirement or work element by
showing how it is needed to achieve particular goals.
The GBS follows two rules for decomposition.
1. Nothing missing. Each layer must contain all the goals needed to
ensure the project achieves the next higher level goals.
2. Nothing extra. No layer should contain any extraneous goals; goals
not needed to achieve the layer above.
The first rule ensures success of the layer above. The second rule
prevents the project from exhibiting extra scope and work that doesn't
add value to the organization, saving time and money.
While the specific implementation of the GBS may vary from project to
project, the classic implementation contains four layers or tiers. These
 Project goal or mission statement
 Business objectives
 Project requirements
 Product specifications
Project Goal or Mission Statement
In the original work, the highest level of the Goals breakdown structure
is the project's goal or mission statement. This layer exhibits slightly
different characteristics to the other tiers as its primary objective differs.
The goal of the project mission or goal statement is to maintain the
focus of the project team and stakeholders. Therefore, it is the one layer
of the GBS that is not all-inclusive (it violates the Nothing Missing rule).
Business Objectives
The next layer down contains the business objectives for the project.
This is a list of objectives the organization's senior management expects
from the project. Often, these objectives tie directly to the
organization's strategic plan and include such items as: Return on
Investment (ROI), Net Present Value (NPV), market share, efficiency
improvement, etc. This is the first layer that must satisfy both rules.
Project Requirements
The third tier contains the project's requirements. This is a list of both
project and product characteristics required to achieve the business
objectives. These include all the features, functions and characteristics
that the project's deliverables must exhibit to achieve the business
objectives. This also includes all the project's operational requirements
and constraints needed by senior management. For larger programs, this
tier may contain more than one layer. For example:
 Program Layer
 Project Layer
 Sub-project layer
Product Specifications
This tier identifies all the specifications for the project's products. This
tier may contain more than one layer as show below:
 Product Specifications
 Component Specifications
 Sub-component Specifications
§ Logical Framework
 The Logical Framework Approach (LFA) is an analytical process and
set of tools used to support project planning and management.
 According to the World Bank (2000), “the Logical Framework has the
power to communicate the essential elements of a complex project
clearly and succinctly throughout the project cycle.
 It is used to develop the overall design of a project, to improve the
project implementation monitoring and to strengthen periodic
project evaluation” (see also participatory monitoring and
 It provides a set of interlocking concepts which are used as part of an
iterative process to aid structured and systematic analysis of a
project or programme idea (EUROPEAN COMMISSION 2004).
 LFA is best started early in activity design, and should be thought as
an ‘aid to thinking’.
 It allows information to be analysed and organised in a structured
way, so that important questions can be asked, weaknesses
identified and decision makers can make informed decisions based
on their improved understanding of the project rationale, its
intended objectives and the means by which objectives will be
achieved (EUROPEAN COMMISSION 2004).
 A frequent problem with the application of the logframe approach is
that the planning process and the preparation of the matrix are
carried out separately from the project proposal or the budget,
resulting in inconsistencies between the contents of the logframe
matrix and the description of the project contained in the narrative
of the main documents.
 Therefore, the application of the LFA should come first, and then
provide the needed information for completing the other required
There is a clear distinction between the Logical Framework Approach
and the Logical Framework Matrix.
The first refers to the steps involved in planning and designing the
project. These steps include a stakeholder analysis, cause-effect analysis,
objectives analysis, and alternatives analysis culminating in the design of
the project. The matrix, which summarises the final design of the project,
usually comprises 16 frames organised under 4 major headings
Logical Framework Approach (Analytical Process)
Factsheet Block Body
(Adapted from AUSAID 2005)
Before starting with the activity design and the construction of the
logframe matrix, it is important to undertake a structured analysis of the
existing situation.
LFA incorporates four main analytical elements to help guide this
Problem Analysis: involves identifying what the main problems are and
establishing the cause and effect relationships which result in, and flow
from, these problems (see also problem and preference ranking, or
problem tree analysis as methods for problem identification).
Stakeholder Analysis: having identified the main problems and the cause
and effect relationship between them, it is then important to give
further consideration to who these problems actually impact on most,
and what the roles and interests of different stakeholders might be in
addressing the problems and reaching solutions (see also stakeholder
Analysis of Objectives: objective trees should be prepared after the
problem tree has been completed and an initial stakeholder analysis
(learn more about it starting by the stakeholder identification factsheet)
has been undertaken. This will give an image of an improved situation in
the future.
