Managing Cost Overruns on projects

Managing Cost Overruns and Project Management

Rajiv Dua BSc.(Eng), PMP

Today's AGENDA
Introductions Seminar Objective Seminar Content
Introduction to Project Management The Triple Constraint and the nine knowledge areas The processes of project Management Cost Overruns Some methods of overcoming Cost Overruns

Seminar Objective
To provide a basic understanding of the fundamental project management principles as per the Project Management Institute (PMI) with particular reference to the Triple Constraint. With this knowledge attempt to discuss Cost Overruns in projects and discuss some methods to overcome these opportunities.

Cost Overrun definition

Cost Overruns are the additional percentage or dollar amount by which actual costs exceed estimates

Questions?

What kind of Cost Overruns do some of you think you have in your respective organizations? Why do you think this is or has happened?

What is a Project?
A project is a temporary endeavor undertaken to create a unique product or service or result

Project Attributes
A project has a unique purpose.
Every project should have a well-defined objective.

A project is temporary.
A project has a definite beginning and a definite end.

A project requires resources.

Resources include people, hardware, software, or other assets.

Project Attributes
A project should have a primary sponsor or customer. A project involves uncertainty

Project Manager
A Project Manager is the key to a projects success. Project Managers work with the Project Sponsors, Project team and other stakeholders involved in a project to ensure successful completion of the project.

Definitions
Project Manager Project Sponsor Project Team Members Functional Line Managers Stakeholders Internal and External Steering Committee

Project Characteristics
Four Key Characteristics
It is an answer to a business opportunity or problem
It has a specific objective...

It must be approved to proceed

It consumes resources...

It is confined by definable boundaries

It has defined scope, budget, schedule...

It goes through distinct stages

It has a beginning, a middle and an end...

Triggers of a project
Projects can be created to answer to a business opportunity or problem
It has a specific, usually time-sensitive objective... A project objective can be internally or externally triggered: Internal triggers e.g. a condition impacting the operation of an organization
high costs poor quality new products or services Efficiency of employees

External triggers e.g. a condition imposed on the organization

regulations, codes competing products external decisions

WHAT IS A PROJECT ?
It is confined by definable boundaries
It has defined scope, budget, schedule... Boundaries defining a project include:
Scope: What IS and IS NOT included as part of the project
Budget : How much can be expended for direct and indirect costs

Schedule : Start and end dates for each deliverable

Quality : Qualitative terms, conditions and expectations expressing each stakeholders interests (ISO 9001,etc.)

WHAT IS A PROJECT ?
It goes through distinct stages
It has a beginning, a middle and an end... From a project management perspective there are three main stages:
Initiation Execution Wrap-up

PROJECTS vs. OPERATIONS

Projects differ from ongoing operations in the following ways:
projects start and end projects are focused on one objective projects have short term strategies projects end!!

ongoing operations are focused on continuing support of an organization ongoing operations have long term strategies ongoing operations focus on multiple objectives ongoing operations dont (normally) end!!

Project Constraints
Every project is constrained in different ways by its scope, time goals, and cost goals. Scope: What is the project trying to accomplish? Time: How long should it take to complete the project? Cost: What should it cost to complete the project? These limitations are referred to as the Triple Constraint of project management.
Managing the triple constraint means making trade-offs between project scope, time and cost goals for a project.

Project Constraints

Operations and Projects

Operations are existing systems and functions whereas Projects are one-time multi-disciplinary resource configuration.

Operations focus on Maintaining, whereas Projects focus on Change.

What is Project Management?

Project Management is the application of knowledge, skills, tools and techniques to project activities in order to meet or exceed stakeholder needs and expectations from a project.

Project Management Framework

Stakeholders: The people involved in or affected by the projects activities. These include the the project sponsor, project team, support staff, customers, users, suppliers and even opponents to the project.

Project Management Framework

Knowledge Areas: the NINE key competencies that project managers must develop.

Project Management Framework

Scope Management: involves defining and managing all the work required to successfully complete the project.

Project Management Framework

Time Management: includes estimating how long it will take to complete the work, developing an acceptable project schedule, and ensuring timely completion of the project.

Project Management Framework

Cost Management: consists of preparing and managing the budget for the project.

Project Management Framework

Quality Management: ensures the project will satisfy the stated or implied needs for which it was undertaken.

Project Management Framework

HR Management: concerned with making effective use of the people involved with the project.

Project Management Framework

Comm. Management: involves generating, collecting, disseminating and storing project information.

Project Management Framework

Risk Management: includes identifying, analyzing and responding to risks related to the project.

Project Management Framework

Procure. Management: involves acquiring or procuring goods and services that are needed for a project from outside the performing organization.

Project Management Framework

Project Mgmt. Integration: is an over-arching function that affects and is affected by all of the other knowledge areas. (This is where it is all brought together.)

Project Management Framework

Tool and Techniques: these assist the project managers and their teams in carrying out the management functions of the 9 Knowledge Areas. Examples of these include WBS Diagrams and Gantt Charts.

A Systems View of Project Management

Many IT professionals are to busy with their day-to-day activities and often become frustrated by an organizations politics and red tape and they often ignore key business issues. Using a holistic (systems management) approach, helps them integrate business and organizational issues into their project planning, and helps them look at projects as a series of phases.
This ensures that project managers do a better job of planning and developing the project, which leads to increased project success.

Project Phases and the Project Life Cycle

A project life cycle is a collection of project phases. Project phases vary by project or industry, but some general phases include:
Concept Development Implementation Close-Out

The first two phases focus on planning and are often referred to as project feasibility. The last two phases focus on deliverables and are often referred to as project acquisition.

Project Phases and the Project Life Cycle

Concept Phase
A high-level or summary project plan is developed to briefly describe the project and why it is needed. A rough cost estimate is developed. A rough overview of the work involved is developed in a work breakdown structure format.

Work Breakdown Structure (WBS): an outcome oriented document that defines the total scope of the project.
At the concept level the WBS document breaks the work tasks out to no more than three levels (3 level WBS).

Project Phases and the Project Life Cycle

Development Phase
A more detailed project plan is developed. A more accurate cost estimate is developed. A more thorough WBS is developed.

Implementation Phase
Project team delivers the required work. A very accurate cost (or final cost) estimate is developed. This phase is where the bulk of the projects time and money should be spent.

Project Phases and the Project Life Cycle

Close-out Phase
All of the work is completed and all project activities are wrapped up. There should be a formal customer acceptance of the entire project and the products it produced.
A lessons learned document is created for reference in similar future projects. (This should be done if the project is a failure as well or does not make it to the close-out phase.)

