Genba Sopanrao Moze College Of Engineering, Balewadi - Pune

Department of MCA, F.Y SEM – I, Software Engineering and project Management

SOFTWARE
ENGINEERING &
PROJECT
MANAGEMENT
[310904]
LECTURE NOTES

MCA I YEAR – SEM (I)

(2022-2023)

DEPARTMENT OF MCA
Faculty of Science and Technology

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

Unit 4 Project Planning

Planning Fundamentals

The purpose of project planning is to determine the way in which project goals will be
achieved—what must be done, by whom, when, and for how much. Project planners strive to
minimize uncertainty, avoid cost and scheduling overruns, and uphold project performance
requirements.

Planning steps

Top management authorizes planning to begin shortly after a business need, contract request, or
request for proposal (RFP) has been received. This authorization releases funds so that an initial
plan, schedule, and budget can be prepared for inclusion in the project proposal. Approval of the
project or signing the contract justifies full-scale funding and work authorization for the entire
project, and, starting with the definition of detailed system requirements, the preparation of a
detailed project master plan. For internal projects, the project charter will be released to
announce and briefly describe the project to stakeholders. A project manager, if not already
assigned or involved, is now identified to oversee the planning process, which proceeds from
here on and elaborates on the initial plan as prepared for the proposal, business case study, or
charter. Because every project is somewhat different, there is never an a priori, established way
that specifies how each and every project should be done. New projects pose new questions, and
the purpose of planning is to answer them. For starters, the project team needs to answer
questions regarding what, how, by whom, in what order, for how much, and by when. The
formalized planning process answers these questions in the following steps:

1. What, for how much, and by when?

Define the project objectives, project scope, and system requirements. These specify the project
deliverables, end-items, and other sought results, as well as the time, cost, and performance
targets. The scope and requirements include criteria the customer will use to determine the
acceptability of deliverables or end-items at project completion.
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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

2. How?

Define the specific work activities , tasks, or jobs to be done to achieve the objectives and
requirements. The activities must include everything necessary to create and deliver the
promised end-item or deliverables, including activities for planning, control, and administration
of the project.

3. Who?

Create the project organization that will perform and manage the work. This involves identifying
the departments, subcontractors, and managers that will comprise the project, and specifying
their responsibilities.

4. When, in what order?

Prepare a schedule showing the timing of work activities, including deadlines and milestone
dates.

5. How much and when?

Prepare a budget and resource plan that allocates funding and other resources to support work
activities as necessary according to the project schedule.

6. How well?

Prepare a plan to review and control work performance after the project has begun to keep the
project on track, i.e., to ensure that it conforms to schedule, budget, and user and system
requirements.

7. Repeat: How Much, When, and How Well?

As needed, revise and fill in aspects of the plan to reflect recent information, current project
progress, and updated estimates of the time and cost to complete the project. With familiar
projects, many of these questions can be answered based on past experience and historical

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

records; with first-of-a-kind projects, getting the answers are more difficult and proceeds from
scratch. But rarely are projects completely familiar or first-of-a-kind; in most projects some
portions of the plan can be based upon experience from previous projects while in others they
must be created anew. Planning for the project begins early in the project life cycle—even before
the project is authorized. In most cases it begins with preparation of the proposal, during which a
rudimentary project team is organized and major decisions about the necessary resources are
made. The team prepares a project summary plan for inclusion in the proposal using the same,
albeit more abbreviated, procedures that will be used later to develop a more-elaborate and more-
detailed master plan. The difference between the summary plan in the proposal and the project
master plan is that the former is intended for the customer, the latter for the project team. 1
During proposal preparation the planning effort is directed at estimating the work and resources
needed for the project, and the project duration and cost

SCHEDULING

After requirements definition and the WBS process, scheduling the work elements is the most
important step in planning because it becomes the basis for allocating resources, executing work,
tracking project performance, and finishing on time. Schedules show the timing for work
elements and when specific events and project milestones should take place.

Events and Milestones

Project plans are similar to road maps: They show not only how to get to where you want to go,
but what progress you have made along the way. Work packages are what you must do; in
combination, they form the road to project goals. Along the road are signposts called events and
milestones that show how far you have progressed. When you pass the last event, you have
reached the final destination: project completion. Events and milestones should not be confused
with work packages, activities, or other kinds of tasks. A task is the actual work planned or being
done, and represents the process of doing something (such as driving a car to get somewhere); it
consumes resources and time. In contrast, an event signifies a moment in time , the instant when

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

something happens. In a project, events represent the start or finish of something (equivalent to
beginning a trip or arriving at an intermediate or final destination). In most project schedules,
each task is depicted as a line segment; the two ends of the line segment represent the events of
starting and completing the task. For example,

Task A( 1----------------2) Task A will start in week 1st and it will finish in 2nd week.