Analysis of Strategies: comparison of different options to address a given
The Logical Framework Matrix (Logframe)
Factsheet Block Body
The results of the stakeholder, problem, objectives and strategy analysis
are used as the basis for preparing the Logical Framework Matrix.
The Logical Framework Matrix (or more briefly the logframe) consists of
a matrix with four columns and four (or more) rows, which summarise
the key elements of a project plan and should generally be between 1
and 4 pages in length. However, this will depend on the scale and
complexity of the project.
§ Project Strategy
 Project strategy is a direction in a project that contributes to the
success of the project in its environment.
 Our project strategy definition is designed to allow for different kinds
of project strategies that individual projects may have.
How to develop a project strategy
The key is to establish a systematic prioritization process for
project managers and stakeholders to follow so everyone is on
the same page. Exactly what that process looks like will be
specific to your organization or business, but the basic steps
should include:
Identifying the organization’s vision and purpose
Setting priorities based on that vision
Outlining specific projects to execute the strategy
Assigning the right people for the job
Measuring performance based on outcomes
Determine organizational vision
A vision describes what the organization will look like in the future and
directs the goals, initiatives, and decisions throughout the company.
Every organization should have a documented vision. If you aren’t aware
of what yours is, talk to the organization’s leadership and get a copy. As
you work towards aligning and prioritizing your projects, keep this vision
top of mind. It will focus and direct your efforts as you evaluate each
Outline a strategy to execute that vision
Once you know where you want to go, you can create a strategy to get
there. A strategy breaks down your vision into actionable steps,
including high-level projects and initiatives to achieve those goals. In
other words, it is your roadmap for success.
An organizational strategy encompasses the high-level, long-term goals
for the organization. Common corporate strategies include:
 Growth
 Diversification
 Stabilizing
 Retrenching
 Horizontal or vertical integration
For example, a growth strategy might involve opening new business
locations or building your customer base.
Whatever your overarching strategy, be specific in your goals and
outlined approach. The better you can define your strategy, the easier it
will be to create and prioritize projects to meet those goals.
Prioritize projects based on vision
With a clear vision and outlined strategy, you can more effectively
prioritize projects that best align with your organizational goals.
Here are a few steps you should include in your prioritization process.
1. Take inventory of on-going projects
Before you can prioritize your projects, you need to know exactly what
projects are in progress. Take inventory of on-going projects and
initiatives across the organization (or your own team or department if
you’re a project manager).
As you take inventory, evaluate each project and make sure all projects
have a clear scope and project plan. This evaluation will help you
recognize projects that are on track and well aligned versus projects that
are wavering.
2. Eliminate or adjust projects as needed
Keep in mind that not all projects that initially got the OK to launch are
worth pursuing. Sometimes it’s better to cut your losses so you can
refocus your attention and resources on more meaningful and impactful
3. Review your project inventory and cut (or redefine) projects that do
not align with the organization’s vision and strategy.
All projects should have:
 A clear goal
 Strategic alignment
 Key deliverables
4. Get senior-level buy-in
Executives and other organizational leaders should communicate with
project managers on strategic goals and help to prioritize initiatives and
allocate resources.
5. Create a flowchart (decision tree) to prioritize projects
Successful prioritization allocates resources (time, money, people) in a
way that maximizes benefits. But it can be difficult to determine how to
allocate your resources when you’re faced with pages of project plans
and timelines.
To make this process easier, use flowcharts or decision trees to walk you
through the process. By visualizing the data and following a prioritization
roadmap, you can more easily identify project needs like gaps in
alignment and ensure the right people are assigned to the right tasks at
the right time.
Once you’ve prioritized your project portfolios, use project dashboards
to keep projects on track. Dashboards collect important data into quick,
at-a-glance visuals and can help you ensure continued strategic
alignment. These data and metrics give you the big picture on the
current health of a project and help managers identify issues as they
§ Technology Strategy
A successful technology strategy involves the documentation of planning
assumptions and the development of success metrics. These establish a
mission-driven strategy, which ensures that initiatives are aligned with
the organization's goals and objectives.
How does technology affect project management?
