what tools you use to track labor and expenses for a project?

Chief Body

12. Upkeep Planning

Every project boils downward to coin. If y'all had a bigger upkeep, you could probably get more people to do your project more than quickly and deliver more. That's why no project plan is consummate until you come up with a upkeep. But no thing whether your projection is big or small, and no matter how many resource and activities are in it, the process for figuring out the bottom line is always the aforementioned.

It is important to come up with detailed estimates for all the project costs. Once this is compiled, you add upwardly the cost estimates into a upkeep program. It is now possible to rail the project co-ordinate to that budget while the work is ongoing.

Often, when you come into a project, at that place is already an expectation of how much it will cost or how much time it volition accept. When you brand an estimate early in the projection without knowing much nigh information technology, that approximate is called a rough order-of-magnitude estimate (or a ballpark estimate). This estimate will become more refined every bit time goes on and y'all learn more than about the project. Hither are some tools and techniques for estimating cost:

• Determination of resources cost rates: People who will be working on the projection all piece of work at a specific rate. Whatsoever materials you employ to build the project (east.thousand., woods or wiring) will be charged at a rate as well. Determining resource costs means figuring out what the charge per unit for labour and materials volition be.
• Vendor bid assay: Sometimes you will need to piece of work with an external contractor to go your projection done. You might fifty-fifty have more one contractor bid on the task. This tool is most evaluating those bids and choosing the one yous volition accept.
• Reserve analysis: You demand to set aside some money for cost overruns. If you know that your project has a risk of something expensive happening, information technology is amend to have some cash available to deal with it. Reserve analysis means putting some cash away in instance of overruns.
• Price of quality: You will need to figure the toll of all your quality-related activities into the overall budget. Since it'south cheaper to find bugs earlier in the projection than after, at that place are always quality costs associated with everything your projection produces. Cost of quality is only a manner of tracking the cost of those activities. It is the corporeality of coin it takes to do the projection right.

Once y'all apply all the tools in this process, you volition arrive at an judge for how much your project will cost. It'southward important to keep all of your supporting judge information. That way, you know the assumptions made when you were coming upwardly with the numbers. At present you are prepare to build your budget plan.

Estimating Costs to Compare and Select Projects

During the conceptual phase when project choice occurs, economical factors are an of import consideration in choosing between competing projects. To compare the unproblematic paybacks or internal rates of return between projects, an estimate of the cost of each project is fabricated. The estimates must be authentic enough then that the comparisons are meaningful, but the amount of time and resources used to make the estimates should be appropriate to the size and complexity of the projection. The methods used to judge the cost of the project during the selection phase are more often than not faster and eat fewer resources than those used to create detailed estimates in later phases. They rely more than on the expert judgment of experienced managers who can make accurate estimates with less detailed information. Estimates in the earliest stages of projection selection are usually based on information from previous projects that tin can be adjusted—scaled—to match the size and complexity of the current project or developed using standardized formulas.

Analogous Estimate

An estimate that is based on other projection estimates is an analogous estimate. If a similar project cost a certain amount, then it is reasonable to assume that the current project will toll virtually the same. Few projects are exactly the same size and complexity, so the estimate must be adapted upwardly or downward to account for the differences. The selection of projects that are similar and the amount of aligning needed is upward to the judgment of the person who makes the estimate. Usually, this judgment is based on many years of feel estimating projects, including incorrect estimates that were learning experiences for the expert.

Less-experienced managers who are required to make analogous estimates tin can look through the documentation that is available from previous projects.  If projects were evaluated using the Darnall-Preston Complication Alphabetize (DPCI), the manager tin chop-chop place projects that have profiles similar to the project under consideration, even if those projects were managed by other people.

The DPCI assesses projection attributes, enabling better-informed decisions in creating the project profile. This index assesses the complexity level of key components of a project and produces a unique project profile. The profile indicates the project complexity level, which provides a benchmark for comparison projects and information about the characteristics of a project that tin so be addressed in the project execution programme. It achieves this objective by grouping 11 attributes into four wide categories: internal, external, technological complexity, and ecology.