Kinds of Schedules

Two kinds of schedules are a project schedule and a task schedule. Project managers and upper
management use a project schedule (or project master schedule) to plan and review the entire
project. The project schedule shows the major project activities, but not much detail about each.
It is at first developed during project initiation and is continually refined thereafter. Managers
develop the project master schedule in a top-down fashion, first scheduling the tasks identified
from the WBS or in the scope statement. Later, the schedule is refined in a bottom-up fashion,
taking into account the more-detailed task schedules developed by functional managers. When
the project is performed in phases, the schedule for each phase must be in sufficient detail to
enable management to authorize work for the phase to commence. A task schedule shows the
specific activities necessary to complete an activity or work package. It is created for people
working on a specific task and enables lowerlevel managers and supervisors to focus on the task
and not be distracted by other tasks with which they have no interaction. Task schedules are
prepared by functional managers or subcontractors, but incorporate interface and milestone
events as specified by the project manager and shown on the project master schedule. Project and
task schedules can be prepared and displayed in many ways including with Gantt charts and
project networks.

SCOPE AND STATEMENT OF WORK

Project planning starts with determining the objectives, deliverables, and major tasks of the
project; in combination these define the overall size of the project and the range or extent of
work it encompasses, a concept called project scope. Determining the project scope begins
during project conception, first in project initiation and then in the initial description of the

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

project (the RFP/proposal process, if the project is contracted), and it continues again during
project definition. In each case, user needs and requirements are compared to constraints of time,
cost, resources, and technology to determine what, exactly, the project should and can
encompass. The process of setting the project scope is called scope definition.

Statement of Work

The SOW is a description of the project, including its objectives, scope (major deliverables and
work tasks), impact, justification, and management. Sometimes the SOW contains much more—
specifications and requirements on the deliverables, management procedures for planning and
handling risks and changes, budgets, schedules for deliverables, staffing, and responsibilities for
key administrative and work tasks; in such cases the SOW is effectively a mini- or high-level
version of the project master plan. The SOW is usually associated with contracted projects and
contract work, and it appears in documents associated with the contracting process. The RFP,
proposal, contract, and project master plan all contain a SOW, each an updated, more refined
Version of the one in the previous document.

WORK DEFINITION

Once project objectives and deliverables in the scope statement have been set, the next step is to
translate them into specific, well-defined elements of work; these are the tasks, jobs, and
activities the project team must do. Particularly for large, unique projects it is easy to overlook or
duplicate activities. To insure that none are missed and that every activity is well understood and
clearly defined, a systematic procedure called the “ WBS ” is used.

Work Breakdown Structure

Projects are made up of milestones, deliverables, and tasks brought together to accomplish goals
and objectives. To effectively plan and monitor timely project completions, you’ll need clarity
on the factors that contribute to its success. One of the ways you can stay on top of these is by
creating a work breakdown structure (WBS).

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

What is a Work Breakdown Structure (WBS)?

A work breakdown structure is a list of a project’s deliverables broken down into smaller ones.

Work breakdown structure levels

You can make your work breakdown structure as detailed as you want:

 Level 0: Project title or final deliverable

 Level 1: Major deliverables
 Level 2: Deliverables that can still be broken down
 Level 3: Can be assigned to the team to complete the third level deliverables

Here’s an example that illustrates this:

Work breakdown structure formats

The format of your WBS will depend on your team’s or stakeholders’ preferences.

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

Tree

The illustration we showed previously is an example of a WBS formatted as a tree. It’s the most
commonly used, and it uses rectangles and line connectors to illustrate how the elements relate to
one another.

Outline

The outline is the simplest you can do. It’s text-based, and it represents deliverable hierarchies
through indents and numbering. If your level 2 deliverable is numbered as 1, then the level 3
deliverables under it will be labeled as 1.1, 1.2,1.3, etc. Here’s an example:

Tabular
A tabular WBS uses tables to display the hierarchy among tasks. The leftmost column will
contain the major deliverables. The succeeding columns after that will house the next deliverable
levels.

