Developing the Cost Estimates and Budget
Develop an in-depth cost estimate to support your initial project proposal narrative and scope statement, including the Work Breakdown Structure. Create a detailed justification of personnel costs, materials costs, overhead, and other forms of costs that are likely to accrue to your project. Be specific, particularly about personnel costs and commitment of time. For example, your cost table could look something like the following:
Personnel Level Rate
Loaded
Rate
Labor-Weeks
Needed* Total Cost
Programmer Senior $35 $49/hr 20 $39,200
Sys. Analyst Junior $22 $31/hr 10 $12,400
*40-hour workweek
Remember that the “loaded rate” assumes that you include the organization’s overhead expenses for
each employee. A typical multiplier for this figure could run anywhere up to and over 100% of the employee’s wage rate. Make sure the course instructor indicates the overhead rate you should apply for your project. So, using the previous senior programmer example with a fully loaded rate and assuming an overhead multiplier of 1.40, we get:
($49)(40 hrs)(20 weeks)(1.40) = $54,880
Sample Project Plan: ABCups, Inc.
Name
Resource
Type Title
Salary
(incl.
Benefits)
($)
Hour
Rate
($)
Fully Loaded
Rate
(Overhead = .40)
Time
Needed
(Hours/
week)
Duration
(in
weeks) Total
Carol
Johnson
Safety Safety
Engineer
64,600 32.30 45.22 10 hrs/wk 15 $ 6,783
Bob
Hoskins
Engineering Industrial
Engineer
35,000 17.50 24.50 20 hrs/wk 35 17,150
Sheila
Thomas
Management Project
Manager
55,000 27.50 38.50 40 hrs/wk 50 77,000
Randy Egan Management Plant
Manager
74,000 37.00 51.80 10 hrs/wk 6 3,108
Stu Hall Industrial Maintenance
Supervisor
32,000 16.00 22.40 15 hrs/wk 8 2,688
Susan Berg Accounting Cost
Accountant
45,000 22.50 31.50 10 hrs/wk 12 3,780
Marty
Green
Industrial Shop
Supervisor
24,000 12.00 16.80 10 hrs/wk 3 504
John
Pittman
Quality Quality
Engineer
33,000 16.50 23.10 20 hrs/wk 25 11,550
Sally Reid Quality Jr. Quality
Engineer
27,000 13.50 18.90 20 hrs/wk 18 6,804
Lanny
Adams
Sales Marketing
Manager
70,000 35.00 49.00 10 hrs/wk 16 7,840
Kristin
Abele
Purchasing Purchasing
Agent
47,000 23.50 32.90 15 hrs/wk 20 9,870
s
Feasibility 2,500 2,500
Vendor Selection 7,678 3,934 1,960 3,934 17,506
Design 12,563 8,400 5,300 26,263
Engineering 9,992 14,790 15,600 40,382
Prototype Testing 3,250 12,745 7,250 23,245
Sales and Service 1,467 4,467 1,908 7,842
Packaging 2,434 8,101 650 11,185
Assembly 1,676 9,234 890 11,800
Close-out 1,198 5,156 6,354
Monthly Planned 10,178 3,934 14,523 12,334 15,292 18,040 29,812 14,151 11,685 9,884 2,088 5,156
Monthly Cumulative 10,178 14,112 28,635 40,969 56,261 74,301 104,113 118,264 129,949 139,833 141,921 147,077 147,077
Notes
1. Smith, S., (2012), “U.S. Taxpayers are gouged on mass transit costs,” BloombergView, Aug 26, retrieved at: https:// www.bloomberg.com/view/articles/2012-08-26/u-s-taxpayers-are-gouged-on-mass-transit-costs; Wall Street Journal, (2017), “New York’s second coming,” Jan 3, retrieved at:
https://www.wsj.com/articles/new-yorks-second-coming-1483488649; Surowiecki, J., (2017), “Where the Second Avenue subway went wrong,” New Yorker, Jan 23, retrieved at: http://www.newyorker.com/magazine/2017/01/23/ where-the-second-avenue-subway-went-wrong; Yglesias, M., (2017), “NYC’s brand new subway is the most expensive in the world – that’s a problem,” Vox, Jan 1, retrieved at: http://www.vox.com/policy-and-politics/2017/1/1/14112776/new-york-second-avenuesubway-phase-2; Paumgarten, N., (2017), “The Second Avenue subway is here!,” New Yorker, Feb 13, retrieved at: http://www.newyorker.com/magazine/2017/02/13/ the-second-avenue-subway-is-here; Plitt, A., (2016), “As Second Avenue subway prepares for its debut, cost of
phase two is scrutinized,” Curbed, Dec. 30, retrieved at: http://ny.curbed.com/2016/12/30/14124370/secondavenue-subway-mta-cost; Gil, N. and Pinto, J.K., (2017), “Pluralism at the front-end of complex systems projects: governance and performance implications,” Research Policy, in press.