Comparing the original estimates with the concluding project costs on several previous projects with the same DPCI ratings gives a less-experienced manager the perspective that it would take many years to acquire past trial and fault. It also provides references the managing director can use to justify the estimate.

John sold his apartment and purchased another one.  It is now time to plan for the move. John asked a friend for advice about the cost of his motion. His friend replied, "I moved from an apartment a little smaller than yours terminal year and the altitude was about the aforementioned. I did it with a xiv-foot truck. Information technology toll virtually $575 for the truck rental, pads, hand truck, rope, boxes, and gas." Because of the similarity of the projects, John'due south initial estimate of the cost of the move was less than $700 so he decided that the cost would be affordable and the project could become forward.

Parametric Approximate

If the project consists of activities that are common to many other projects, average costs are available per unit of measurement. For example, if y'all enquire a construction company how much it would cost to build a standard office building, the estimator will ask for the size of the building in square anxiety and the metropolis in which the edifice will be built. From these ii factors—size and location—the company's calculator can predict the toll of the building. Factors like size and location are parameters—measurable factors that tin can exist used in an equation to calculate a issue. The reckoner knows the boilerplate cost per square foot of a typical part edifice and adjustments for local labour costs. Other parameters such every bit quality of finishes are used to farther refine the gauge. Estimates that are calculated by multiplying measured parameters by cost-per-unit values are parametric estimates.

To estimate the size of the truck needed for John's motion, the parameter used by a truck rental company is the number of bedrooms (Effigy 12.1). The company assumes that the number of bedrooms is the important parameter in determining how large a truck is needed for a motion. John has a i-bedroom apartment, so he chooses the 14-human foot truck. One time the size is adamant, other parameters, such equally distance and days, are used to estimate the toll of the truck rental.

Figure 12.1 Parametric Toll Estimate

Lesser-Up Estimating

The most accurate and time-consuming estimating method is to identify the price of each particular in each activity of the schedule, including labour and materials. If you view the project schedule as a hierarchy where the general descriptions of tasks are at the top and the lower levels go more detailed, finding the price of each item at the lowest level and and so summing them to determine the cost of higher levels is called lesser-up estimating.

Table 12.i Detailed Toll Approximate

Category	Description	Activity	Quantity	Unit Price	Cost
Packing Materials	Small Boxes	2.1	10	$i.lxx	$17.00
Packing Materials	Medium Boxes	2.1	15	$two.35	$35.25
Packing Materials	Large Boxes	two.one	7	$three.00	$21.00
Packing Materials	Extra-Large Boxes	ii.ane	7	$three.75	$26.25
Packing Materials	Short-Hanger Boxes	two.1	3	$7.95	$23.85
Packing Materials	Box Record	2.i	2	$3.85	$seven.70
Packing Materials	Markers	2.1	2	$one.l	$3.00
Packing Materials	Mattress/Leap Bags	two.1	two	$2.95	$v.ninety
Packing Materials	Life Straps per Pair	2.one	1	$24.95	$24.95
Packing Materials	Bubble Wrap	2.one	one	$nineteen.95	$19.95
Packing Materials	Piece of furniture Pads	2.ane	4	$7.95	$31.80
Truck	Rental	2.ii	–	–	$400.00
Truck	Gas at 10mpg	2.2	200	$2.25	$45.00

After evaluating the bids by the moving companies, John decides the savings are worth his fourth dimension if he can get the packing washed with the assist of his friends. He decides to ready a detailed estimate of costs (Table 12.1) for packing materials and use of a rental truck. He looks up the prices for packing materials and truck rental costs on company websites and prepares a detailed listing of items, quantities, and costs.

This type of estimate is typically more authentic than an coordinating or parametric gauge. In this case, the sum of packing materials and truck expenses is estimated to exist $661.25.

The estimate tin exist rolled upwardly—subtotaled—to display less detail. This procedure is made easier using computer software. On projects with depression complexity, the toll estimates can be done on spreadsheet software. On larger projects, software that manages schedules tin can also manage costs and brandish them by activity and category. For example, the subtotal feature could be used in Excel and collapsed to testify the subtotals for the two categories of costs (Figure 12.2).