Secure Project Resources
A significant benefit of technology's impact on project management is
the storage of information via the cloud. By keeping your critical
resources in the cloud, team members can access documents, images
and more with ease — and without a never-ending email chain
How Tech Will Affect Project Management
For project managers, there are always challenges. From coordinating
team members to reviewing last-minute revisions, your skills are
constantly evolving. Thanks to technology advancements, like cloud
computing and the Internet of Things, project management’s becoming
easier for everyone involved.
1. Communications
Remember the days of coordinating projects in the conference room?
With cloud computing, as well as mobile applications and project
management software, teams can discuss and work on projects around
the country.
In fact, more than 40 percent of employees work remotely, which offers
companies the opportunity to recruit talent from across the globe. Even
though your company’s home base is on the west coast, for example,
you could partner with a specialist on the east coast for a short-term
2. Access Projects Anywhere, Anytime
Whether your team’s based at the same location or spread across
multiple offices, your project materials are always accessible with
cloud-based project management software. As updates sync
automatically, you can trust everyone’s accessing the most up-to-date
version, eliminating time waste.
In the past, cloud-based project management software was too
expensive for many small- and medium-sized businesses to afford. Now,
it’s an easy and smart investment, which provides companies with
limited resources the opportunity to do more.
3. Integrate Management Programs
Compatibility’s a significant issue with project management. Even with
the convenience of cloud computing, as well as cloud-based project
management software, many teams experience the headache of
transferring data from one program to another.
That’s ending. Many programs are now compatible with a range of
applications, such as Microsoft Office, Salesforce, Outlook and other
must-have programs. As a sign of the change, new quality management
system standards are starting in September 2018, which more than a
million companies must meet.
4. Connect International Teams
Uniting their various office locations is a challenge many larger
companies with an international presence encounter. From ensuring the
respect of cultural values to determining the language of choice for
communications, it’s a balancing act when undertaking a company-wide
Because of the growth of cloud-based programs and mobile applications,
it’s easier for teams to connect around the globe. It’s also simple for you
to establish procedures, such as for the preferred language in
communications. Many of these tools are also applicable when
communicating with potential clients.
5. Secure Project Resources
A significant benefit of technology’s impact on project management is
the storage of information via the cloud. By keeping your critical
resources in the cloud, team members can access documents, images
and more with ease — and without a never-ending email chain.
Another advantage of using the cloud for storage is its security. In 2018,
more than half of companies that use cloud storage, as well as its
visibility and control tools, are predicted to reduce their security failures
by one-third, in comparison to businesses that do not use cloud storage.
6. Solve Real-Time Issues
It’s normal for problems to arise when collaborating on a new project.
With mobile applications, team members can connect quickly and alert
you about issues they’re encountering, whether with a file or the
direction of the project.
By responding to issues fast, your team can keep delays to a minimum. If
preferred, you can also have co-workers notify you of problems within
your cloud-based project management software to eliminate email
7. Meet Project Deadlines
Not all projects meet their due dates. Whether due to lost files,
miscommunication or another reason, it’s not an uncommon occurrence.
With new technology, however, it’s becoming less frequent and
providing project managers a reason to celebrate — though some argue
removing deadlines increases productivity.
Through cloud-based project management software, it’s seamless for
you to issue deadline reminders. With the convenience of these
programs, you can also set smaller deadlines for project features, such
as the writing and editing of a proposal or slideshow for your project.
With the significant advancements in technology in the last decade,
businesses are accomplishing more in less time. For project managers,
that’s translated to improved communications, documentation and
productivity among teams across the world.
§ Organizational Strategy
A good organizational strategy can help align your team, address your
vision, mission, and goals, and help you implement strategic initiatives
organization wide. Each project should ideally support this overall
strategy, and the project management framework you choose will help
you follow through on your projects.
How to Align Your Project Organizational Strategy and Management
While strategic planning and project management are not the same,
they are closely related, and they both deserve attention.
Think of strategic planning on a macro level, as something that is
organization wide. Project management, however, is on a micro level, as
it can be applied to individual projects throughout your organization,
and across various departments. Project management can also be
employed as a part of the implementation phase of your strategic plan.
A good organizational strategy can help align your team, address your
vision, mission, and goals, and help you implement strategic initiatives
organization wide. Each project should ideally support this overall
strategy, and the project management framework you choose will help
you follow through on your projects.
