Cost Management
Cost Management
How do we know what a project will cost? We really don't, until the project is complete. I sound more like a car mechanic than a project manager, but the truth is, and this may sting just a little, we can't know the final project cost until the project is complete because we can't accurately predict the future. What we can do is create an estimate.
12 Tips for Accurate Project Estimating
Projects typically involve many dynamic aspects, yet they're often constrained by finite conditions. These contradictory forces make it very difficult to determine with pinpoint accuracy the time and effort required. By using a set of proactive estimating techniques to scope, plan, and constrain your project conditions, you can dramatically improve your estimating practices, reduce and mitigate risks, and increase your project success rate.
Estimating Project Costs
Estimating is the process of forecasting a future result in terms of cost, based upon information available at the time. Many techniques, books and software packages exist to help with estimating project costs. A few basic rules will also help ensure that an accurate and realistic estimate is produced.
Monte Carlo Simulation in MS Excel (PDF)
The Monte Carlo method is based on the generation of mutiple trials to determine the expected value of a random variable. There are a number of commercial packages that run Monte Carlo simulation, however a basic spreadsheet program (such as Microsoft Excel) can be used to run a simulation.
Forecasting Support Costs
Did you know that maintenance accounts for 50% to 80% of the overall product cost? Well, it does! And while most project managers are fairly good at sizing new product features, many are terrible at estimating the effort required to support a product once it becomes generally available. As a result, maintenance projects are inadequately staffed, companies can't respond to customer requests in a timely manner, and products never reach payback.
Cost Benefit Analysis (PDF)
The cost benefit analysis is based on the comparison of a base case and one or more alternatives. For each case all the cash flows over a period of time are identified and organised into a spreadsheet. The bottom line is the net cash flow after tax. This series of cash flows can be converted to a present value (NPV) by using an appropriate discount rate.