Effigy 12.2 Sum of detailed costs by type

Activity-Based Estimates

An action tin can have costs from multiple vendors in add-on to internal costs for labour and materials. Detailed estimates from all sources can exist reorganized so those costs associated with a particular activity can exist grouped past adding the activeness lawmaking to the detailed approximate (Table 12.2).

Table 12.2 Costs Associated with Activities

Category	Activity	Cost
Packing Materials	2.1	$216.65
Truck	2.two	$445.00

The detailed price estimates can exist sorted and then subtotaled by activity to make up one's mind the price for each activity.

Managing the Budget

Projects seldom go according to plan in every detail. It is necessary for the project director to exist able to identify when costs are varying from the upkeep and manage those variations.

Managing Cash Menses

If the full amount spent on a project is equal to or less than the amount budgeted, the project tin can still be in problem if the funding for the project is not bachelor when it is needed. In that location is a natural tension betwixt the financial people in an organization, who practice not want to pay for the use of money that is only sitting in a checking account, and the projection manager, who wants to be sure that there is enough money bachelor to pay for project expenses. The fiscal people prefer to continue the visitor'due south coin working in other investments until the last moment before transferring it to the projection business relationship. The contractors and vendors have similar concerns, and they want to become paid every bit presently as possible so they can put the money to work in their own organizations. The project director would like to have as much greenbacks available as possible to use if activities exceed upkeep expectations.

Contingency Reserves

Nigh projects have something unexpected occur that increases costs above the original estimates. If estimates are rarely exceeded, the estimating method should exist reviewed because the estimates are likewise high. It is impossible to predict which activities will price more than expected, just information technology is reasonable to assume that some of them will. Estimating the likelihood of such events is function of risk analysis, which is discussed in more item in a later chapter.

Instead of overestimating each cost, money is approaching for dealing with unplanned merely statistically predictable cost increases. Funds allocated for this purpose are chosen contingency reserves. Because it is likely that this money will be spent, it is part of the total budget for the projection. If this fund is adequate to run across the unplanned expenses, and then the project will complete inside the budget.

Management Reserves

If something occurs during the project that requires a alter in the project scope, money may be needed to deal with the situation before a change in scope can be negotiated with the project sponsor or client. Information technology could be an opportunity as well as a challenge. For case, if a new engineering science were invented that would greatly heighten your completed project, there would be additional cost and a modify to the scope, but it would be worth it. Money can be made bachelor at the manager's discretion to meet needs that would change the scope of the project. These funds are called management reserves. Dissimilar contingency reserves, they are not likely to be spent and are non office of the project's upkeep baseline, just they can be included in the full project budget.

Evaluating the Budget During the Project

A project manager must regularly compare the corporeality of money spent with the budgeted amount and report this information to managers and stakeholders. It is necessary to establish an understanding of how this progress volition be measured and reported.

In the John's motility instance, he estimated that the move would price about $1,500 and take about 16 days. Eight days into the project, John has spent $300. John tells his friends that the project is going well because he is halfway through the projection merely has simply spent a fifth of his budget. John's friend Carlita points out that his written report is not sufficient because he did not compare the amount spent to the budgeted amount for the activities that should be washed by the eighth mean solar day.

Equally John's friend pointed out, a budget report must compare the amount spent with the amount that is expected to be spent by that point in the project. Basic measures such as percent of activities completed, percent of measurement units completed, and percentage of budget spent are acceptable for less complex projects, just more sophisticated techniques are used for projects with higher complexity.

Earned Value Analysis

A method that is widely used for medium- and high-complexity projects is the earned value direction (EVM) method. EVM is a method of periodically comparing the budgeted costs with the actual costs during the project. Information technology combines the scheduled activities with detailed cost estimates of each activity. It allows for fractional completion of an activity if some of the detailed costs associated with the activity have been paid but others take not.

The budgeted toll of work scheduled (BCWS) comprises the detailed cost estimates for each activity in the project. The amount of work that should have been done by a particular date is the planned value (PV). These terms are used interchangeably past some sources, but the planned value term is used in formulas to refer to the sum of the approaching cost of work up to a particular bespeak in the project, so we will brand that distinction in the definitions in this text for clarity.