This phased approach minimizes the time and money spent developing inappropriate projects. A project must pass the concept phase before continuing into the development phase and so on.

Project Phases and the Project Life Cycle

Organizational Frames
Project managers often do not spend enough time understanding the political context of a project in an organization.
To improve the success rate of IT projects, project managers must develop a better understanding of people and organizations.

Organizations can be viewed as having four different frames:

Structural Frame Organizational chart Human Resources Frame shortage of IT and Unrealistic schedules Political Frame Conflict and Power struggles for resources Symbolic Frame - Organizational Culture

Organizational Structures
Most organizations focus on the structural frame.
Most people know what an organizational chart is and can follow them. New managers typically try to change the organizational structure when other changes are needed, and to carve out their piece of the pie.

There are three general classifications of organization structures:

Functional Project Matrix

Organizational Structures

Project Managers Influence

Organization Type Project Characteristic s
Project managers authority

Functiona l
little or none

Matrix Weak
limited

Project Strong
moderate to high 50-95% high to almost total 85-100%

Balance d
low to moderate 15-60%

Percentage of performing organizations personnel assigned full-time to project work Project managers role Common title for project managers role

virtually none

0-25%

Part-time Project Coordinator/ Project Leader Part-time

Part-time Project Coordinator/P roject Leader Part-time

Full-time Project Manager/ Project Officer Part-time

Full-time Project Manager/ Program Manager Full-time

Full-time Project Manager/ Program Manager Full-time

Project management administrative staff

Top Management Is The Key

Top management commitment is crucial to the projects success for the following reasons:
Project managers need adequate resources. Project managers often require approval for unique project needs in a timely manner. Murphys Law is understood which relates to Management Reserves Project managers require cooperation from stakeholders in other parts of the organization.

Top Management Is The Key

Project managers must have cooperation from people in other parts of the organization. Project managers often need someone to coach and mentor them on the finer points of leadership.

Project Management Process Groups

Project management can be viewed as a number of interlinked processes.
A process is a series of actions directed toward a particular result.

The five project management process groups are :

Initiating processes Planning processes Executing processes Controlling processes Closing processes

Process Groups

Project Management Process Groups

Initiating processes:
These processes are used to initiate every phase of the project life cycle including the close-out phase. In the concept phase it is used to define the business need for the project, the project sponsor, and the project manager. To end a project the initiating processes are used to ensure that all work is completed, the customers acceptance of the work, the lessons learned document is created and that resources are reassigned.

Project Management Process Groups

Planning Processes:
Used to devise and maintain a workable scheme to accomplish the business need that the project was to address. Project plans are created to define each knowledge area as it relates to the project at that point in time. (As the project travels through its life cycle.)

The processes are also used to account for changing conditions on a project and in an organization, project plans are often revised during each phase of the project life cycle.

Project Management Process Groups

Executing processes:
These process are used to ensure the coordination of people and other resources follow the project plan and produce the deliverables of either the project or the phase that the project is currently in. Executing processes include: developing the project team providing leadership verifying project scope assuring product quality disseminating information procuring resources and delivering the work.

Project Management Process Groups

Controlling processes:
These processes are used to ensure that the project objectives are met. Projects must be continually monitored and their progress measured against the project plan to ensure corrective actions are taken when necessary. Controlling processes include performance and status reviews. Controlling processes are also used to follow project changes and ensure that the changes are identified, analyzed and managed in accordance with the project plan.

Project Management Process Groups

Closing processes:
These processes are used to formalize the acceptance of the project or phase and bring it to an orderly end. This often involves archiving project files, documenting lessons learned and receiving formal acceptance of work delivered.

These phases are not discrete, one-time events, but occur at varying levels throughout every phase of the projects life cycle, and even vary in activities and time for each separate project.

Project Management Process Groups (PMBOK 2000)

Knowledge Area Integration Scope Time Initiating Planning
Project plan development Initiation Scope planning Activity definition Activity sequencing Activity duration estimating Schedule development Resource planning Cost estimating Cost budgeting Quality planning Organizational planning Staff acquisition Communications planning Risk identification Risk quantification Risk response development Procurement planning solicitation planning

Project Process Groups Executing Controlling

Project plan execution Scope verification Overall change control Scope change control Schedule control

Closing

Cost

Cost control

Quality Human resources Communications Risk

Quality assurance Team development Information distribution

Quality control

Performance reporting Risk response control

Administrative closure

Procurement

Solicitation Source selection Contract administration

Contract closeout

Relationships Among Process Groups and Knowledge Areas PMBOK 2004

PMBOK Guide 2004, p. 69

Relationships Among Process Groups and Knowledge Areas (contd)

Project Integration Management

Project Integration Management - the processes involved in coordinating all of the other project management knowledge areas throughout a projects life cycle. The main process involved in project integration management include:
Project Plan Development Project Plan Execution Integrated Change Control

Project Integration Management

This diagram shows how project integration management pulls together and focuses the knowledge areas throughout the projects life cycle and guides these elements toward successful completion.

Project Integration Management

Project integration management must occur within the context of the whole organization, not just within a particular project but on-going operations
Project managers must always view their projects in the context of the changing needs of their organizations and respond to requests from senior managers. Project integration management involves integrating knowledge areas within the project Integrating different areas outside the project.

Project Charters
After deciding what project to work on, it is important to let the rest of the organization know. A project charter is a document that formally recognizes the existence of a project and provides direction on the projects objectives and management. Key project stakeholders should sign a project charter to acknowledge agreement on the need and intent of the project; a signed charter is a key output of project integration management.

Sample Project Charter

Sample Project Charter (contd)

Scope planning
Involves creating documents that detail the basis for future project decisions, including the criteria for determining if a project or a phase is completed successfully Output of the scope planning process
Scope statement Scope statements supporting detail Scope management plan

Preliminary Scope Statements (PMBOK 2004)

A scope statement is a document used to develop and confirm a common understanding of the project scope. It is an important tool for preventing scope creep:
The tendency for project scope to keep getting bigger.

A good practice is to develop a preliminary or initial scope statement during project initiation and a more detailed scope statement as the project progresses.

Contents of a Preliminary Scope Statement (2004)

Project objectives Product or service requirements and characteristics Project boundaries Deliverables Product acceptance criteria Project assumptions and constraints Organizational structure for the project Initial list of defined risks Summary of schedule milestones Rough order of magnitude cost estimate Configuration management requirements Description of approval requirements

Further Defining Project Scope

Project Management Plans

A project management plan is a document used to coordinate all project planning documents and help guide a projects execution and control. Plans created in the other knowledge areas are subsidiary parts of the overall project management plan.