Ideally, your entire team will be onboard with your organizational
strategy so that each employee and member of the leadership team is
aligned on a common direction. If this is not the case, and you find that
your organization is operating in communication silos, a strategy review
is a great place to begin. A strategic plan is not simply a document on a
shelf, but ideally a fluid roadmap that can guide your organization
towards achieving its goals. To achieve this, we recommend reviewing
your strategy on an ongoing basis, such as yearly or quarterly.
Once your team is aligned, and you are happy with your strategic plan,
here are some great ways you can align your strategy and project
management style:
1. Prioritize:
Decide which initiatives or projects are organizational priorities. Break
them down into actionable steps, and make sure you understand the
scope of each project.
2. Choose your framework:
There are many, so it's important to decide on a project management
methodology that best suits your project and strategy.
If you’re in a fast moving organization that is quickly affected by
technological advances, or are working on projects across many small
teams, perhaps an agile or scrum methodology best fits your values.
These frameworks are great for quick adjustments, so you can make
mistakes (and fix them) quickly, and adapt the project along the way.
If your organization is slower moving, with a more bureaucratic structure,
a more traditional phased approach to project management, such as
Waterfall, may work best. This is a more linear and sequence based
There are a multitude of project management methodologies, and some
organizations may choose to employ different frameworks for different
projects. Each methodology has strengths and weaknesses, so it’s
important to choose the one that works best for the style of project you
are working on and that will pair well with your organization’s strategic
3. Understand the roles of leadership in your organization:
Leadership is a crucial part of your organization, and it has a big impact
on your company’s culture. Make sure your leadership team
understands your organizational strategy and is committed to
empowering their team(s) and can support them through the project
management process, whether directly or indirectly. Communication
should not be undervalued!
4. Get the work done:
An aligned team is an empowered team, and an aligned team with good
leadership and a strong project management framework has a better
chance of follow through, which is crucial for success. Implementation is
an essential part of both strategic planning and project management.
5. Review and measure your work:
Project management does not end with the completion of a project. Just
like strategy should be reviewed, so should your projects. Consider the
product as well as stakeholders in the review process.
If you’ve chosen a methodology such as scrum, project reviews will
occur throughout the project timeframe, and on an ongoing basis. For
quick moving projects, check in on scope creep, as this is a common
issue that can arise.
For frameworks such as waterfall, it is important to review the project
upon completion and understand what worked well and what may not
have worked as well. However, it’s often a good idea to have a
mid-project review to make sure the project still aligns with your
organization and is moving in the right direction.
6. Know when to stop or when to push forward:
While implementation and follow through are crucial to success, not
every project will get finished, and that’s ok. By including your
employees and leadership teams to be involved in the strategic planning
process, they will be empowered to make crucial decisions as to which
projects should be completed and which should not.
§ Scheduling
Scheduling in project Management
 Scheduling in project management is the listing of activities,
deliverables, and milestones within a project.
 A schedule also usually includes the planned start and finish date,
duration, and resources assigned to each activity.
 Effective project scheduling is a critical component of successful time
What Is Project Scheduling?
Project scheduling is a mechanism to communicate what tasks need to
get done and which organizational resources will be allocated to
complete those tasks in what timeframe. A project schedule is a
document collecting all the work needed to deliver the project on time.
But when it comes to creating a project schedule, well, that’s something
few have deep experience with. What and who is being scheduled, and
for what purposes, and where is this scheduling taking place, anyway?
A project is made up of many tasks, and each task is given a start and
end (or due date), so it can be completed on time. Likewise, people have
different schedules, and their availability and vacation or leave dates
need to be documented in order to successfully plan those tasks.
Whereas people in the past might have printed calendars on a shared
wall in the water-cooler room, or shared spreadsheets via email, today
most teams use online project scheduling tools. Typically, project
scheduling is just one feature within a larger project management
software solution, and there are many different places in the software
where scheduling takes place.
For example, most tools have task lists, which enable the manager to
schedule multiple tasks, their due dates, sometimes the planned effort
against that task, and then assign that task to a person. The software
might also have resource scheduling, basically the ability to schedule the
team’s availability, but also the availability of non-human resources like
machines or buildings or meeting rooms.
