Figure 7.10 Using Microsoft Project 2000 to Compute the Basic Budget costs include indirect labor, materials, supplies, and reserves (Kinsella 2002). To determine the total project's budget, we also need to include other costs as well. These costs include:
• Indirect Costs—These costs include such things as rent, utilities, insurance, and other administrative costs. For example, a consulting firm may charge a client $150 an hour per consultant. Included in that hourly fee would be the salary and benefits of the consultant and enough margin to help cover the administrative and operation costs needed to support the consulting office.
• Sunk Costs—Sunk costs are costs that have been incurred prior to the cur rent project. For example, a previous attempt to build an application system may have ended in failure after three months and $250,000. This $250,000 would be considered a sunk cost, regardless of whether any work from the previous project is salvageable or of use to the current project.
• Learning Curve—Often we have to "build one and throw it away" in order to understand a problem or use a new technology effectively. In addition, inexperienced people will make mistakes and new technology will usually require a steep learning curve in the beginning. As a result, time and effort can be wasted. This time to learn should be considered in either the project schedule or budget.
Reserves—Reserves provide a cushion when unexpected situations arise. Contingency reserves are based on risk and provide the project manager with a degree of flexibility. On the other hand, a project budget should have some management contingencies built in as well. Of course, reserves are a trade-off. Upper management or the client will view these as fat that can be trimmed from the project budget; however, the wise project manager will ensure that a comfortable reserve is included in the project's budget. For example, it would be sad to think that the project's budget would not allow the project manager to buy pizza or dinner for the team once in a while as a reward for working late to meet an important milestone.
Once the resources have been assigned to the project, it is important that the project manager review the project plan to ensure that the resources are level. In other words, resources cannot be over allocated—i.e., a resource cannot be assigned to more than one task at the same time. Although the project manager may catch these mistakes early on, it is important that the level of resources be reviewed once the project schedule and resource assignments have been made. Not catching these mistakes early can have a demoralizing effect on the team and lead to unplanned (i.e., unbudgeted) costs. A project management tool such as Microsoft Project provides the means for identifying overallocated resources. Figure 7.11 provides an example of the Resource Allocation View where a project team member has been assigned to two tasks at the same time. A project manager has the choice of creating a new relationship for these tasks (e.g., FS) or reassigning another resource to one of the tasks. In addition, many software management tools can level resources automatically for the project manager.
| FINALIZING THE PROJECT SCHEDULE AND BUDGET
The project schedule and budget may require several iterations before it is acceptable to the sponsor, the project manager, and the project team. In addition, it is important that the project manager document any and all assumptions used to come up with duration and cost estimates. For example, this documentation may include estimating the salary of a database administrator (DBA) who will be hired at a future date. Instead of allocating a cost of what the project manager thinks a DBA will cost (or worse yet, what upper management would like to pay), he or she could use salary surveys or salary information advertised in classified advertisements as a base cost estimate. So, the project manager should document the source of this cost in order to give the cost estimates greater credibility. In addition, the project plan may include several working drafts. Having assumptions documented can help keep things organized as well.
Once the project schedule and project plan are accepted, the project plan becomes the baseline plan that will be used as a yardstick, or benchmark, to track the project's actual progress with the original plan. Once accepted, the project manager and project team have the authority to execute or carry out the plan. As tasks and activities are completed, the project plan must be updated in order to communicate the project's progress in relation to the baseline plan. Any changes or revisions to the project's estimates should be approved and then reflected in the plan to keep it updated and realistic.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.