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

Here’s how we can illustrate that with the Halloween Party example:

Hierarchical

The hierarchical WBS is also shown in a tabular form. The difference would be how the
information is organized.

In this format, the leftmost column would contain the Level, the second would be the WBS
Code, and the last would be the Deliverable.

How to Make a Work Breakdown Structure

A work breakdown structure can be made by taking the following steps:

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

1. Collect Information on Project Goals and Deliverables: Before creating your work
breakdown structure, go over your project’s goals and final deliverable. Study your scope
and limitations to identify the steps you need to take to make progress.
2. Gather Key Stakeholders and Team Members: Once you have the information you
need, share them with your team and stakeholders, so you can check and balance what
you know.
3. Define Elements: With your team, start filling in your WBS with a breakdown of your
deliverables.
4. Add Additional Details: You can opt to add additional details, such as the person
assigned and your budget for each deliverable.

How to Make a Work Breakdown Structure

A work breakdown structure can be made by taking the following steps:

1. Collect Information on Project Goals and Deliverables: Before creating your work
breakdown structure, go over your project’s goals and final deliverable. Study your scope
and limitations to identify the steps you need to take to make progress.
2. Gather Key Stakeholders and Team Members: Once you have the information you
need, share them with your team and stakeholders, so you can check and balance what
you know.
3. Define Elements: With your team, start filling in your WBS with a breakdown of your
deliverables.
4. Add Additional Details: You can opt to add additional details, such as the person
assigned and your budget for each deliverable.

Limitations of a Work Breakdown Structure

Needs to be supported by other tools for maximum effectively

While a work breakdown structure can display a lot of information, it doesn’t display how
challenging the tasks are. Aside from the budget, you also won’t find the resources your team
will need to accomplish them. To effectively use the WBS, use them with other tools.

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

SCHEDULING

After requirements definition and the WBS process, scheduling the work elements is the most
important step in planning because it becomes the basis for allocating resources, executing work,
tracking project performance, and finishing on time. Schedules show the timing for work
elements and when specific events and project milestones should take place.

Events and Milestones

Project plans are similar to road maps: They show not only how to get to where you want to go,
but what progress you have made along the way. Work packages are what you must do; in
combination, they form the road to project goals. Along the road are signposts called events and
milestones that show how far you have progressed. When you pass the last event, you have
reached the final destination:
project completion.
Events and milestones should not be confused with work packages, activities, or other kinds of
tasks. A task is the actual work planned or being done, and represents the process of doing
something (such as driving a car to get somewhere); it consumes resources and time. In contrast,
an event signifies a moment in time , the instant when something happens. In a project, events
represent the start or finish of something (equivalent to beginning a trip or arriving at an
intermediate or final destination). In most project schedules, each task is depicted as a line
segment;

PLANNING AND SCHEDULING CHARTS

Gantt Charts

The simplest and most commonly used scheduling technique is the Gantt chart (or bar chart),
named after the management consultant Henry L. Gantt (1861–1919). During World War I,
Gantt worked with the US Army to find a way to visually portray the status of the munitions
program. He realized that time was a common denominator to most elements of a program plan
and that it would be easy to assess progress by viewing each element ’ s status with respect to
time. His approach, which came to be called the Gantt chart, used standardized setup and

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

processing times and depicted the relationship between production jobs planned and completed.
The Gantt chart became widely adopted in industry and today it is used in a variety of ways. The
chart consists of a horizontal scale divided into time units—days, weeks, or months—and a
vertical scale showing project work elements—tasks, activities, or work packages. Preparation of
the Gantt chart comes after a WBS analysis and identification of work packages or other tasks.
During WBS analysis, the functional manager, contractor, or others responsible for a work
package estimate its time and any prerequisites. The work elements are then listed in sequence of
time, taking into account which elements must be completed before others can be started. Each
work package or task from the WBS should appear as a scheduled activity on the Gantt chart.

Points to remember for Gantt chart

 A Gantt chart is a visualization that helps in scheduling, managing, and monitoring

specific tasks and resources in a project.
 It consists of a list of tasks and bars depicting each task's progress.
 The horizontal bars of different lengths represent the project timeline, which can
include task sequences, duration, and the start and end dates for each task
 It's the most widely used chart in project management.
 Gantt charts are used in heavy industries for projects like building dams, bridges, and
highways, as well as software development and building out of other goods and services.
 A Gantt chart is a visualization that helps in scheduling, managing, and monitoring
specific tasks and resources in a project.
 It consists of a list of tasks and bars depicting each task's progress.
 The horizontal bars of different lengths represent the project timeline, which can
include task sequences, duration, and the start and end dates for each task
 It's the most widely used chart in project management.
 Gantt charts are used in heavy industries for projects like building dams, bridges, and
highways, as well as software development and building out of other goods and services.

