The CVMU’s

SEMCOM
EVEN SEMESTER
BCOM SEMESTER-VI
Project Costing

Unit-II_Introduction to Cost Management Processes

Points to be covered:
 Triple Constraint
 Project Management Plan
 Work Breakdown Structure (WBS)
 Resource Estimates
 Time-Phased Budget

Triple Constraint:
 The triple constraint of project management has been given many names – the Project
Management Triangle, Iron Triangle, and Project Triangle – which should give you an
idea of how important the triple constraint is when managing a project.
 If you’re managing a project, then you’re working with the Triple Constraint.
 Therefore, it can be easily argued that the triple constraint might be the single most
important concept in the history of project management.
 When used in combination with effective project management software, it can give
you the ability to drive your projects to success.

What Is the Triple Constraint in Project Management?

 It’s a model of the constraints inherent in managing a project.
 Those constraints are threefold:

1) Cost: The financial constraints of a project, also known as the project budget
2) Scope: The tasks required to fulfill the project’s goals
3) Time: The schedule for the project to reach completion
 Basically, the triple constraint states that the success of the project is impacted by its
costs, time, and scope.
 As a project manager, you can keep control of the triple constraint by balancing these
three constraints through trade-offs.
 While it’s true that the triple constraint is an important part of any successful project
plan, it doesn’t determine success.
 Projects are made from many parts, more than the three that make up the triple
constraint.
 That’s why some project management experts have added three more constraints to
the model, to better reflect the most critical areas of a project.
 Here they are:

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 1) Quality: There are quality standards for every project, whether its final deliverable is
a tangible or intangible product. Project managers need a quality management plan to
control quality.
2) Risk: Risk is inherent to any project. That’s why project managers need to create a
risk management plan to explain how project risks will be handled
3) Benefit: There are different types of benefit obtained from a project. Project
managers must ensure that project stakeholders get the best financial benefit possible.

How Does the Triple Constraint Work?

 As stated above, project managers can increase or reduce the cost, time and scope of a
project with trade-offs to keep it on schedule and under budget.
1) Time and Scope: You can reduce your project scope to also reduce your project
duration if you’re running behind schedule.
 In the opposite case, you can increase the length of your project timeline in case the
project stakeholders come up with extra project activities.
2) Cost and Scope: By reducing the project scope, you’ll need to execute fewer tasks,
which means lower costs. In the opposite case, a larger project scope means higher
costs.
3) Cost and Time: In some projects, time and cost can be directly related. For example,
the costs of renting equipment or labor are directly proportional to the time you need
them for.

 All these scenarios apply the triple constraint for managing the project, but there are
many more possible trade-offs that can occur in a project, which also involve quality,
risk and benefit.

 By using a project management dashboard, a manager can keep sight of the project as
it progresses.

 Metrics such as the schedule, cost and scope of the project are easy to track.

 With this information, a project manager can identify issues and adjust the triple
constraint to prevent those issues from developing into problems.

Project Management Plan:

 Project plans are essential to keeping your project organized and on track.
 A great project plan will help you kick off your work with all the necessary pieces—
from goals and budgets to milestones and communication plans—in one place.
What is a project planning?
 Project planning is the second stage in the project management process, following
project initiation and preceding project execution.
 During the project planning stage, the project manager creates a project plan, which
maps out project requirements.
 The project planning phase typically includes setting project goals, designating
project resources, and mapping out the project schedule.
What is a project plan?