Attributes of Project Plans

Just as projects are unique, so are project plans.

Plans should be:

Dynamic Flexible Updated as changes occur

Plans should first and foremost guide project execution by helping the project manager lead the project team and assess project status.

Project Execution

Project execution involves managing and performing the work described in the project management plan.
The majority of time and money is usually spent on execution.

What Went Wrong?

Many people have a poor view of plans based on their experiences. Top managers often require a project management plan, but then no one follows up on whether the plan was followed. For example, one project manager said he would meet with each project team leader within two months to review their project plans. The project manager created a detailed schedule for these reviews. He cancelled the first meeting due to another business commitment. He rescheduled the next meeting for unexplained personal reasons. Two months later, the project manager had still not met with over half of the project team leaders. Why should project members feel obligated to follow their own plans when the project manager obviously did not follow his? Could this cause cost overruns?

Integrated change control process

Change Control on Information Technology Projects

Former view: The project team should strive to do exactly what was planned on time and within budget.
Problem: Stakeholders rarely agreed beforehand on the project scope, and time and cost estimates were inaccurate. Modern view: Project management is a process of constant communication and negotiation. Solution: Changes are often beneficial, and the project team should plan for them.

Change Control Boards (CCBs)

A formal group of people responsible for approving or rejecting changes on a project. CCBs provide guidelines for preparing change requests, evaluate change requests, and manage the implementation of approved changes. CCBs include stakeholders from the entire organization.

Making Timely Changes

Some CCBs only meet occasionally, so it may take too long for changes to occur. Some organizations have policies in place for time-sensitive changes.
A 48-hour policy allows project team members to make a decision and have 48 hours to seek approval from top management. If the team decision cannot be implemented, management has 48 hours to reverse a decision; otherwise, the teams decision is approved. Another policy is to delegate changes to the lowest level possible, but keep everyone informed of changes.

What is Project Scope Management?

Scope refers to all the work involved in creating the products of the project and the processes used to create them. A deliverable is a product produced as part of a project, such as hardware or software, planning documents, or meeting minutes. Whats in and whats out

Creating the Work Breakdown Structure (WBS)

A WBS is a deliverable-oriented grouping of the work involved in a project that defines the total scope of the project.
A WBS is a foundation document that provides the basis for planning and managing project schedules, costs, resources, and changes.

Decomposition is subdividing project deliverables into smaller pieces.

Sample Intranet WBS Organized by Phase

Intranet WBS in Tabular Form

1.0 Concept 1.1 Evaluate current systems 1.2 Define requirements 1.2.1 Define user requirements 1.2.2 Define content requirements 1.2.3 Define system requirements 1.2.4 Define server owner requirements 1.3 Define specific functionality 1.4 Define risks and risk management approach 1.5 Develop project plan 1.6 Brief Web development team 2.0 Web Site Design 3.0 Web Site Development 4.0 Roll Out 5.0 Support

Figure 5-4. Intranet Gantt Chart Organized by Project Management Process Groups

Approaches to Developing WBSs

Guidelines: Some organizations, such as the DOD, provide guidelines for preparing WBSs. Analogy approach: Review WBSs of similar projects and tailor to your project. Top-down approach: Start with the largest items of the project and break them down. Bottom-up approach: Start with the specific tasks and roll them up. Mind-mapping approach: Write tasks in a nonlinear, branching format and then create the WBS structure.

Sample Mind-Mapping Approach

Resulting WBS in Chart Form

Scope Verification and Change Control

Many IT projects suffer from scope creep caused by scope changes. As a result it is very important to verify the project scope and minimize scope changes. Scope Creep The tendency for a projects scope to keep getting bigger and bigger, thereby dragging out the completion date of the project. To minimize or prevent scope creep, the projects scope should go through a scope verification process.

Scope Verification
Scope Verification This involves formal acceptance of projects scope by the stakeholders. To receive this acceptance the project team members must develop clear documentation of the projects products and procedures for evaluating those products.

Scope Verification & Scope Change Control

Inevitably there will still be changes made to the projects scope which will have to be managed through a scope change control process. Scope Change Control involves controlling changes to the project scope.
To minimize scope change control, it is crucial to do a good job during scope verification. However, as a project manager you should still expect and prepare for requested changes that come from the customer.

The following table shows the Top 10 factors that cause problems for IT projects.

Scope Verification cause for Cost Overruns

Factor
Lack of user input Incomplete requirements and specifications Changing requirements and specifications Lack of executive support

Rank
1 2 3 4

Technology incompetence
Lack of resources Unrealistic expectations Unclear objectives

5
6 7 8

Unrealistic time frames

New technology

9
10

Project Management

Project Time Management

The importance of project time management

Many projects can be determined failures in terms of meeting scope, time and cost projections.
In one study the average time for unsuccessful overruns of IT projects ran at 222%. A follow up study showed that this overrun period had been reduced to nearly 65%.

Most project managers state that scheduling issues are the main reasons for conflicts during a projects life cycle.

Importance of Project Schedules

Managers often cite delivering projects on time as one of their biggest challenges. Fifty percent of IT projects were challenged in the 2003 CHAOS study, and their average time overrun increased to 82 percent from a low of 63 percent in 2000.* Schedule issues are the main reason for conflicts on projects, especially during the second half of projects. Time has the least amount of flexibility; it passes no matter what happens on a project.
*The Standish Group, Latest Standish Group CHAOS Report Shows Project Success Rates Have Improved by 50%, (www.standishgroup.com) (March 25, 2003).

Conflict Intensity Over the Life of a Project

0.40 0.35
Conflict Intensity

0.30
Schedules

0.25 0.20 0.15 0.10 0.05 0.00

Project Formation Early Phases Middle Phases

Average Total Conflict

Priorities Manpower Technical opinions Procedures Cost Personality conflicts

End Phases

Project Time Management

One of the reasons that schedule problems are so frequent is due to the time it takes to perform respected tasks that are underestimated.
Once the project schedule is in place schedule performance can be calculated by subtracting the estimated time for completing a task, from the actual time it really took to complete.
However, one of the things to keep in mind when doing this, is to include the approved changes or (changes to the baseline) to the calculation. This usually reduces the gap between the estimated and the actual times.

Project Time Management

Project Time Management The process required to ensure timely completion of a project

For project managers, time is the least forgiving, and least flexible variable in the project.
Time cannot be stopped, no matter what changes have been requested, what resource conflicts are occurring, or what problems have been encountered.