Example of a project schedule on a Gantt chart
An example of a project schedule on a Gantt chart
Because projects have so many moving parts, and are frequently
changing, project scheduling software automatically updates tasks that
are dependent on one another, when one scheduled task is not
completed on time. It also generates automated email alerts, so team
members know when their scheduled tasks are due or overdue, and to
let the manager know when someone’s availability has changed.
Project scheduling is simple when managed online, thankfully, especially
since the software does all the hard part for you!
How to Schedule a Project
Before going deeper into project scheduling, let’s review the
fundamentals to project scheduling. Project scheduling occurs during the
planning phase of the project. You have to ask yourself three questions
to start:
1. What needs to be done?
2. When will it be done?
3. Who will do it?
Once you’ve got answers to these questions, then you can begin to plan
dates, link activities, set the duration, milestones and resources.
The following are the steps needed to schedule a project:
1. Define Activities
What are the activities that you have to do in the project? By using a
Work Breakdown Structure (WBS) and a deliverables diagram, you can
begin to take these activities and organize them by mapping out the
tasks necessary to complete them in an order than makes sense.
2. Do Estimates
Now that you have the activities defined and broken down into tasks,
you next have to determine the time and effort it will take to complete
them. This is an essential piece of the equation in order to calculate the
correct schedule.
3. Determine Dependencies
Tasks are not an island, and often one cannot be started until the other
is completed. That’s called a task dependency, and your schedule is
going to have to reflect these linked tasks. One way to do this is by
putting a bit of slack in your schedule to accommodate these related
4. Assign Resources
The last step to finalizing your planned schedule is to decide on what
resources you are going to need to get those tasks done on time. You’re
going to have to assemble a team, and their time will need to be
scheduled just like the tasks.
How to Maintain Your Schedule Once the Project Is Initiated
Once you’ve got all the pieces of your schedule together, the last thing
you want to do is manually punch it into a static document like an Excel
spreadsheet. Project management software can automate much of the
process for you. But not all project management software is the same.
There are programs on the market that are great for simple scheduling
duties, but when you’re leading a project, big or small, you need a tool
that can adapt to the variety of scheduling issues you’re going to need to
track. Like noted above, there are three tiers of scheduling: tasks, people
and projects.
Scheduling Tasks
Now that we’ve reviewed how software can help, let’s get back to the
basics of scheduling. What you want when scheduling tasks is not a
glorified to-do list, but a smart software that gives you the flexibility to
handle the variety of responsibilities attached to each tasks in your
An interactive Gantt chart is crucial. You can add tasks and dates into
your Gantt chart to have a visual representation of each task’s duration.
Better still, as dates change—as they inevitably do—you can simply drag
and drop those changes and the whole Gantt chart is updated instantly.
There’s also automating processes to help with efficiencies. Email
notifications are a great way to know immediately when a team member
has completed a task. When they update, you know because your
software is online and responding in real-time.
Continuing with automation, it’s one way to scheduling tasks more
efficiently. If there are recurring tasks on a project, they can be
scheduled in your PM tool so that once set you don’t have to worry
about scheduling the same task over and over again.
Scheduling People
Your tasks aren’t going to complete themselves. That’s why you have
assembled a team, but if that team isn’t scheduled the way you have
carefully scheduled your task list, then you’re not managing your
Over the course of a project’s lifecycle team members are going to take
off for holidays, personal days or vacation. If you’re not prepared for
these times, and have scheduled other team members to pick up the
slack in their absence, your schedule will suffer.
Integrating your calendar into a project management software is a
simple way to stay on top of your resources. There’s no reason to use a
standalone calendar that sends you to another application every time
you need to check on a team member’s availability.
Another way to stay on top of your scheduling is by integrating your task
scheduling view on the Gantt chart with resource and workload
scheduling features. You can schedule your team’s workload through
color-coding, so you know at-a-glance who is behind, ahead or on
schedule with their tasks.
Scheduling Projects
We’re gone from the task level to the resources level of scheduling, but
there’s no law that says you’re not working on a portfolio of projects.
How can you keep on scheduling when juggling so many balls in the air
at once?
The project dashboard is your best friend, whether you’re working on
one or many projects. The dashboard is collecting all the real-time data
collected by you and your teams, and then it’s organizing it according to
any number of metrics to show you a picture of where you stand in
real-time on the project or many projects.