On day six of the project, John should accept taken his friends to lunch and purchased the packing materials. The portion of the BCWS that should have been done by that date (the planned value) is shown in Table 12.3. This is the planned value for day vi of the project.

Table 12.3 Planned Value for Lunch and Packing Materials

Description	Quantity	Toll
Dejeuner	iii	$45.00
Small Boxes	ten	$17.00
Medium Boxes	15	$35.25
Big Boxes	seven	$21.00
Actress Large Boxes	7	$26.25
Brusk Hanger Boxes	3	$23.85
Box Record	2	$vii.70
Markers	ii	$3.00
Mattress/Leap Numberless	2	$5.90
Life Straps per Pair	ane	$24.95
Bubble Wrap	ane	$19.95
Furniture Pads	4	$31.80

Full: $261.65

The approaching price of work performed (BCWP) is the approaching cost of work scheduled that has been done. If y'all sum the BCWP values upward to that point in the project schedule, you have the earned value (EV). The amount spent on an item is often more or less than the estimated corporeality that was budgeted for that item. The actual cost (AC) is the sum of the amounts actually spent on the items.

Dion and Carlita were both trying to lose weight and just wanted a nice salad. Consequently, the lunch cost less than expected. John makes a end at a store that sells moving supplies at discount rates. They exercise not have all the items he needs, but the prices are lower than those quoted past the moving visitor. They have a very practiced price on lifting straps so he decides to purchase an actress pair. He returns with some of the items on his listing, but this phase of the task is non complete by the end of solar day half dozen. John bought one-half of the modest boxes, all of five other items, twice as many lifting straps, and none of 4 other items. John is only six days into his project, and his costs and functioning are starting to vary from the plan. Earned value assay gives us a method for reporting that progress (Table 12.four).

Table 12.iv Planned Value, Earned Value, and Bodily Price

	Budgeted Cost of Work Scheduled (BCWS)		Budgeted Cost of Work Performed (BCWP)		Actual Cost (Air-conditioning)
Description	Quantity	Cost	Quantity	Cost	Quantity	Cost
Lunch	3	$45.00	three	$45.00	3	$35.00
Small Boxes	10	$7.00	5	$8.50	5	$9.l
Medium Boxes	15	$35.25	xv	$35.25	15	$28.00
Large Boxes	seven	$21.00
Extra-Large Boxes	7	$26.25
Short-Hanger Boxes	3	$23.85
Box Tape	2	$vii.seventy	two	$vii.70	two	$five.l
Markers	two	$3.00	2	$3.00	two	$two.00
Mattress/Spring Numberless	two	$5.ninety	ii	$5.90	2	$vii.l
Life Straps per Pair	1	$24.95	1	$24.95	2	38.50
Bubble Wrap	1	$xix.95
Piece of furniture Pads	four	$31.80	iv	$31.80	4	28.50

The original schedule called for spending $261.65 (PV) by day six. The amount of work washed was worth $162.10 (EV) according to the estimates, but the actual cost was only $154.fifty (Air-conditioning).

Schedule Variance

The projection manager must know if the projection is on schedule and within the upkeep. The difference between planned and actual progress is the variance. The schedule variance (SV) is the difference between the earned value (EV) and the planned value (PV). Expressed as a formula, SV = EV − PV. If less value has been earned than was planned, the schedule variance is negative, which means the project is backside schedule.

Planning for John's move calls for spending $261.65 by 24-hour interval six, which is the planned value (PV). The difference betwixt the planned value and the earned value is the scheduled variance (SV). The formula is SV = EV − PV. In this example, SV = $162.ten − $261.65 = ($99.55) A negative SV indicates the project is backside schedule.

The difference between the earned value (EV) and the actual cost (Air conditioning) is the cost variance (CV). Expressed as a formula, CV = EV −Ac. A positive CV indicates the projection is under budget.

The divergence betwixt the earned value of $162.ten and the actual cost of $154.50 is the cost variance (CV). The formula is CV = EV − Air-conditioning. In this instance, CV = $162.10 − $154.50 = $7.60.