As a result, project time management is:

Considered one of the most difficult tasks to both improve and successfully achieve. Considered critically important in determining the overall success of a project.

Project Time Management The Basic Processes

The main processes involved in project time management include:

Activity definition.
This involves identifying the specific activities that the project team members and stakeholders must perform to produce the project deliverables. In some projects identifying all of the tasks is a feat unto itself. Therefore it is very important to ensure that as many as possible are identified, because those that are missed will ultimately throw the project of schedule.

Project Time Management The Basic Processes

Activity sequencing.
This involves identifying and documenting the relationships between project activities. It is important to know which tasks can be performed at the same time and which ones are dependant on a previous task being completed first.

Activity duration estimating.

This involves estimating the number of work periods that are needed to complete individual activities. (Remember an unwritten rule is a work package can represent about 80 hours of work.) remember this comes from the WBS. Here the project manager must work closely with his team leaders to take a best guess at how long it will take to complete a task. They must be careful not to estimate to much or to little.

Project Time Management The Basic Processes

Schedule development.
This involves analyzing the activity sequences, activity duration estimates, and resource requirements to create the project schedule. Here the activity sequences and activity duration estimates are double checked and matched to available resources. Once it is verified the projects schedule is committed to documentation for sign-off. (At this point the project schedule is almost law.)

Schedule control.
This involves controlling and managing the changes to the projects schedule. This is where the law gets broken, and most often this is where the proverbial back of the project gets broken.

Project Time Management The Tools and Techniques

The completion date that the project manager and team members come up with may not reflect the completion date in the project charter.
If this is the case the project manager must go back to the project sponsor or customer and renegotiate changes to the triple constraint.

Activity Sequencing

There are three basic reasons for creating dependencies, often called the types of dependencies, among project activities. They are:
Mandatory dependencies. Discretionary dependencies External dependencies

PDM Network Diagram

Gantt Chart for Software Launch Project

Sample Tracking Gantt Chart

The Importance Of Network Diagrams

The construction of a network diagram is fundamental to determining the overall project completion date. Gantt charts display planned and project schedule information but dont display relationships between tasks and dependencies. A network diagram displays dependencies and is required to perform critical path analysis.

Importance of Critical Path

Critical Path Method predicts total project duration and allows project managers to make trade-offs where necessary.
If the project manager knows that one of the projects tasks is behind schedule then they can decide what to do about it. For example:
Should they try to renegotiate the schedule? Should they allocate more resources to make for lost time?

Slack

One of the techniques that allow project managers to make these trade-offs is by determining the free slack and total slack for the project.
Free slack is the amount of time an activity can be delayed without delaying the early start of any immediately following activity. Total slack is the amount of time an activity may be delayed from its early start without delaying the planned finish date.

Critical Path Method (CPM)

Critical path method is a tool which will help combat schedule overruns. What does the critical path really mean?
The critical path is the earliest time by which a project can be completed. It is the longest path through a project network diagram, and has the least amount of slack or float.

Performing Critical Path Analysis

Critical Path Approach
Build A Dur = 15 Analysis Dur = 10 Design Dur = 25 Build B Dur = 20 Implement Dur = 15

Build C Dur = 30 Critical Path = 10 + 25 + 30 + 15 = 70 days Clearly, Design is on the Critical path since future activities Cannot proceed unless the design is completed The Critical path is the longest path through the project and also when the schedule is least flexible

Time Management Scenario

Create a wireless Triple Play system i.e.. One that can handle VOIP, Data and Broadband (Video) services. Your company has 1000 employees all of whom have computers with Intranet access requiring Triple Play services The executive team has given you a budget of $100,000 and completion date of 6 months. Dates are from January 1st 2006 June 30th 2006 Time management process to follow.

Time Management Assignment

During the planning phase you will: Brainstorm a high level Activity/WBS list of 20 high level activities/WBS (Work Packages) and display them on the wall. Create a form of Activity Sequencing relationship Estimate your Activity Durations Evaluate and show your Critical Path Hire a Project Manager Delegate activities/Tasks To show the above create a Network diagram (PDM) Create your own Assumptions and Constraints Use 8.5x11 sheets for activities Put outputs on the wall

Shortening Project Schedules

It is common for stakeholders (mainly the project sponsor and/or customer) to want the projected schedule shortened. There are several techniques which the project manager can use to perform this task once the projects critical path has been determined including:
The critical path duration can be shortened by allocating more resources to the tasks or by changing the projects scope.

Shortening Project Schedules

Crashing (Expert or Full Time) is another technique used, and it involves making cost and schedule trade-offs to obtain the greatest amount of schedule compression at the least incremental cost.
For example a task that was supposed to take two weeks by a part-time resource could be performed in a week by a full-time resource. This would shorten the project schedule by a week at no extra cost. If a full-time resource was unavailable to perform this task then a temporary resource could be hired to perform the job in one week.
The schedule would be shortened by one week and the cost hiring a temp resource should only increase the project costs slightly.
The main advantage of crashing is that the projects schedule is shortened, however the disadvantage is that it often raises the overall project costs.

Shortening Project Schedules

Fast Tracking Parallel is another technique used to shorten a project schedule, and involves performing project tasks in parallel.
Most project tasks are setup to be performed in sequence or with a slightly overlapping time frame.

With this technique it is important to be aware of how the tasks in the schedule affect one another, and to be able to determine which tasks can be fast tracked due to a low risk of potential problems further down the schedule.

The main advantage of fast tracking is a shortened project schedule. The main disadvantage is that unforeseen problems with performing some tasks to soon can greatly lengthen a project schedule. (E.g.. Overlapping or being to anxious)

Assignment
From your WBS/Activity list in PDM format the Sponsor has asked you because of financial constraints to bring back the date of your current end date by 2 weeks thus saving the company resource costs. Is this possible? Alter your PDM to reflect this.

Critical Chain Schedules

Critical chain scheduling is a fairly complicated yet powerful tool that involves critical path analysis, resource constraints, and using buffers to make changes in tasks estimates. Example of resource constraints:
One person assigned to two tasks which are to be completed at the same time by the same person, critical chain scheduling (and common sense) acknowledges that one of these tasks needs to be delayed or another resource needs to be brought in to do it.

Multitasking Example

Critical Chain SchedulesBuffers

Project Buffers: This is additional time added to the entire project before the projects due date.
In most cases individual tasks have additional time added to them to ensure adequate time to completion. In critical chain scheduling this additional time is removed from the tasks themselves and added to the project time overall. Also, the critical path is padded with feeding buffers to prevent delay as well. Feeding buffers are addition time added to critical path tasks that are preceded by non-critical-path tasks.