With a project dashboard you can note where tasks are being blocked
and immediately adjust your schedule to resolve delays before they
become a problem. You can also use the graphs and charts the
dashboard automatically generates to drill down deeper and filter or
customize the results to get the information you need, when you need
And that’s just a fraction of what we could say about project scheduling.
Our ongoing series explains and explores new and relevant terms in
project management, focusing on a specific definition and summarizing
what it means for anyone leading a project.
But to really get to know scheduling, it’s best to dive in with a project
tool, your tasks and your team and create a new project schedule today.
§ Budgeting/Cost Estimation
Cost estimation in project management is the process of forecasting the
financial and other resources needed to complete a project within a
defined scope. Cost estimation accounts for each element required for
the project—from materials to labor—and calculates a total amount that
determines a project's budget.
Project Cost Management
Project Cost Management is defined as the process of planning and
controlling the project cost effectively. It defines what costs are required
for each deliverable.
The cost of the project can be estimated from various process sources
(Examples below)
 Creating Work Breakdown Structure (WBS)
 Develop Schedule
 Plan human resources
 Identifying risks
The inputs of cost management include,
 Project management plan
 Project charter
 Enterprise environmental factors
 Organizational process assets
While, the output of this is
Cost Management Plan.
Creating estimation and costing for project is an extremely crucial part of
any project management. Various things are taken in consideration
while calculating budget for project like labor costs, necessary
equipment acquisition, material costs, etc.
What is cost budgeting in project management?
Cost budgeting involves aggregating the estimated costs of individual
schedule activities or work packages to establish a total cost baseline for
measuring project performance. ... Early scope definition is critical to
both processes, as the ability to influence project cost is greatest at the
early stages of the project.
What is the difference between cost estimating and cost budgeting?
An estimate is an approximation of what your project (or piece of it) will
cost. The budget is what you're allowed to spend. The estimate provides
a guideline, the budget provides hard edges. ... Estimate vs Budget
applies to more than just money or cost.
Cost Estimate vs Budget
There are two processes within the cost knowledge area and planning process group: Estimate Costs
and Determine Budget. Both are required in order to develop the project cost performance baseline.
Cost Estimate
The cost estimates are simply the costs associated with the work packages or activities within the
project schedule. Depending on the work package or activity, the cost estimate may be determined
using parametric, three-point, or analogous estimating techniques.
It is important for all cost estimates to include any assumptions that were made, where did the
estimate originate, who provided the information, level of confidence, etc.
The budget is built using the cost estimates and the project schedule. The budget provides a view of
how much the project is estimated to cost both from a total and a periodic perspective. This budget
feeds the cost performance baseline which is then used as critical ingredient in performing earned
value analysis and other cost management variance analysis techniques.
The project budget must be in alignment with the organization’s funding limits in order to ensure the
funding is available and has been appropriated.
The bathroom remodeling project will include the following cost estimates:
Demolition - $3,000: Week 1
Sheet rock - $2,000: Week 2
Tile floor - $3,500: Week 3
Fixture installation - $1,500: Week 4
Painting - $800: Week 4
Therefore the total budget is $10,800:
Week 1: $3,000
Week 2: $2,000
Week 3: $3,500
Week 4: $2,300
Both cost estimates and budget are needed in order to determine the cost performance baseline and
the project funding requirements.
Cost estimates are the estimated costs for each work package or activity, whereas the budget
allocates the costs over the life of the project to determine the periodic and total funding
What is Project Cost Estimation?
Project Cost Estimation is defined as the process of approximating the
total expenditure of the project. The accuracy of the cost estimation
depends on the accuracy and details of the project scope, which is the
scope baseline. The scope will also define any constraints like date,
resources or budget. The risk register will help to calculate estimate
types of costs, the expenses made behind the contingent action and the
expenses made to cope with risks.
To estimate the cost of project you have to categorize various cost types
into categories like
 Labor cost
 Equipment cost
 Cost of supplies
 Travel cost
 Training cost
 Overhead cost, etc.
Techniques used to estimate project cost
To estimate project cost formally there are few methods (techniques)
used as follows:
a) Analogous Estimating
This estimating technique is based on expert judgments and information
based on similar previous projects. Where previously done similar
project cost is considered with plus or minus of 20% for existing project.
b) Parametric estimating
Past data or record is used to estimate cost for the current project.
c) Bottom-up estimating
Once you have defined the scope of the project, it is the most reliable
form of technique. In this technique, based on WBS, you estimate the
cost for each resource or deliverables.