Understanding Gantt Charts

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

The Gantt chart is the most widely used chart in project management. These charts are useful in
planning a project and defining the sequence of tasks that require completion. In most instances,
the chart is displayed as a horizontal bar chart.

Horizontal bars of different lengths represent the project timeline, which can include task
sequences, duration, and the start and end dates for each task. The horizontal bar also shows
how much of a task requires completion. A Gantt chart helps in scheduling, managing, and
monitoring specific tasks and resources in a project. The chart shows the project timeline, which
includes scheduled and completed work over a period of time. The Gantt chart aids project
managers in communicating project status and completion rate of specific tasks within a project,
and also helps ensure the project remains on track. By convention, it is a standard tool that
makes communication unified among the engineering and project management community.

Benefits of a Gantt Chart

The chart identifies tasks that may be executed in parallel and those that can't be started or
finished until others are complete. It can help detect potential bottlenecks and identify tasks that
may have been excluded from the project timeline. The chart depicts things like task slack time
or additional time for completion of a task that shouldn't delay the project; noncritical activities
that may be delayed; and critical activities that must be executed on time. Gantt charts can be
used in managing projects of all sizes and types. These may include building infrastructures like
dams, bridges, and highways. They may also include software development and other
technologies. Project management tools, such as Microsoft Visio, Project, SharePoint,
and Excel, or specialized software, such as Gantto or Matchware, can help in designing Gantt
charts.

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

What is Effort Estimation?

Effort estimation is the process of forecasting how much effort is required to develop or maintain
a software application. This effort is traditionally measured in the hours worked by a person, or
the money needed to pay for this work. Effort estimation is used to help draft project plans and

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

budgets in the early stages of the software development life cycle. This practice enables a project
manager or product owner to accurately predict costs and allocate resources accordingly.

Project Cost Management

Organizations aim for their projects to succeed and to meet client expectations, as well as their
internal objectives. But what is the reality on the ground? In a PMI report, 14% of the surveyed
IT projects were deemed as failures. Only 57% of the projects were finished within their initial
budgets, with the others exceeding the target they had set for themselves.This is not good news
for enterprises as cost overruns not only impact their margins, but also hinder the ability to
execute future projects. Understanding what project cost management is and how to be effective
at it can be beneficial for organizations to stay on track

What is Project Cost Management?

Project cost management is the process of estimating, budgeting and controlling costs throughout
the project life cycle, with the objective of keeping expenditures within the approved budget.

For a project to be considered a success, it’s necessary that

 it delivers on the requirements and scope

 its execution quality is of a high standard
 it’s completed within schedule and
 it’s completed within budget.

Hence, project cost management is one of the key pillars of project management and is relevant
regardless of the domain, be it manufacturing, retail, technology, construction and so on. It helps
to create a financial baseline against which project managers can benchmark the current status of
their project costs and realign the direction if needed.

Why is Project Cost Management Important?

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

The importance of cost management is easy to understand. To take a simple, real-life example, if
you decide to build a house, the first thing to do is set the budget. When you have a sense of how
much to spend on the project, the next step is to divide the high-level budget into expenses for
sub-tasks and smaller line items. The budget will determine critical decision points such as:
which designer to hire — someone who will construct and deliver the project end-to-end, or
someone who can help with a few elements and be able to work for a smaller budget? How many
stories should the structure have? What quality of materials should be used? Without a
predefined budget, not only is it difficult to answer these questions, but it becomes impossible to
assess whether you are progressing in the right direction once the project is underway. In large
organizations, the scale of this problem is further heightened due to concurrent running of
multiple projects, change in initial assumptions and the addition of unexpected costs. That’s
where cost management can help.

By implementing efficient cost management practices, project managers can:

 Set clear expectations with stakeholders

 Control scope creep by leveraging transparencies established with the customer
 Track progress and respond with corrective action at a quick pace
 Maintain expected margin, increase ROI, and avoid losing money on the project
 Generate data to benchmark for future projects and track long-term cost trends

The Four Steps in Project Cost Management

While cost management is viewed as a continuous process, it helps to split the function into four
steps: resource planning, estimation, budgeting and control. They are mostly sequential, but it’s
possible that some resource changes happen midway through the project, forcing the budgets to
be adjusted. Or, the variances observed during the control process can call for estimate revisions.
Let us look at each of these four steps in detail.