Critical Chain Schedules Parkinson's Law

Typically task estimates in critical chain scheduling are shorter than with traditional scheduling techniques because individual tasks do not contain their own buffers. This means less occurrence of Parkinsons Law.
Parkinsons Law states that work(task) expands to fill the time allowed to perform the task. The feeding buffers and project buffers protect the date that really needs to be met by the project completion date.

Example of Critical Chain Scheduling

Program Evaluation and Review Technique (PERT)

A technique used to estimate project duration when there is a high degree of uncertainty about individual activity duration estimates.
PERT uses probabilistic time estimates, which are duration estimates using optimistic, most likely, and pessimistic task duration estimates instead of specific or defined estimates

PERT Analysis

The PERT analysis method is based on a project network diagram, normally the PDM method, and a weighted average for each project task is calculated using the following formula:
PERT weighted average

optimistic time + (4 x most likely time) + pessimistic time

PERT applies the critical path method to a weighted average duration estimate. It involves more work because it requires several duration estimates.

PERT Formula and Example

PERT weighted average =
optimistic time + 4X most likely time + pessimistic time 6

Example:
PERT weighted average = 8 workdays + 4 X 10 workdays + 24 workdays = 12 days 6 where: optimistic time= 8 days most likely time = 10 days pessimistic time = 24 days Therefore, youd use 12 days on the network diagram instead of 10 when using PERT for the above example.

Controlling changes to the project schedule

Reality checks on scheduling: Review the draft schedule, progress meetings with stakeholders. Working with people issues:

Empowerment To give someone authority or even accountability Incentives Discipline Negotiation

The Importance of Project Cost Management

IT projects have a poor track record for meeting budget goals. The 2003 CHAOS studies showed the average cost overrun (the additional percentage or dollar amount by which actual costs exceed estimates) was 43 percent. U.S. lost $55 billion in IT projects in 2002 from cancelled projects and overruns compared to $140 billion in 1994.*

*The Standish Group, Latest Standish Group CHAOS Report Shows Project

What Went Wrong?

According to the San Francisco Chronicles front-page story, Computer Bumbling Costs the State $1 Billion, the state of California had a series of expensive IT project failures in the late 1990s, costing taxpayers nearly $1 billionIt was ironic that the state that was leading in the creation of computers was also the state most behind in using computer technology to improve its services.* The Internal Revenue Service (IRS) managed a series of project failures that cost taxpayers over $50 billion a yearroughly as much money as the annual net profit of the entire computer industry.** Connecticut General Life Insurance Co. sued PeopleSoft over an aborted installation of a finance system.***
*Lucas, Greg, Computer Bumbling Costs the State $1 Billion, San Francisco Chronicle (2/21/99). **James, Geoffrey, IT Fiascoes . . . and How to Avoid Them, Datamation (November 1997). ***Songini, Marc L., PeopleSoft project ends in court, ComputerWorld (September 2001).

Cost of Software Defects*

It is important to spend money up-front on IT projects to avoid spending a lot more later.
*Collard, Ross, Software Testing and Quality Assurance, working paper (1997).

Cost Management Principles

Profits Life cycle costing Cash flow analysis Tangible and intangible cost/benefits Direct and indirect costs Sunk costs Learning curve theory Reserves Earned value analysis

Types of Cost Estimates

Cost Estimation Tools and Techniques

Basic tools and techniques for cost estimates:
Analogous or top-down estimates:. Bottom-up estimates Parametric modeling

PROJECT PLANNING : ESTIMATING

PROJECT :
$900.00 $500.00 $500.00 $500.00 $400.00 $350.00 $650.00 $500.00

RESOURCE PLAN JB
Pr o ject

RR
A nalyst

RT
A nalyst

TY
A nalyst

EFFORT WE
A nalyst

BN
Junio r

JJ

KG
A nalyst DAY S

JB
Pr o ject M anag er

RR
B usiness A nalyst

RT
B usiness A nalyst

TY
B usiness A nalyst

WE
B usiness A nalyst

COST BN
Junio r A nalyst

JJ
T echnical Sp ecialist

B usiness B usiness B usiness B usiness

T echnical Pr o g r ammer T OT A L

ACTIVITY/TASK Project Charter Requirements Defintion Review Documentation Interview Stakeholders Document Inital Findings Conduct Focus Groups Prepare Requirements Document Finalize Deliverables Phase Total Systems Design Logical Design Physical Design Design Review Meetings Finalize Design Criteria Phase Total Quality M anagement Process Review QM Processes Track to ISO 9002 Standards Prepare QM Review Report Phase Total

M anag er

A nalyst Sp ecialist

5.00

5.00

4,500.00

2.00 2.00 2.00 2.00 2.00 2.00 12.00

12.00 10.00 12.00 34.00

10.00 13.00 13.00 2.00 4.00 2.00 44.00

3.00 10.00 10.00 2.00 10.00 20.00 15.00

12.00 18.00 25.00 26.00 18.00 26.00 125.00

$1,800.00 $1,800.00 $1,800.00 $1,800.00 $1,800.00 1,800.00 10,800.00

$5,000.00 $6,500.00 $1,050.00 $6,500.00 $3,500.00 $6,000.00 $1,000.00 $4,000.00 $5,000.00 $2,000.00 $700.00 6,000.00 1,000.00 4,000.00 17,000.00 22,000.00 8,000.00 5,250.00

3.00 2.00 2.00 2.00 9.00

1.00

8.00 5.00 1.00 2.00 16.00

2.00 2.00

5.00 10.00 5.00 10.00 30.00

2.00 20.00 15.00 10.00 47.00

18.00 37.00 24.00 26.00 105

$2,700.00 $1,800.00 $1,800.00 1,800.00 8,100.00

$500.00

$4,000.00 $2,500.00 $500.00 1,000.00 8,000.00

800.00 800.00

$3,250.00 $6,500.00 $3,250.00 6,500.00 19,500.00

1.00

500.00

5.00 3.00 2.00 10.00

1.00

9.00 8.00 6.00 23.00

5.00

5.00 10.00 5.00 20.00

25.00 21.00 13.00 59

$4,500.00 $2,700.00 1,800.00 9,000.00

$500.00 $4,500.00 $2,500.00 $4,000.00 3,000.00 500.00 11,500.00 2,500.00

$1,750.00 $3,500.00 1,750.00 7,000.00

1.00

5.00

TOTAL RESOURCES/COSTS

36.00

2.00

57.00

65.00

22.00

35.00

30.00

47.00

294.00

32,400.00

1,000.00 28,500.00 32,500.00

8,800.00 12,250.00 19,500.00

PROJECT MANAGEMENT

Surveyor Pro Project Cost Estimate

Surveyor Pro Software Development Estimate

PROJECT PLANNING : ESTIMATING

Guidelines
Where possible, use multiple techniques for verification
Analogous estimating top down estimating (using actual costs of similar projects) Parametric modeling using project characteristics in a mathematical model projecting costs ($10/sqft) Bottom up Computerized tools Procurement estimating Vendor bids