Likewise, there are other methods (techniques) which could be useful
for estimating cost like PERT estimating, vendor bid analysis, etc.
What are the basic types of cost estimating?
For construction project development and control, there are four basic
types of cost estimates that are developed and used by DOE and its
contractors. These estimates are planning/feasibility study estimates,
budget or conceptual design estimates, Title I design estimates, and Title
II design estimates.
What are the 4 types of cost?
Types of costs
 Fixed costs. Fixed costs are costs that do not vary with the level of
output in the short term.
 Variable costs. A variable cost varies in direct proportion with the
level of output. ...
 Semi-variable costs. ...
 Total costs. ...
 Direct costs. ...
 Indirect costs.
What are the 3 types of budgets?
ThinkStock Photos Depending on the feasibility of these estimates,
budgets are of three types -- balanced budget, surplus budget and deficit
budget. A government budget is said to be a balanced budget if the
estimated government expenditure is equal to expected government
receipts in a particular financial year.
What are the methods of costing?
Different Methods of Costing – Job Costing, Contract Costing, Batch
Costing, Process Costing, Operating Costing, Operation Costing, Unit
Costing and a Few Others. The methods to be used for cost
ascertainment depend on nature of industry. Costs of production or
service rendered differ from industry to industry.
What are the major types of costs in project management?
Project costs typically fall into three basic categories—direct cost,
general conditions, and profit and overhead. The direct costs include
heavy equipment, construction materials, and labor—all the costs that
can be directly attributed to the production of the physical product on
When you outsource construction cost estimation, a skilled team of
experts will take into account the following 7 elements, so as to give
your team a comprehensive project cost estimate.
 Quantity takeoff – The cost estimator will first accurately identify
and develop the required materials for the project. This step is
crucial, as without an accurate takeoff, there will be inaccuracies in
the project.
 Labor hours – Next, the cost estimator will use his experience to
estimate the labor hours required to complete the project. The
varying levels of labor productivity based upon the complexity of
each stage of the project will be taken into considerations.
 Labor rates – A cost estimator will estimate labor rates with a basic
wage and estimate for each given work. This estimation will take into
account various taxes like FICA and FUI, along with other taxes
required by the company. The cost estimator will also take into
consideration the possibility of overtime work and the increase in
cost that will be associated with those extra hours.
 Price of materials – Correctly estimating the cost of materials can be
more complicated then it initially appears. This is because the cost of
a given material fluctuates greatly depending on the market demand
and supply, the required quantity, the cost of transportation to the
building site and exchange rates, in case the materials have to be
shipped to another country.
 The cost of equipment – Cost estimation will also take into account
many factors in regards to the equipment. This will include the
capacity of the equipment and the cost differential that occurs if the
equipment has to be rented.
 Subcontractor quotes – At times, portions of a project will be
completed by subcontractors. The cost estimator should consider
costs around the labor, materials and equipment required by the
 Indirect costs – A cost estimation of indirect costs is important in the
overall estimation of the project. Temporary on-site utilities, land
acquisition, mobilization, design fees and office support are a few
important items that must be considered in order to arrive at an
accurate cost estimate.
§ Reducing Project Duration
§ Risk Assessment
Risk Assessment in Project Management
Risk and Management 2016.03.10
About Risk Assessment and Project Management
A project is a set of inter-connected tasks intended to attain a certain
goal, with a particular series of resources, within a fixed duration and
cost. Given that each project tasks have specific timelines and
deliverables, there are always uncertainties considered as risks that are
expected to happen and will affect the project’s success. Risk comprises
two factors: the probability of its occurrence, and the consequences if it
does so.
In order to enable the analysis of risks related with a project, the process
of a project risk assessment and management is required. If the
processes are undertaken appropriately, it will raise the probability of
successful completion of a project to performance, cost and timegoals.
The overall process of managing uncertainties, which affects the
achievement of project objectives, involves two activities: Risk
Assessment and Risk Management.
Risk Assessment in Nutshell
Risk analysis settles on obtaining a deeper understanding on which
project tasks, outputs, or events would influence its success. This
requires project managers experience, knowledge of the project, and
critical thinking to decide on what strategies should they embark, from
where tactics and activities will be based upon.