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

1. Project Resource Planning

Resource planning is the process of identifying the resources required to execute a project and
take it to completion. Examples of resources are people (such as employees and contractors) and
equipment (such as infrastructure, large construction vehicles and other specialized equipment in
limited supply).Resource planning is done at the beginning of a project, before any actual work
begins. To get started, project managers first need to have the work-breakdown structure (WBS)
ready. They need to look at each subtask in the WBS and ask how many people, with what kind
of skills are needed to finish this task, and what sort of equipment or material is required to finish
this task? By adopting this task-level approach, it becomes possible for project managers to
create an accurate and complete inventory of all resources, which is then fed as an input into the
next step of estimating costs.

A few tips to consider during the process:

 Consider historical data—past schedules and effort—before determining sub-tasks and

the corresponding resources.
 Take feedback from SMEs and team members—a collaborative approach works well
especially in projects that do not have past data to use.
 Assess the impact of time on resource requirements. For instance, a resource may be
available only after a few months, dragging the project’s schedule. This could have an
impact on cost estimation.
 Although this step happens at the planning stage, project managers need to account for
ground realities. For example, you may identify the need for a resource with certain
expertise, but if such a resource is not available within the organization, you have to
consider hiring a contractor or training your team to get them up to speed. All of these
variables impact cost management.

2. Cost Estimation

Cost estimation is the process of quantifying the costs associated with all the resources required
to execute the project. To perform cost calculations, we need the following information:

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

 Resource requirements (output from the previous step)

 Price of each resource (e.g., staffing cost per hour, vendor hiring costs, server
procurement costs, material rates per unit, etc.)
 Duration that each resource is required
 List of assumptions
 Potential risks
 Past project costs and industry benchmarks, if any
 Insight into the company’s financial health and reporting structures

Estimation is arguably the most difficult of the steps involved in cost management as accuracy is
the key here. Also, project managers have to consider factors such as fixed and variable costs,
overheads, inflation and the time value of money. The greater the deviation between estimation
and actual costs, the less likely it is for a project to succeed. However, there are many estimation
models to choose from. Analogous estimation is a good choice if you have plenty of historical
cost data from similar projects. Some organizations prefer mathematical approaches such as
parametric modeling or program evaluation and review technique (PERT).Then there is the
choice between employing a top-down versus bottom-up approach. Top-down typically works
when past costing data are available. In this, project managers usually have experience executing
similar projects and can therefore take a good call. Bottom-up works for projects in which
organizations do not have a lot of experience with, and, therefore, it makes sense to calculate a
cost estimate at a task-level and then roll it up to the top.

Cost Estimation as a Decision Enabler

It’s useful to remember that cost estimation is done at the planning stage and, therefore,
everything is not yet concrete. In many cases, project teams come up with multiple solutions for
a project, and cost estimation helps them decide how to proceed. There are many costing
methodologies, such as activity-based costing, job costing, and lifecycle costing that help
perform this comparative analysis.Lifecycle costing, for instance, considers the complete end-to-
end lifecycle of a project. In IT projects, for example, maintenance costs are often ignored, but
lifecycle costing looks long-term and accounts for resource usage until the end of the cycle.
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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

Similarly, in manufacturing projects, the goal is to minimize future service costs and replacement
charges. Sometimes the estimation process also allows teams to evaluate and reduce costs. Value
engineering, for example, helps to gain the optimal value from a project while bringing costs
down.

3. Cost Budgeting

Cost budgeting can be viewed as part of estimation or as its own separate process. Budgeting is
the process of allocating costs to a certain chunk of the project, such as individual tasks or
modules, for a specific time period. Budgets include contingency reserves allocated to manage
unexpected costs.For example, let’s say the total costs estimated for a project that runs over three
years is $2 million. However, since the budget allocation is a function of time, the project
manager decides to consider just the first two quarters for now. They identify the work items to
be completed and allocate a budget of, say, $35,000 for this time period, and these work items.
The project manager uses the WBS and some of the estimation methods discussed in the
previous section to arrive at this number.Budgeting creates a cost baseline against which we can
continue to measure and evaluate the project cost performance. If not for the budget, the total
estimated cost would remain an abstract figure, and it would be difficult to measure midway.
Evaluation of project performance gives an opportunity to assess how much budget needs to be
released for future phases of the project.Another reason to firm up budgets is that organizations
often rely on expected future cash flows for their funding. During the initial phases, the project
manager has a limited financial pool and has to set targets accordingly. It’s similar to building
the foundation and one floor of the house in the initial few months and later completing the rest
of the project, as you save more.