Use a systematic approach Use multiple estimators Document assumptions and techniques used

PROJECT ESTIMATING GUIDELINE

Guidelines for estimation effort Opportunity evaluation and project initiation represent 510% of project effort Analysis and design represent 50 - 60 % of the total effort Construction represents 30 - 40% of the total effort Implementation and evaluation represent 5 - 15% of the total effort
These numbers are guidelines only.

PROJECT PLANNING : ESTIMATING

Guidelines
Retain estimates and assumptions for future use

Use comparison techniques for explaining variances and arriving at consensus

Top down approaches = underestimates Bottom up approaches = overestimates Always express estimates in terms of effort then dollars

Problems With Cost Estimates

Despite the use of sophisticated tools and techniques many IT project cost estimates are still very inaccurate.

This inaccuracy is even more prevalent in IT projects involving new technology and software as there are no previous historical examples to compare with. There are typically four reasons attributed to inaccurate cost estimates.

Problems With Cost Estimates

1. Developing an estimate for a large software project is a complex task requiring a significant amount of effort.
This is because many estimates must be prepared quickly, before system requirements are clearly defined and before proper analysis can be performed. A process to be followed can be as follows:

Before the project begins a rough order of magnitude (ROM) budget estimate should be prepared. This estimate is followed by a more accurate (typically higher cost) budget estimate.

Problem With Cost Estimates

This in turn is followed by the definitive estimate which, again, typically shows that it will cost more to do the project than previously estimated.

Something to consider
As with schedule management the project manager must insist and ensure that proper cost estimates and analysis be performed before the project begins and that the definitive estimate needs to be revised and updated as necessary throughout the project

Problems With Cost Estimates

2. The people who develop software and hardware cost estimates often do not have enough experience with cost estimation, especially for large projects.
Not enough accurate project data available on which to base estimates because organizations do not properly archive and manage historical information. To overcome these issues IT people should receive training and mentoring on cost estimating. A proper archival and management system needs to be developed and used for important historical project information.

Problems With Cost Estimates

3. Human beings have a bias towards underestimation.
One of the reasons projects are underestimated is that senior IT employees often make estimates based on their own abilities and forget about junior team members working on the project. Another issue is that estimators typically forget about are integration and testing costs. This occurs often in areas where the team is only producing a small component or module within the whole project.

To overcome these problems project managers and senior managers must review the cost estimates given to them by team members and ask questions to make sure the estimates are not biased. (I.e.. Get stakeholders or team members involved).

Problems With Cost Estimates

4. Management might ask for an estimate, but are really requesting a number to help them create a bid to win a major contract or get internal funding.

Surveyor Pro Project Cost Baseline

Cost Budgeting

Project budget estimates for business replacement and explanations

Cost Overruns Globally

Australia: Problems with the installation of an ERP system at Crane Group Ltd. led to an estimated cost overrun of $11.5 million.*

India: As many as 274 projects currently under implementation in the Central sector are suffering serious cost and time overruns.**
Pakistan: Pakistan has sustained a cost overrun of Rs 1.798 billion (over $30 million U.S. dollars) in the execution of the 66.5 megawatt Jagran Hydropower Project in the Neelum Valley.*** United States: Northern California lawmakers were outraged over Governor Arnold Schwarzenegger's announcement that commuters should have to pay construction costs on Bay Area bridges. Maybe it takes the Terminator to help control costs!****
*Songini, Marc L., Australian Firm Wrestles With ERP Delays, ComputerWorld (July 12, 2004). **Srinivasan, G., 274 Central sector projects suffer cost, time overruns, The Hindu Business Line (May 4, 2004). ***Mustafa, Khalid, Rs 1.8 billion cost overrun in Jagran hydropower project, Daily Times (November 19, 2002). ****Gannett Company, Governor Refuses to Pay for Bay Bridge Cost Overruns, News10 (August 17, 2004).

Cost Control and measurement to help avoid Cost Overruns

There are many different accounting approaches to measuring cost performance, however, project managers most often use the earned value analysis (EV) approach.
EV is a project performance measurement technique that integrates scope, time and cost data. Given a cost performance baseline the project manager and their team can determine how well the project is meeting scope, time and cost goals by entering in actual information and comparing it to the baseline.

Cost Control Actual Information

The actual information includes whether or not a WBS item or work package or activity was completed or approximately how much of the work was completed

Earned Value Analysis or Earned Value Management

An important part of the budget cost control process in any project is performing an earned value analysis(EVA). Earned value management (EVM) analysis involves calculating three values for each activity or summary activity in the WBS. These values include:
The Planned Value (PV or BCWS).
This is also called the budgeted cost of work scheduled (BCWS). This is the portion of the approved total cost estimate planned to be spent on an activity during a given period.

The Actual Cost of Work Performed (ACWP or AC).

This is also called the actual cost. This is the total direct and indirect costs incurred in accomplishing work on an activity during a given period.

Earned Value Analysis

The Earned Value (EV), formerly called the budgeted cost of work performed (BCWP). This is the percentage of the work completed multiplied by the planned value.
Earned Value (EV) = PV (to date) X percent complete

Cost variance (CV): this is the budgeted cost of work performed (EV) minus the actual cost of work(AC) performed.
Cost Variance (CV) = EV AC

Schedule variance (SV): this is the budgeted cost of work performed (EV) minus the budgeted cost of work scheduled (PV).
Schedule Variance (SV) = EV PV

Earned Value Analysis

Cost performance index (CPI): this is the ratio of budgeted cost of work performed (EV) to actual cost of work scheduled (AC) and can be used to estimate the projected cost of completing the project.

Cost Performance Index (CPI) = EV / AC

Schedule performance index (SPI): this is the ratio of budgeted cost of work performed (EV) to budgeted cost of work scheduled (PV), and can be used to estimate the projected time to complete the project.

Schedule Performance Index (SPI) = EV / PV

Note that when the analysis is performed negative numbers for cost and schedule variance indicate problems in those areas. In this event, the project is costing more then planned or taking longer then planned. Likewise, CPI and SPI of less then 100% indicate problems in the projects cost and schedule.