Performing risk analysis features two options a project manager can use
depending on the identified risk
source and its degree of detail: qualitative and quantitative analysis.
Qualitative analysis uses a descriptive set of attributes to qualify
potential consequences and the possible chances that will occur. This
approach, by practice, will need further explanation to justify a risk’s
position in this type of assessment, albeit an easy practice to assert risks.
Quantitative analysis, on the other hand, provides a measurable level of
understanding of risk by using a numerical set of attributes to determine
its consequence and likelihood. In contrast to qualitative analysis, this
may require extensive use of time and resources, which is one of the
project constraints across all phases. This follows that the level of detail
is dependent on the breadth of data used and the depth of the
calculation applied to present either a single number or sets of patterns
that will explain the impact and probability of analyzed risks. Experience
has revealed that qualitative analysis typically leads to a primary level of
quantitative analysis, as the latter present statistical evidence to the
former, given its descriptive nature of detailing risks.
The risk evaluation stage includes both identification and analysis of
project risks and assists the project team in making decisions to address
the analyzed risks. The illustration shows the relationship between the
impact and probability, which is also known as a Risk Map (or heat map).
Risk Map analyzes values that are plotted across this chart based on
their risk levels, which is the output of risk analysis. With the project’s
risk criteria featured on the map, the project manager and his/her team
are given a good visual on which risks should be given further attention.
With mitigation strategies planned, based on evaluated risks, having an
effective risk management framework implementation and risk
treatment plans may not necessarily indicate the completion of risk
treatment. Instead, it effectively minimizes the impact and it will allows
clear decisions to be made.
The risk evolution stage
The necessity on reacting to risks may be critical and it involves the
Recognizing defensive and proactive actions to avoid risks or to reduce
its effects,
Initiating further analysis to decrease insecurity through monitoring and
measurement of key metrics
The benefits of performing risk assessment in project management
include reduction to project risk exposure, precise and clear decision
making on key issues within every project phase, and clearer definition
of risks related to particular projects with the risk assessment approach.
Identifying Project Risks - A Closer Look
Identifying project risks marks a challenging start for project managers
and his/her team, particularly in the project’s planning phase. The
Project charter, which marks a formal statement of initiating a certain
project, is a good springboard to identify risk sources and factors as the
identification stage generally covers three things to identify:
The external context (e.g. the project’s impact to its external clients and
The internal context (e.g. the key deliverables and controls at strategic,
tactical and operational levels),
The needs and expectations of the project stakeholders.
Methodologies such as SWOT analysis, Delphi Techniques, and
Stakeholder analysis, to mention a few, may be useful, but should be
meaningful and time-efficient to the project in terms of execution,
resource allocation and decision making.
Nowadays, one of the major complexities faced by Project Managers is
the difficulty of not covering a general risk register to refer to when
identifying the project risk. For purposes of managing the execution of
the project risk management, all project risks should be recorded in the
risk register, which is an exhaustive list of all risks identified, their root
causes and consequences, and what were the actions taken to address it.
This should be updated constantly throughout the lifecycle of the
The process of identifying risks must engage all project team members
so they can contribute in adding details and take part in the risk
assessment process, while at the same time, manage and align the
project’s scope, critical tasks, resources and timelines. In addition, when
risks are fully assessed, a risk treatment plan is developed and should
illustrate the level of risk which can be managed for the project, to
achieve its objectives and optimize resource utilization, preferably in
costs. Risk can also be identified by competent specialists and
professionals as well, which in this case are project managers.
Risk Assessment and Project Management - Making a Good Pair for
Project Success
The process of risk assessment updates and enhances the project’s risk
profile, reflected in its project risk criteria, risk register, and risk
treatment plans, done on a scheduled basis within the project timeline.
Similarly as with other projects and management systems on its
continuous improvement initiatives, risk management and assessment
should be executed continuously since new risks may be identified. A
good risk management framework will clarify the overall approach in
managing risks for any projects, regardless of size and scale. It will point
how much risk is tolerable and who should be implicated in carrying out
the qualitative analysis of the known risks. More importantly, the
framework ensures there is always a backup plan to address challenges
and opportunities to ensure project success, regardless of the number of
uncertainties a project may face.