Variance Indexes for Schedule and Cost

The schedule variance and the cost variance provide the amount by which the spending is backside (or ahead of) schedule and the amount by which a project is exceeding (or not fully using) its budget. They exercise non give an idea of how these amounts compare with the total upkeep.

The ratio of earned value to planned value gives an indication of how much of the projection is completed. This ratio is the schedule performance alphabetize (SPI). The formula is SPI = EV ÷ PV. In the John's motion case, the SPI equals 0.62 (SPI = $162.10 ÷ $261.65 = 0.62) An SPI value less than 1 indicates the projection is behind schedule.

The ratio of the earned value to the actual price is the price performance index (CPI). The formula is CPI = EV ÷ Ac.

In the John'due south movement example, CPI = $162.ten ÷ $154.50 = 1.05. A value greater than 1 indicates that the project is under upkeep.

Figure 12.3 Schedule variance and cost variance.

The cost variance of positive $7.lx and the CPI value of 1.05 tell John that he is getting more value for his coin than planned for the tasks scheduled by day six. The schedule variance (SV) of negative $99.55 and the schedule performance index (SPI) of 0.62 tell him that he is behind schedule in adding value to the projection (Figure 12.3).

During the project, the manager can evaluate the schedule using the schedule variance (SV) and the schedule performance index (SPI), and the upkeep using the cost variance (CV) and the cost performance index (CPI).

Estimated Cost to Complete the Project

Part fashion through the projection, the manager evaluates the accuracy of the cost estimates for the activities that have taken place and uses that experience to predict how much money it will take to consummate the unfinished activities—the estimate to complete (ETC).

To summate the ETC, the manager must decide if the toll variance observed in the estimates to that point are representative of the future. For case, if unusually bad weather condition causes increased price during the first role of the project, it is not likely to have the same upshot on the residue of the project. If the manager decides that the cost variance upwards to this point in the project is singular—not typical—then the gauge to consummate is the difference betwixt the original budget for the entire projection—the budget at completion (BAC)—and the earned value (EV) up to that point. Expressed as a formula, ETC = BAC − EV.

For his move, John was able to buy most of the items at a discount house that did not have a consummate inventory, and he chose to buy an extra pair of lift straps. He knows that the planned values for packing materials were obtained from the price list at the moving company where he volition take to buy the residuum of the items, then those two factors are non likely to be typical of the remaining purchases. The reduced price of lunch is unrelated to the hereafter costs of packing materials, truck rentals, and hotel fees. John decides that the factors that caused the variances are singular. He calculates that the estimate to complete (ETC) is the budget at completion ($1,534) minus the earned value at that signal ($162.10), which equals $ane,371.xc. Expressed as a formula, ETC = $i,534 − $162.10 = $ane,371.90.

If the director decides that the toll variance is caused by factors that will touch the remaining activities, such every bit higher labour and material costs, then the judge to complete (ETC) needs to exist adjusted by dividing it by the toll performance alphabetize (CPI). For case, if labour costs on the outset part of a projection are estimated at $80,000 (EV) and they really cost $85,000 (AC), the cost operation (CPI) will exist 0.94. (Recall that the CPI = EV ÷ Ac.)

To calculate the judge to complete (ETC), assuming the price variance on known activities is typical of hereafter cost, the formula is ETC = (BAC − EV) ÷ CPI. If the budget at completion (BAC) of the project is $800,000, the estimate to complete is ($800,000 − $80,000) ÷ 0.94 = $766,000.

Guess Final Project Cost

If the costs of the activities up to the present vary from the original estimates, this will affect the total approximate of the project toll. The new estimate of the project cost is the estimate at completion (EAC). To calculate the EAC, the estimate to complete (ETC) is added to the actual price (Air conditioning) of the activities already performed. Expressed every bit a formula, EAC = Air conditioning + ETC.

The revised estimate at completion (EAC) for John'due south move at this point in the process is EAC = $154.50 + $1,371.90 = $1,526.40.