4. Cost Control
Cost control is the process of measuring cost variances from the baseline and taking appropriate
action, such as increasing the budget allocated or reducing the scope of work, to correct that gap.
Cost control is a continuous process done throughout the project lifecycle. The emphasis here is
as much on timely and clear reporting as measuring. Along with the cost baseline, the cost
management plan is an essential input for cost control. This plan contains details such as how

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

project performance will be measured, what is the threshold for deviations, what actions will be
done if the threshold is breached, and the list of people and roles who have the executive
authority to make decisions.
Earned value management (EVM) is one of the most popular approaches to measuring cost
performance. Let’s take an example.At the end of a week, you measure the progress of task X
and find that it’s 25% complete. Now, how do you assess if you are on track to meet the task
budget? First, a project manager calculates the planned value for this task (at the planning stage).
Let’s say, Task X has a budget of $4000 and is expected to be 50% complete by the week.

Planned value (PV) of task X by the week = $4000 * .5 = $2000

Earned value (EV) of task X by the week = $4000 * .25 = $1000

Now, you also determine the actual cost (AC) of the work, which involves other variables such
as equipment and material costs (say, $800).

Schedule variance = EV – PV = $1000 – $2000 = -$1000.

Cost variance = EV – AC = $1000 – $800 = $200.

The negative schedule variance indicates that the task is falling behind, but the positive cost
variance indicates that it’s under budget.

While dealing with hundreds of tasks in huge projects, cost control can provide the level of
transparency that decision makers require to respond quickly to the situation.

Project Cost Software

Cost management, similar to other aspects of project management, becomes complex with many
variables in play. The process itself is elaborate and demands attention to detail along with a
rigorous approach. The use of project management software can simplify this process
considerably.

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

Let’s look at a few advantages of using project cost management software:

 Automation of cumbersome quantitative analysis during estimation and measurement

helps avoid manual errors
 Integration of data across planning, estimation, budgeting, and control enables continuous
monitoring and quick, proactive responses, rather than one-off interventions
 Decision-making is made easier as cost software helps evaluate alternate solutions using
scenario forecasting and what-if analysis
 Clear and easy reporting in the form of dashboards and other rich UIs
 The complexity of multicurrency management in projects across different geographical
locations is simplified with project cost software
 Many project cost solutions allow third-party integrations, so data can be pooled and
analyzed
 Benchmarking and standardization are possible with the availability of performance data
across multiple projects

Cost Estimation techniques in Project Management

Here are a few cost estimation techniques that you can use to manage your budget.

1. Analogous Estimating

In an analogous technique, past data of a similar project is used as a reference to predict the costs
of the current project. However, it doesn’t provide accurate estimation because the scope of
different projects varies. Thus, it highly relies on the expert’s experience. Therefore, it is a quick
method but too accurate.

2. Parametric Estimating

The parametric estimating technique also uses historical data to estimate the costs of the current
project. For instance, you’ll use the parameters like man-hours for each unit from a past project
and estimate the total man-hours for the current project. All you’ll do is take past the project’s
performance and multiply it by unit price.

Thus, it estimates both cost and time by using duplicate parameters from a past project.

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

3. Bottom-up Estimating

The bottom-up estimating technique is of the most common strategies for cost estimation in
project management. Although it is time-consuming and costly, it brings out the most accurate
results. Basically, in this technique, the project scope is divided into smaller tasks, and the cost of
each task is estimated. The project cost is calculated as the total cost of all the smaller jobs.

4. Expert Judgment
As the name suggests, expert judgment is based on experts’ decisions or one expert. They use the
past data and expertise to analyze and estimate the costs of the current project.

5. Three-Point Estimating

The three-point estimating technique helps cost estimation in project management using three
different estimates. It is an excellent technique for preparing for the worst.

The three estimations in this technique are:

 Most likely: Where things are predicted to go normal as usual.