Earned Value Analysis

Earned Value (EV) = PV(to date) X (RP) percent complete
Cost Variance (CV) = EV AC

Schedule Variance (SV) = EV PV

Cost Performance Index (CPI) = EV / AC

Schedule Performance Index (SPI) = EV / PV

Estimate At Completion (EAC) = BAC / CPI

Estimate Time to Complete (ETC) = Original Time Estimate/ SPI

Rate of Performance
Rate of performance (RP) is the ratio of actual work completed to the percentage of work planned to have been completed at any given time during the life of the project or activity. Brenda Taylor, Senior Project Manager in South Africa, suggests using this approach for estimating earned value. For example, suppose the server installation was halfway completed by the end of week 1. The rate of performance would be 50 percent (50/100) because by the end of week 1, the planned schedule reflects that the task should be 100 percent complete and only 50 percent of that work has been completed.

Earned Value Calculations for a OneYear Project After Five Months

Earned Value Analysis

This example shows a project summary activity for purchasing a Web Server over a one week period for $10,000.

Earned Value Analysis

The Planned Value (PV) is $10,000 and the Actual Cost (AC) is $15,000 in the first week.

Earned Value Analysis

After 1 week the activity is only 75% complete and the Earned Value (EV) is calculated as follows: EV = $10,000 X 75% = $7,500 (PV*%complete)

Earned Value Analysis

The Cost Variance for the project activity is calculated as follows: CV = $7,500 - $15,000 = ($7,500) (EV-AC)

Earned Value Analysis

The Schedule Variance for the activity is calculated as follows: SV = $7,500 - $10,000 = ($2,500) (EV-PV)

Earned Value Analysis

The Cost Performance Index for the activity is calculated as follows: CPI = $7,500 / $15,000 = 50% (EV/AC)

Earned Value Analysis

The Schedule Performance Index for the activity is calculated as follows: SPI = $7,500 / $10,000 = 75% (EV/PV)

Benefits of Earned Value Analysis

It is important to remember that the earned value calculations must be performed for all project activities in order to estimate the earned value for the entire project.
This is because some activities will be behind schedule or over budget while others are ahead of schedule and under budget. To determine how the project as a whole is performing these earned values for all of the activities must be added together.

Once the overall earned value is determined the CPI for the project can be used to determine the estimate at completion (EAC).

Benefits of Earned Value Analysis

Estimate at Completion (EAC)
This is an estimate of what it will cost to complete the project based on the projects performance (CPI) to date. The EAC is calculated as follows: EAC = Original Budgeted Cost / CPI

If in the previous example the original budgeted cost for the project was $250,000 then the EAC for the project (after the first week only) would be: EAC = $250,000 / 50% = $500,000

Conclusion on EVA Benefits

Earned value management analysis is the primary method available for integrating performance, cost and schedule data.
This makes it a powerful tool for project managers and senior management to use as in evaluating project performance. To help alleviate the problems with performing an EVM the organization can make it simpler by requiring that the EVM be calculated for only the summary tasks.

What Went Wrong?

In 1981, a small timing difference caused by a computer program caused a launch abort.* In 1986, two hospital patients died after receiving fatal doses of radiation from a Therac 25 machine after a software problem caused the machine to ignore calibration data.** Britains Coast Guard was unable to use its computers for several hours in May 2004 after being hit by the Sasser virus, which knocked out the electronic mapping systems, e-mail, and other computer functions, forcing workers to revert to pen, paper, and radios.***
*Design News (February 1988). **Datamation (May 1987). ***Fleming, Nic, Virus sends coastguard computers off course (http://news.telegraph.co.uk/news/ main.jhtml?xml=/news/2004/05/05/ncoast05.xml) (May 15, 2004).

What Is Quality?
Quality: The conformance to requirements and fitness for use.
Conformance to requirements meeting project processes and products to specification Fitness for use computer missing parts

Quality (Another Definition): The characteristics of work performed or items produced that exceeds the explicit, and implicit, requirements expected by the customer.

Quality Control
Quality Control involves monitoring specific project results to ensure that they comply with the relevant quality standards as outlined in the quality management plan. The main goal is to improve quality. There are three main outputs:

Acceptance or reject decisions Rework

bring rejected items into compliance with the projects product requirements, specifications expensive

Process adjustment

This might include such actions such as purchasing and implementing a new server to improve response time
shutting down an assembly line more often to perform preventative maintenance and retooling on the equipment. (Shutdown Syncrude)

Examples of Six Sigma Organizations

Motorola, Inc. pioneered the adoption of Six Sigma in the 1980s and saved about $14 billion.* Allied Signal/Honeywell saved more than $600 million a year by reducing the costs of reworking defects and improving aircraft engine design processes.** General Electric uses Six Sigma to focus on achieving customer satisfaction.
*Pande, Peter S., Robert P. Neuman, and Roland R. Cavanagh, The Six Sigma Way. New York: McGraw-Hill, 2000, p. 7. **Ibid. p. 9.

Six Sigma

The above table illustrates:

The relationship between sigma, the percentage of the population within that sigma range, and the number of defective units per billion.

The Seven Run Rule

This seven data points appear below the mean.

This seven data points are all descending.

Testing can reduce cost Overruns

In this diagram the ovalshaped phases represent areas where you should do testing to help ensure quality on software development projects. By quality auditing and testing the customer should meet his/her acceptance criteria

Testing (An Example)

This diagram also shows several phases which include work related testing, including: Unit Tests: These are done to test each individual component (often a program or module) to ensure it is as defect free as possible. Integration Tests: These occur between unit and system testing to test functionally grouped components.

Testing (An Example)

This diagram also shows several phases which include work related testing, including: System Tests: These test the entire system as one complete entity. User Acceptance Tests: This is an independent test performed by the end user prior to accepting the delivered system.

Improving Quality

Improving Quality
There are five major cost categories related to quality, including:
Prevention Cost:
Preventative actions such as training, detailed studies, and quality surveys all fall under this cost category.

Appraisal Cost:
Inspection, product testing, equipment maintenance, and reporting inspection data all contribute to this cost category.

Improving Quality
Internal Failure Cost:
Scrap, rework, late payment charges, and inventory costs that are a direct result of defects are all included in this category.

External Failure Cost: Customer

Warranty cost, field service personnel training costs, product liability suits, complaint handling, and future lost business are all part of this cost category.