Tabular array 12.5 Summary of Terms and Formulas for Earned Value Analysis

Term	Acronym	Description	Formula	John's Move
Actual Toll	Air-conditioning	The money actually spent on projects up to the present.	–	$154.fifty
Upkeep at Completion	BAC	Original budget for the projection (same sa BCWS)	–	$1,534.00
Cost Performance Index	CPI	Ratio of earned value to actual cost	CPI = EV ÷ Air-conditioning	1.05
Price Variance	CV	Deviation between earned value and actual cost	CV = EV − AC	$7.threescore
Earned Value	EV	Sum of estimates for work actually done upwards to the present	–	$162.10
Estimate at Completion	EAC	Revised approximate of total project toll	EAC = AC + ETC	$1,526.40
Guess to Consummate	ETC	Money to complete the project if early price variance is atypical	ETC = (BAC − EV) ÷ CPI	n/a
Planned Vale	PV	Sum of the estimates for piece of work done upwards to the nowadays	–	$261.65
Schedule Performnce Index	SPI	Ratio of earned value to planned value	SPI = EV ÷ PV	0.62
Schedule Variance	SV	Difference betwixt earned value and planned value	SV = EV − PV	$99.55

To summarize (Table 12.5):

• Extra money is allocated in a contingency fund to deal with activities where costs exceed estimates. Funds are allocated in a direction reserve in instance a significant opportunity or challenge occurs that requires modify of scope but funds are needed immediately before a scope change tin can typically be negotiated.
• Schedule variance is the difference between the part of the budget that has been spent and then far (EV) versus the role that was planned to be spent by now (PV). Similarly, the cost variance is the deviation betwixt the EV and the actual cost (Air-conditioning).
• The schedule performance alphabetize (SPI) is the ratio of the earned value and the planned value. The cost functioning index (CPI) is the ratio of the earned value (EV) to the actual toll (AC).
• The formula used to calculate the amount of money needed to complete the project (ETC) depends on whether or not the price variance to this indicate is expected to continue (typical) or non (singular). If the cost variance is atypical, the ETC is only the original total budget (BAC) minus the earned value (EV). If they are typical of future cost variances, the ETC is adjusted by dividing the difference betwixt BAC and EV by the CPI.
• The last budget is the actual cost (AC) to this point plus the approximate to complete (ETC).

Establishing a Upkeep

Once you have broken your project downward into activities, you will be able to calculate your overall projection costs by estimating and totaling the individual activity costs.

This procedure of subtotaling costs past category or action is called toll aggregation.

Budget Timeline

Costs are associated with activities, and since each activity has a start date and a duration period, it is possible to summate how much money will be spent by whatsoever particular date during the project. The money needed to pay for a project is usually transferred to the projection account shortly before it is needed. These transfers must be timed so that the money is at that place to pay for each activity without causing a delay in the start of the activeness. If the money is transferred too far in advance, the organization will lose the opportunity to use the money somewhere else, or they will have to pay unnecessary interest charges if the money is borrowed. A schedule of money transfers is created that should match the need to pay for the activities. The procedure of matching the schedule of transfers with the schedule of activity payments is called reconciliation. Refer to Effigy 12.4, which shows the costs of 10 major activities in a projection. Funds are transferred into the project account 4 times. Notice that during most of the projection, there were more funds available than were spent except at activity 6 when all the available funds were spent.

Effigy 12.4: Fund transfers and expenditures.

In the projection budget contour shown in Figure 12.4, at that place is no margin for error if the total of the first 6 activities exceeds the corporeality of funding at that signal in the project.

Contractual agreements with vendors often require partial payment of their costs during the project. Those contracts can exist managed more conveniently if the unit of measure for partial completion is the same as that used for cost budgeting. For case, if a graphic designer is putting together several pieces of artwork for a textbook, their contract may call for partial payment subsequently 25% of their total number of drawings is complete.

Text Attributions

This chapter of Project Management is a derivative of the following texts:

• Projection Management for Instructional Designers by Wiley, et. al. © CC By-NC-SA (Attribution-NonCommercial-ShareAlike).

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Source: https://opentextbc.ca/projectmanagement/chapter/chapter-12-budget-planning-project-management/

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