 Pessimistic: Assuming nothing is going to go as planned.
 Optimistic: Assuming that everything is going to be as planned.

All of these scenarios are taken into consideration to develop the most accurate budget for the
project. The technique originated from the Program Analysis and Review Technique (PERT).

How to do accurate Cost Estimation in Project Management?

Cost estimation is a continuous process from the planning stage till its execution. Practical cost
estimation is a combination of various techniques. Here are 5 methods you could apply for
accurate cost estimation and ensure you don’t exceed your budget.

 Draft a list of all the required tasks and resources

 Capacity Planning
 Estimate the completion time of each task
 Calculate the project cost using an estimation technique
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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

 Use the cost estimation tools to track budgets

Project Cost Estimation Tools and Techniques

Project cost estimating scares a lot of people. They don't know how much something will
cost, but they know whatever value they give, they will be held to it by their manager. The
challenge with estimating is that it always involves some uncertainty. Some of the factors
that contribute to this uncertainty include...
 Experience with Similar Projects: The less experience you have with
similar projects, the greater the uncertainty. If you've managed similar
projects, you will be able to better estimate the costs of the project.

 Planning Horizon: The longer the planning horizon, the greater the
uncertainty. The planning horizon you are considering may be the whole
project or just a certain phase. Either way, you will be able to better
estimate costs for the time periods that are closer to the present.

 Project Duration: The longer the project, the greater the uncertainty. This
is similar to planning horizon in the sense that if a project is of a shorter
duration you are more likely to account for most of the costs.

 People: The quantity of people and their skill will be a huge factor in
estimating their costs. Early in the project, you may not even know the
specific people that will be on the project. That will increase the uncertainty
of your cost estimates.

 Fortunately, there are some tools and techniques used by professional

project managers that you can use to develop more accurate cost estimates...

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

E XPE RT JUD GE M E NT

 Expert judgment uses the experience and knowledge of experts to estimate the cost
of the project. This technique can take into account unique factors specific to the
project. However, it can also be biased.

ANA LOGO US ES T IMAT ING

Analogous estimating uses historical data from similar projects as a basis for the cost
estimate. The estimate can be adjusted for known differences between the projects. This
type of estimate is usually used in the early phases of a project and is less accurate than
other methods.

PA R A M E TR IC E S TIMA TIN G

Parametric estimating uses statistical modeling to develop a cost estimate. It uses

historical data of key cost drivers to calculate an estimate for different parameters such
as cost and duration. For example, square footage is used in some construction projects.

B OTTOM -UP E S TIMA TING

Bottom-up estimating uses the estimates of individual work packages which are then
summarized or "rolled up" to determine an overall cost estimate for the project. This type of
estimate is generally more accurate than other methods since it is looking at costs from a
more granular perspective.

TH R E E -POINT E STIMA TE S

Three-point estimates originated with the Program Evaluation and Review Technique
(PERT). This method uses three estimates to define an approximate range for an activities
cost: Most Likely (Cm), Optimistic (Co), and Pessimistic (Cp). The cost estimate is
calculated using a weighted average: Cost Estimate = (Co + 4Cm + Cp)/6

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 Genba Sopanrao Moze College Of Engineering, Balewadi - Pune
Department of MCA, F.Y SEM – I, Software Engineering and project Management

R E S ER VE A NA LY SIS

Reserve analysis is used to determine how much contingency reserve, if any, should be
allocated to the project. This funding is used to account for cost uncertainty.

C O ST O F QUA L IT Y

Cost of Quality (COQ) includes money spent during the project to avoid failures
and money spent during and after the project due to failures. During cost
estimation, assumptions about the COQ can be included in the project cost
estimate.

P R O J E C T MA NA GEME NT E ST IMA T ING SOF T WA R E

 Project management estimating software includes cost estimating

software applications, spreadsheets, simulation applications, and statistical
software tools. This type of software is especially useful for looking at cost
estimation alternatives.

VE NDOR B ID A NA LY S IS

 Vendor analysis can be used to estimate what the project should cost by comparing
the bids submitted by multiple vendors.

Typical Problem with IT Cost Estimates

Human beings are biased toward under estimation. For example, senior IT professionals or
project managers might make estimates based on their own abilities and forget that many
younger people will be working on a project. Estimators might also forget to al low for extra
costs needed for integration and testing on large IT projects Management desires
accuracy. Management might ask for an estimate but really want a more accurate
number to help them create a bid to win a major contract or get internal funding .

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