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  A project plan—sometimes called a work plan—is a blueprint of the goals, objectives,
and tasks your team needs to accomplish for a specific project.
 Your project plan should include information about your project schedule, scope, due
dates, and deliverables for all phases of the project lifecycle. But not all project
planning processes are created equal—which leads some teams to underutilize them
or skip over them completely. To write an effective project plan, you need to be
methodical (follow a series of steps), specific, and clear when it comes to your ideas
and execution strategy.
Why are project plans important?
 Project plans set the stage for the entire project.
 Without one, you’re missing a critical step in the overall project management process.
 When you launch into a project without defined goals or objectives, it can lead to
disorganized work, frustration, and even scope creep.
 A clear, written project management plan provides a baseline direction to all
stakeholders, while also keeping everyone accountable.
 It confirms that you have the resources you need for the project before it actually
begins.
 A project plan also allows you, as the person in charge of leading execution, to
forecast any potential challenges you could run into while the project is still in the
planning stages.
 That way, you can ensure the project will be achievable—or course-correct if
necessary.
 According to a study conducted by the Project Management Institute, there is a strong
correlation between project planning and project success—the better your plan, the
better your outcome.
 So, conquering the planning phase also makes for better project efficiency and results.
7 steps of Project Management:
Step 1: Define your goals and objectives
 Every successful project plan should have a clear, desired outcome.
 Identifying your goals provides a rationale for your project plan.
 It also keeps everyone on the same page and focused on the results they want to
achieve.
Step 2: Set success metrics
 Once you’ve defined your goals, make sure they’re measurable by setting key success
metrics.
 While your goal serves as the intended result, you need success metrics to let you
know whether or not you’re performing on track to achieve that result.
 The best way to do that is to set SMART goals. With SMART goals, you can make
sure your success metrics are clear and measurable, so you can look back at the end of
your project and easily tell if you hit them or not.
Step 3: Clarify stakeholders and roles
 Running a project usually means getting collaborators involved in the execution of it.
 In your project management plan, outline which team members will be a part of the
project and what each person’s role will be.
 This will help you decide who is responsible for each task (something we’ll get to
shortly) and let stakeholders know how you expect them to be involved.
Step 4: Set your budget
 Running a project usually costs money.

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  Whether it’s hiring freelancers for content writing or a catering company for an event,
you’ll probably be spending some cash.
 Since you’ve already defined your goals and stakeholders as part of your project plan,
use that information to establish your budget.
Step 5: Align on milestones, deliverables, and project dependencies
 An important part of planning your project is setting milestones, or specific objectives
that represent an achievement.
 Milestones don’t require a start and end date, but hitting one marks a significant
accomplishment during your project. They are used to measure progress.
Step 6: Outline your timeline and schedule
 In order to achieve your project goals, you and your stakeholders need clarity on your
overall project timeline and schedule.
 Aligning on the time frame you have can help you better prioritize during strategic
planning sessions.
 Not all projects will have clear-cut timelines.
 If you're working on a large project with a few unknown dates, consider creating
a project roadmap instead of a full-blown project timeline.
 That way, you can clarify the order of operations of various tasks without necessarily
establishing exact dates.
Step 7: Share your communication plan
 We’ve established that most projects include multiple stakeholders.
 That means communication styles will vary among them.
 You have an opportunity to set your expectations up front for this particular project in
your project plan.
 Having a communication plan is essential for making sure everyone understands
what’s happening, how the project is progressing, and what’s going on next.
 And in case a roadblock comes up, you’ll already have a clear communication system
in place.

Work Breakdown Structure (WBS):

 A work breakdown structure (WBS) is a visual, hierarchical and deliverable-oriented
deconstruction of a project.
 It is a helpful diagram for project managers because it allows them to break down
their project scope and visualize all the tasks required to complete their projects.
 All the steps of project work are outlined in the work breakdown structure chart,
which makes it an essential project planning tool.
 The final project deliverable, as well as the tasks and work packages associated with it
rest on top of the WBS diagram, and the WBS levels below subdivide the project
scope to indicate the tasks, deliverables and work packages that are needed to
complete the project from start to finish.
 Project managers make use of project management software to lay out and execute a
work breakdown structure.
 When used in combination with a Gantt chart that incorporates WBS levels and task
hierarchies, project management software can be especially effective for planning,
scheduling and executing projects.
 A well-constructed work breakdown structure helps with important project
management process groups and knowledge areas such as:

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  Project Planning,
 Project Scheduling,
 Project Budgeting,
 Risk Management,
 Resource Management,
 Task Management and
 Team Management

