Pricing Process

This activity schedules the development of the work breakdown structure and provides management with two of the three operational tools necessary for the control of a system or project. The development of these two tools is normally the responsibility of the program office with input from the functional units.

The integration of the functional unit into the project environment or system occurs through the pricing-out of the work breakdown structure. The total program costs obtained by pricing out the activities over the scheduled period of performance provide management with the third tool necessary to successfully manage the project. During the pricing activities, the functional units have the option of consulting program management about possible changes in the activity schedules and work breakdown structure.

The work breakdown structure and activity schedules are priced out through the lowest pricing units of the company. It is the responsibility of these pricing units, whether they be sections, departments, or divisions, to provide accurate and meaningful cost data (based on historical standards, if possible). All information is priced out at the lowest level of performance required, which, from the assumption of Chapter 11, will be the task level. Costing information is rolled up to the project level and then one step further to the total program level.

Under ideal conditions, the work required (i.e., man-hours) to complete a given task can be based on historical standards. Unfortunately, for many indus-

TABLE 14-6. DATA REQUIRED FOR PREPARATION OF ESTIMATES

Classes of Estimates

TABLE 14-6. DATA REQUIRED FOR PREPARATION OF ESTIMATES

I

II

III

IV

V

VI

General

Product

X

X

X

X

X

X

Process description

X

X

X

X

X

X

Capacity

X

X

X

X

X

X

Location—general

X

X

Location—specific

X

X

X

X

Basic design criteria

X

X

X

X

General design specifications

X

X

X

X

Process

Process block flow diagram

X

Process flow diagram (with equipment size and material)

X

X

Mechanical P&I's

X

X

X

Equipment list

X

X

X

X

X

Catalyst/chemical specifications

X

X

X

X

X

Site

Soil conditions

X

X

X

X

Site clearance

X

X

X

Geological and meteorological data

X

X

X

Roads, paving, and landscaping

X

X

X

Property protection

X

X

X

Accessibility to site

X

X

X

Shipping and delivery conditions

X

X

X

Major cost is factored

X

X

Major Equipment

Preliminary sizes and materials

X

X

X

Finalized sizes, materials, and appurtenances

X

X

Bulk Material Quantities

Finalized design quantity take-off

X

Preliminary design quantity take -off

X

X

X

X

Engineering

Plot plan and elevations

X

X

X

X

Routing diagrams

X

X

X

Piping line index Electrical single line Fire protection Sewer systems

Pro -services—detailed estimate Pro -services—ratioed estimate Catalyst/chemicals quantities Construction

Labor wage, F/B, travel rates Labor productivity and area practices Detailed construction execution plan Field indirects —detailed estimate Field indirects —ratioed estimate Schedule

Overall timing of execution Detailed schedule of execution Estimating preparation schedule

XXX X X

XXX XXX

Figure 14-1. The vertical-horizontal interface.

tries, projects and programs are so diversified that realistic comparison between previous activities ma not be possible. The costing information obtained from each pricing unit, whether or not it is based on historical standards, should be regarded only as an estimate. How can a company predict the salary structure three years from now? What will be the cost of raw materials two years from now? Will the business base (and therefore overhead rates) change over the duration of the program? The final response to these questions shows that costing data are explicitly related to an environment that canno be predicted with any high degree of certainty. The systems approach to management, however, provides for a more rapid response to the environment than less structured approaches permit.

Once the cost data are assembled, they must be analyzed for their potential impact on the company resources of people, money, equipment, and facilities. It is only through a total program cost analysis that resource allocations can be analyzed. The resource allocation analysis is performed at all levels o management, ranging from the section supervisor to the vice president and general manager. For mos programs, the chief executive must approve final cost data and the allocation of resources.

Proper analysis of the total program costs can provide management (both program and corporate) wit a strategic planning model for integration of the current program with other programs in order to obta a total corporate strategy. Meaningful planning and pricing models include analyses for monthly manloading schedules per department, monthly costs per department, monthly and yearly total progra costs, monthly material expenditures, and total program cash-flow and man-hour requirements per month.

Previously we identified several of the problems that occur at the nodes where the horizontal hierarchy of program management interfaces with the vertical hierarchy of functional management. The pricing-out of the work breakdown structure provides the basis for effective and open communication between functional and program management where both parties have one common goal. This is shown in Figure 14-1. After the pricing effort is completed, and the program is initiated, the work breakdown structure still forms the basis of a communications tool by documenting the performance agreed on in the pricing effort, as well as establishing the criteria against which performance costs will be measured.

Project Management Made Easy

Project Management Made Easy

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.

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