Tag Archives: People

Reader Q&A: The WBS and Cost

I wanted to share an email question I received through a Twitter contact of mine and my response.? Feel free to chip in with your own insights!

photo by Tracy O

photo by Tracy O

Question:

I hope you don’t mind me coming to you for advise and help with Project Management. I have this one question which I keep pondering on. In what way would you say that monitoring, planning and controlling project cost with a budget and organizing and planning a project using the WBS help or support one another?

Thanks!

My response:

Glad we connected on Twitter!? In my projects, the WBS is one of the key things that helps me with planning and monitoring costs.? The WBS is a prerequisite.? When I have a WBS, I can look at it and see where I should have charge codes set up for project staff, and where I should be reporting project costs.? Usually there is a specific level of detail that is relevant to various people.? The sponsor may want to see costs at level 3 of the WBS, and I may be interested in a little more detail at level 4, and the other project managers who work with me may be looking at level 5.? You may have specific stakeholders who only care about level 3 cost reporting for a particular element of the project, etc.

When putting estimates together, it’s important to first have a clear idea of what your scope is, and much of that comes from the WBS.? Bucket your basis of estimates this way, schedule, etc.? The iron triangle means that scope, cost, and schedule are integrated.

Monitoring and controlling your projects through status reports, EVM, etc.?? can really only done effectively by keeping in lock-step with your WBS structure.

Add your thoughts by leaving a comment for our reader below!

Estimating Effort: Part 1

This series of articles is extracted from a similar series I wrote for [email protected] a couple of years ago. I’m posting it here in reaction to my review of Josh’s articles on Earned Value where he (in my opinion) used the term “estimate” when he should have said ?”budget.” Many of the terms related to estimating are used either inconsistently or imprecisely. Future items will address some ?how tos,” but first, let?s take a minute to establish some common terminology.

Estimate. An estimate is an informed assessment of an uncertain event. Informed means that you have an identified basis for the estimate. Uncertain recognizes that multiple outcomes are possible. For example, if I tell you that there are two people standing outside the door, that one is male and the other female, and that one is 6? 6? (200 cm) tall and the other is 5? 2? (158 cm) tall, which would you guess is the female?

Most people will predict that the tall person is male. Most people will make an informed assessment of this uncertain event based on their knowledge that men tend to be taller than women, that few women are as tall a 6? 6?, and that few men are as short as 5? 2?. But what if I said the woman was a professional basketball player and the man was a jockey? Most people will now predict that the tall person is female.

Guess. A guess is a special kind of estimate?one where we do not have enough information to make an informed assessment. Note that in the above examples I used predict rather than guess since you do have enough information to make an informed assessment. For example, if I asked you to predict which person outside the door was taller, the person on the right or the one on the left, you would be forced to guess. In my experience, it is rarely necessary to make a true guess when working on a project.

Effort. Effort is an expenditure of physical or mental effort on the part of a project team member. We almost always measure effort in terms of staff hours. In many application areas (IT, NPD, pharma, consulting, architecture), most project estimates will be effort estimates. If you purchase resources from outside your organization, you may not see the effort estimates that were used to develop the cost estimates, but they?re there somewhere.

Cost. Cost is a measure of resource usage?employees and contractors must be paid, equipment must be bought or rented, and so on. Cost is usually expressed in monetary terms (dollars, euros, renminbi, etc.), but it can also be expressed in terms of hours of effort. One advantage of using monetary units instead of effort hours is that it should make comparisons between projects or among activities on the same project easier.

Another advantage of using monetary units to express cost is that the financial people in your company understand the language of money. One disadvantage is that monetary units can distort the numbers if the hourly rates are not reasonable. For example, if you use a rate of $100 per hour for an employee making $50,000 per year, and the same rate for someone making $150,000 per year, your cost estimates will misrepresent the actual cost of any project that has a preponderance of effort from one or the other.

Price. A price is what you charge someone for something. Prices are always (well, almost always) expressed in monetary units. Prices can reflect rates (e.g., $100 per hour) or totals ($500,000 for the entire project). Pricing is a business decision. It is usually derived from the estimate, but the estimate is not the price?if we are selling products or services to someone, we can charge more or less than our estimated costs. Even if we know for certain what the costs are or will be, we can still charge a different price.

For this series of articles, I?m going to assume that most readers are either managing internal projects or developing estimates in order to support a pricing decision that will be made by someone else (as is often the case for project managers working for a consulting firm). As a result, I am not going to cover pricing past the point of defining it.

Budget. A budget is a management control or metric (I prefer the term metric since control has negative connotations to some). A budget is a type of plan. Most people use the term only with regard to monetary metrics, but you can have effort budgets or schedule budgets as well. Project budgets should be derived from the project estimates.

Project budgets are not absolutes! Or at least they shouldn?t be. If a project is budgeted for $1,000,000, all of the stakeholders should understand that that number is a target. It is what the team expects to spend based upon what it knows today. If the team can find a way to spend less and still deliver the full scope, it should do that. If it needs to spend more, that should generate a discussion with the funders to decide what to do.

The project budget is not the same as the project price, even for a project done under contract. The seller can price the work for an amount that is different from its internal management metric.

Baseline. A baseline is very nearly a synonym for budget. There are two subtle differences. First, project baselines are normally time-phased. While I might say that the budget for my project is $500,000, I wouldn?t really have a baseline unless I had also defined when I expected to spend that money?how much in week 1, week 2, and so on. Second, the term baseline implies some level of formal approval. I can prepare a budget for an activity or a project, but it isn?t really a baseline until the relevant stakeholder(s) have agreed to it.

A Question of Ethics

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Craig over at Better Projects posted something interesting. It deals with ethical implications raised by a scenario in which you are a contractor bidding on a government project with ITAR sensitivity. Some of your people are not US persons per the ITAR guidelines. I have some limited experience with this one that I would like to share.

ITAR applies not only to DOD agencies, but all companies and agencies in the United States where the type of work may pose security concerns per the ITAR regulation with the people involved.

In your stated example, I am fairly certain that your company would not be able to bid on the contract period, regardless of the status of Sara and Johnny. This is a foreign company, so pretty much anyone who is not a US Citizen is going to be unable to work on this. Presumably, the rest of your team are also non-US persons, since you are based out of Australia or wherever.

That said, let’s assume you are a US company with the majority of your staff being US-persons and fine to work ITAR projects. I work with a different agency (not the DOD) and we are having to deal with this as well. Sometimes we don’t like or agree with policies, but if we want to play their game, they are the rule makers.

To your specific question, here are my preferred approaches in order of best to worst.

  1. Find other non-ITAR projects for Sara and Johnny, and use other staff for the ITAR project.
  2. See if Sara and Johnny can be utilized in such a way that ITAR-sensitive information can be shielded from them. If this is possible and the controls are demonstrable, the agency’s contracting officer may allow it.
  3. If you have no other prospects for other contracts and Sara and Johnny have no work, declining this contract is only going to hurt the rest of the team too. If this is your only option, the last resort is to enter into contract, get it staffed with people who do not have any ITAR difficulties.? Then, I would keep Johnny and Sara in the loop and let them know I will keep them on staff and paid for as long as I can doing internal work for the company as I go out and try like hell to get another contract they can work on. I would let them know right away how valuable they are to the company and how much I would like to keep them. At the same time, I would immediately offer to give recommendations for any potential employers should they choose to start looking around.

This is a time when your team members need you the most.? The most ethical approach is to do the right thing as well as you can within the constraints and situation at hand.