Measurement and Test Equipment Cost:

PROJECT ORGANIZATION: ROLES & RESPONSIBILITIES

Define Roles and Responsibilities
Group
Steering Committee

Roles
Provide overall direction and decision making to the project

Responsibilities
Meet monthly Review status reports Consider and resolve decision requests Represent peer groups Accept deliverables Acquire project resources Prepare monthly status reports Identify and resolve project issues Manage project activities Develop project plans Coordinate all team activities

Project Manager

Manage the day to day operations of the project

Design Team Leader

Manage and deliver the project design

Develop design concepts Manage design team activities Deliver project design documents Ensure design compliance with regulations and codes

Risk management
Involves identifying and measuring the risks associated with a project The major components of risk management
Risk management planning Risk identification Qualitative risk analysis - Probability and Impact Quantitative risk analysis Assessing risks on objectives Risk response planning Risk monitoring and control

Risk Management
Questions that might be asked when addressing the Risk Management Plan.

1. Why is it important to take or not to take this risk wrt project objectives? 2. What is the specific risk? 3. How will the risk be mitigated? 4. Who is responsible for the Risk Management Plan 5. When will the milestones associated with the mitigation approach occur? 6. What are resources that are required to mitigate the risk?

Benefits from Software Risk Management Practices*

100% 80% 80% 60% 60% 40% 20% 0% 47% 47% 43% 35% 6%

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*Kulik, Peter and Catherine Weber, Software Risk Management Practices 2001, KLCI Research Group (August 2001).

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Risk Identification

Risks can also be identified based on the project knowledge areas.

Sample Probability/Impact Matrix

Probability high and Impact High is DANGER Cost Overrun

Sample Probability/Impact Matrix for Qualitative Risk Assessment

Example of Top Ten Risk Item Tracking causing Cost Overruns

Monthly Ranking Risk Item Inadequate planning Poor definition of scope Absence of leadership This Month 1 2 Last Month 2 3 Number Risk Resolution of Months Progress 4 3 Working on revising the entire project plan Holding meetings with project customer and sponsor to clarify scope Just assigned a new project manager to lead the project after old one quit Revising cost estimates Revising schedule estimates

Poor cost estimates Poor time estimates

4 5

4 5

3 3

Procurement Management
Many organizations are turning to outsourcing to:
Reduce both fixed and recurrent costs and hence cost overruns. Outsourcing vendors are often able to use economies of scale to their advantage. Allow the client organization to focus on its core business.

Procurement Management
Access skill and technologies. Organizations can often gain access to special skills and technologies when they are required by using outsourced vendors. Provide flexibility. Outsourcing can provide extra staff during peak workloads which is more efficient and more economical then trying to find resources internally within the company. Increase accountability. A well-written contract can clarify responsibilities and sharpen focus on key project deliverables.

Contract Types

Fixed price or lump sum contracts Time and Materials cost plus incentive fee cost plus fixed fee cost plus percentage of costs

Mega Cost Overrun examples

Canadian Firearms Program: Planned cost: $119 m Final cost: $1bn International Space Station : Planned cost: $8bn Final cost: $26bn Channel Tunnel: Planned cost: 4.9bn Final cost: 10bn Concorde: Planned cost: 90m Final cost:1.1bn

Estimates and cost overruns

A large number of studies show the fact that cost overrun affects projects in all industries, in all countries either in the public or in the private sector Cost Overrun = Actual Cost Estimated Cost The problem is that several cost estimates are usually produced during the project life cycle, but there is no standard rule to determine which one must be considered for computing the cost overrun

Statistics on Cost Overruns

A survey based on 258 infrastructure projects in 20 different countries indicates that
9 times of 10, the actual costs are on average 28% higher than the estimated costs at the time of decision to build Underestimated today are in the same order of magnitude as it was 10, 30, and 70 years ago

In India of 617 infrastructure projects, only 149 were faced with cost overruns amounting to 22.2% with respect to the latest approved estimates
The cost overrun has come down from 62% in March, 1991 to 20.7% in September, 2004

Statistics on Cost Overruns

The Standish Group has surveyed over 50,000 completed IT projects in its biennial CHAOS research since 1994. The results are summarized below Years 1994 1996 1998 2000 2002 2004 overrun 189% 142% 69% 45% 43% 43% One of todays major reason for the reduction in cost overruns is that projects are now small enough to manage

Reserves
Reserves are funds included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict. There are typically two types of reserves:
Contingency reserves: this reserve allows for future situations that are partially planned for.
Known - Unknowns

Management reserves: this reserve allows for future situations which are unpredictable.
Unknown - Unknowns

Suggestions for labour cost overruns

sharing the estimated time or labour costs for each phase or deliverable (WBS) with a seller of the project before work begins Empower team leads or team to ensure responsibility or ownership of their deliverable by tracking, monitoring and being aware of cost savings on using or acquiring resources Asking experienced colleagues for advice on your estimates

Suggestions for labour cost overruns

By having the field keep daily time cards separating the job into phases or deliverables so that overruns can be tracked and analyzed to the finest detail. These phases should be standardized in a company so that you estimate by phase or deliverable and are able to track job costs. Instituting an incentive program which shares job cost savings

Subcontractor overruns
Ensure a bidder for a RFP understands the context of the business of the buyer (customer) before they bid on the contract to ensure that they are aware of the what they are getting themselves into which may provide a better estimate to the buyer thus removing the escalation of cost overruns As a buyer try and obtain a Fixed Price contract as much as possible. This will ensure that the risks are taken on the bearer for that deliverable

Subcontractor overruns (Cont.)

By referencing your plans in your sellers / subcontractors' contracts. Ask the seller to let you know in writing (as part of their contract), if they are not including any labour or materials shown on the plans that would normally be in their area of specialty Insisting that subcontractors let you know if there is a change to the scope of their work and what that extra cost will add to their contract before they actually perform the work.

Material Overruns
Try and order ahead for delivery by suppliers. This will ensure that your product or service will be in stock. Discourage pickup of material by your personnel. It bleeds profit and uses up labor hours. By allotting some time on a regular basis cross check supplier prices. Choose some frequently ordered materials and get prices to see where you should be buying from

Material overruns
get multiple prices on large material orders ask for discounts on materials you buy frequently and in large quantities. Often just asking will reduce your costs. Learning Curve theory

References
A Guide to the Project Management Body of Knowledge PMBOK 2004 (Body Of Knowledge) Project Management Institute Information Technology Project Management 4th Edition Kathy Schwalbe Project Management: A Managerial Approach, 5th Edition- Jack R. Meredith, Samuel J. Mantel, Jr