Resource Estimates:
 Resources are people, equipment, places, money, or anything else that you need in
order to do all of the activities that you planned for.
 Every activity in your activity list needs to have resources assigned to it.
 Before you can assign resources to your project, you need to know their availability.
 Resource availability includes information about what resources you can use on your
project when they’re available to you, and the conditions of their availability.
 Don’t forget that some resources, like consultants or training rooms, have to be
scheduled in advance, and they might only be available at certain times.
 You’ll need to know this before you can finish planning your project.
 If you are starting to plan in January, a June wedding is harder to plan than one in
December, because the wedding halls are all booked up in advance.
 That is clearly a resource constraint.
 You’ll also need the activity list that you created earlier, and you’ll need to know how
your organization typically handles resources.
 Once you’ve got a handle on these things, you’re set for resource estimation.
 The goal of activity resource estimating is to assign resources to each activity in the
activity list.
 There are five tools and techniques for estimating activity resources.
 Expert judgment means bringing in experts who have done this sort of work before
and getting their opinions on what resources are needed.
 Alternative analysis means considering several different options for how you assign
resources. This includes varying the number of resources as well as the kind of
resources you use. Many times, there’s more than one way to accomplish an activity
and alternative analysis helps decide among the possibilities.
 Published estimating data is something that project managers in a lot of industries
use to help them figure out how many resources they need. They rely on articles,
books, journals, and periodicals that collect, analyze, and publish data from other
people’s projects.
 Project management software such as Microsoft Project will often have features
designed to help project managers estimate resource needs and constraints and find
the best combination of assignments for the project.

Resource Management

 Resource management is the efficient and effective deployment of an organization’s

resources when they are needed.

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  Such resources may include financial resources, inventory, human skills, production
resources, or information technology (IT).
 In the realm of project management, processes, techniques, and philosophies for the
best approach to allocating resources have been developed.
 These include discussions on functional versus cross-functional resource allocation as
well as processes espoused by organizations like the Project Management Institute
(PMI) through the methodology of project management outlined in their publication
A Guide to the Project Management Body of Knowledge (PMBOK).
 Resource management is a key element in activity resource estimating and project
human resource management. As is the case with the larger discipline of project
management, there are resource management software tools available that automate
and assist the process of resource allocation to projects.

Human Resources Management

 The most important resource to a project is its people—the project team.

 Projects require specific expertise at specific moments in the schedule, depending on
the milestones being delivered or the given phase of the project.
 An organization can host several strategic projects concurrently over the course of a
budget year, which means that its employees can work on more than one project at a
time.
 Alternatively, an employee may be seconded away from his or her role within an
organization to become part of a project team because of a particular expertise.
 Moreover, projects often require talent and resources that can only be acquired via
contract work and third-party vendors.
 Procuring and coordinating these human resources, in tandem with managing the time
aspect of the project, is critical to overall success.

Techniques for Managing Resources

 One resource management technique is resource levelling.

 It aims at smoothing the stock of resources on hand, reducing both excess inventories
and shortages.
 The required data are the demands for various resources, forecast by time period into
the future as far as is reasonable; the resources’ configurations required in those
demands; and the supply of the resources, again forecast by time period into the future
as far as is reasonable.
 The goal is to achieve 100% utilization.
 However, that is very unlikely, when weighted by important metrics and subject to
constraints; for example, meeting a minimum quality level, but otherwise minimizing
cost.

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Time-Phased Budget:
 You should be able to pinpoint when the money (and effort) is going to be spent in
order to plan out the work.
 Then your PV (Planned Value) is an accurate representation of the baseline budget
and how that is spread over the life of the project.
 PV is also a major part of the EV calculations, so if you get it wrong, the numbers
coming out in your EVM reporting are not going to reflect ―real‖ project progress.
 And that doesn’t even take into account any errors in capturing Actual Costs.
 Normally on projects – at least the ones I’ve worked on that have not used EV – we
know the budget, and we might have a broad overview of when that money will be
spent.
 Monthly budget checks allow the team to stay on track, but generally as long as the
numbers look OK and we’re still within tolerance of the forecast, that’s enough.
 In an EV environment, that’s not enough.
 The budget has to be split over time because that is how you track performance and
variances.

DISCLAIMER:
This study material is prepared by Dr Khyati Jagatkumar Patel. The basic objective of this
material is to supplement teaching and discussion in the classroom in the subject. Students
are required to go for extra reading in the subject through library work.

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