2. Needy, K. S., and Petri, K. L. (1998). “Keeping the lid on project costs,” in Cleland, D. I. (Ed.), Field Guide to Project Management. New York: Van Nostrand Reinhold, pp. 106–20.
3. Miller, G. J., and Louk, P. (1988). “Strategic manufacturing cost management,” APICS 31st International Conference Proceedings, Falls Church, VA: APICS; Kerzner, H. (1988). “Pricing out the work,” in Cleland, D. I., and King, W. R. (Eds.), Project Management Handbook, 2nd ed. New York:
Van Nostrand Reinhold, pp. 394–410.
4. Meredith, J. R., and Mantel, Jr., S. J. (2003). Project Management, 5th ed. New York: Wiley.
5. Needy, K. S., and Petri, K. L. (1998). “Keeping the lid on project costs,” in Cleland, D. I. (Ed.), Field Guide to Project Management. New York: Van Nostrand Reinhold, pp. 106–20.
6. Source for Table 8.2: Needy, K. S., and Petri, K. L. (1998). “Keeping the lid on project costs,” in Cleland, D. I. (Ed.), Field Guide to Project Management. New York: Van Nostrand Reinhold, p. 110.
7. Lock, D. (2000). “Managing cost,” in Turner, J. R., and Simister, S. J. (Eds.), Gower Handbook of Project Management, 3rd ed. Aldershot, UK: Gower, pp. 293–322.
8. Meredith, J. R., and Mantel, Jr., S. J. (2003). Project Management, 5th ed. New York: Wiley.
9. Amor, J. P., and Teplitz, C. J. (1998). “An efficient approximation for project composite learning curves,” Project Management Journal, 29(3): 28–42; Badiru, A. B. (1995). “Incorporating learning curve effects into critical resource diagramming,” Project Management Journal, 26(2): 38–46; Camm, J. D., Evans, J. R., and Womer, N. K. (1987). “The unit learning curve approximation of total cost,” Computers in Industrial Engineering, 12: 205–13; Fields, M. A. (1991). “Effect of the learning curve on the capital budgeting process,” Managerial Finance, 17(2–3): 29–41; Teplitz, C. J., and Amor, J. P. (1993). “Improving CPM’s accuracy using learning curves,” Project Management Journal, 24(4): 15–19.
10. Amor, J. P., and Teplitz, C. J. (1998). “An efficient approximation for project composite learning curves,” Project Management Journal, 29(3): 28–42.
11. Crawford, J. R. (n.d.), Learning curve, ship curve, rations, related data. Burbank, CA: Lockheed Aircraft Corp.
12. Heiser, J., and Render, B. (2001). Operation Management, 6th ed. Upper Saddle River, NJ: Prentice Hall.
13. Hackbarth, G. (2005), personal communication.
14. “Extreme chaos.” (2001). Standish Group International.
15. Bloch, M., Blumberg, S., and Laartz, J. (2012). “Delivering large-scale IT projects on time, on budget, and on value,” McKinsey Reports. http://mckinsey.com/MOBT_27_Delivering_large-scale_IT_projects_on_time_budget_and_ value%20(1).pdf; Flyvbjerg, B., Budzier, A. (2011). “Why
your project may be riskier than you think,” Harvard Business Review, 89(9): 23–25.
16. For a discussion of COCOMO II standards, see http:// csse.usc.edu/csse/research/COCOMOII/cocomo2000.0/ CII_modelman2000.0.pdf
17. McConnell, S. (2004). Code Complete, 2nd ed. Redmond, WA: Microsoft Press; McConnell, S. (2006). Software Estimation: Demystifying the Black Art. Redmond, WA: Microsoft Press.
18. Turbit, N. “Function points overview.” www.projectperfect.com.au/downloads/Info/info_fp_overview.pdf; International Functional Points Users Group, www.ifpug.org; Dillibabu, R., and Krishnaiah, K. (2005). “Cost estimation of a software product using COCOMO II.2000 model—a case study,” International Journal of Project Management, 23(4): 297–307; Jeffery, R., Low, G. C., and Barnes, M. (1993). “A comparison of function point counting techniques,” IEEE Transactions on Software Engineering, 19(5): 529–32.
19. Hamburger, D. (1986). “Three perceptions of project cost—Cost is more than a four-letter word,” Project Management Journal, 17(3): 51–58; Sigurdsen, A. (1996). “Principal errors in capital cost estimating work, part 1: Appreciate the relevance of the quantity-dependent estimating norms,”
Project Management Journal, 27(3): 27–34; Toney, F. (2001). “Accounting and financial management: Finding the project’s bottom line,” in J. Knutson (Ed.), Project Management
for Business Professionals. New York: John Wiley, pp. 101–27; Shtub, A., Bard, J. F., and Globerson, S. (1994). Project Management: Engineering, Technology, and Implementation. Englewood Cliffs, NJ: Prentice-Hall; Smith, N. J. (Ed.). (1995). Project Cost Estimating. London: Thomas Telford; Sweeting, J. (1997). Project Cost Estimating: Principles and Practices. Rugby, UK: Institution of Chemical Engineers; Goyal, S. K. (1975). “A note of a simple CPM time-cost tradeoff algorithm,” Management Science, 21(6): 718–22; Venkataraman, R., and Pinto, J. K. (2008). Cost and Value Management in
Projects. New York: Wiley.
20. Panknin, S., quoted in Grieshaber, K. (2013, April 8). “Berlin’s airport delays shame Germans.” http://news.yahoo.com/berlins-airport-project-delays-shame-germans-093036692–finance.html
21. Flyvbjerg, B., Garbuio, M., and Lavallo, D. (2009). “Delusion and deception in large infrastructure projects: Two models for explaining and preventing executive disaster,” California Management Review, 51(2): 170–93; “Building BRICs of growth.” (2008, June 7). The Economist. www.
economist.com/node/11488749; Lovallo, D., and Kahneman, D. (2003). “Delusions of success: How optimism undermines executives’ decisions,” Harvard Business Review, 81(7): 56–63; Flyvbjerg, B., Holm, M. S., and Buhl, S. (2002). “Underestimating costs in public works projects:
Error or lie?” Journal of the American Planning Association, 68(3): 279–95.
22. Meredith, J. R., and Mantel, Jr., S. J. (2003). Project Management, 5th ed. New York: Wiley; see also Christensen, D. S., and Gordon, J. A. (1998). “Does a rubber baseline guarantee cost overruns on defense acquisition contracts?” Project Management Journal, 29(3): 43–51.
23. Maher, M. (1997). Cost Accounting: Creating Value for Management, 5th ed. Chicago: Irwin.
24. Gray, C. F., and Larson, E. W. (2003). Project Management, 2nd ed. Burr Ridge, IL: McGraw-Hill.
25. Flyvbjerg, B., and Ansar, A. (2014, March 19). “Ending the flood of megadams,” Wall Street Journal, p. A15; Ansar, A., Flyvbjerg, B., Budzier, A., and Lunn, D. (2014). “Should we
build more large dams? The actual costs of hydropower megaproject development.” Energy Policy. http://dx.doi.org/10.1016/j.enpol.2013.10.069
26. Flyvbjerg, B., and Stewart, A. (2012). “Olympic proportions: Cost and cost overrun at the Olympics 1960–2012. Said Business School Working Papers, Oxford: University of Oxford; Forrest, Brett. (2014, February 23). “Putin’s run for gold.” Vanity Fair. www.vanityfair.com/culture/2014/02/sochi-olympics-russia-corruption; Geere, D. (2014, February 4). “Freezing Sochi: How Russia Turned
a subtropical beach into a Winter Olympics Wonderland.” The Verge.www.theverge.com/2014/2/4/5377356/sochiwinter-olympics-2014-subtropical-transformation; Rathi, A. (2014, January 30). “The Sochi Olympics are going to
be the costliest ever.” Quartz. http://qz.com/172180/ the-sochi-olympics-are-going-to-cost-more than-the-last13-olympics-combined/; “Sochi road an engineering marvel.” (2014, February 15). BostonGlobe.com. |www.bostonglobe.com/sports/2014/02/15/sochi-road-engineering marvel/dpRwuHty4V35VHR1O5T6SL/story. html; Taylor, A. (2014, January 17). “Why Sochi is by
far the most expensive Olympics ever.” Business Insider.www.businessinsider.com/why-sochi-is-by-far-the-mostexpensive-olympics-ever-2014-1; Waldron, T., (2014, February 3). “Sochi Olympics will cost more than every other Winter Olympics combined.” Think Progress RSS. http://thinkprogress.org/sports/2014/02/03/3239131/sochiolympics-cost-winter-olympics-combined/; Yaffa, J. (2014, January 2). “The waste and corruption of Vladimir Putin’s
2014 Winter Olympics.” Bloomberg Business Week. Bloomberg.www.businessweek.com/articles/2014-01-02/the2014-winter-olympics-in-sochi-cost-51-billion#p1; Young,J. (2014, February 3). “Money spent on Sochi games raises questions.” VOA. www.voanews.com/content/moneyspent-on-sochi-games-raising-questions/1843380.html.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
