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1、Chapter 7:Project Cost Management,Information Technology Project Management,Fourth Edition,1,Information Technology Project Management, Fourth Edition,Chapter 7:Project Cost Management,The Importance of Project Cost Management Basic Principles of Cost Management Cost Estimating Cost Budgeting Cost C
2、ontrol Using Software to Assist in Cost Management,2,Information Technology Project Management, Fourth Edition,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
3、 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.,3,Information Technology Project Management, Fourth Edition,What Went Wrong?,According to the San Francisco Chron
4、icles 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 behin
5、d 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 Peopl
6、eSoft over an aborted installation of a finance system.,4,Information Technology Project Management, Fourth Edition,What is Cost?,Cost is a resource sacrificed or foregone to achieve a specific objective, or something given up in exchange. The reasons of cost overrun: The original cost estimates for
7、 IT projects are low to begin with or based on very unclear project requirements Not emphasizing the importance of realistic project cost estimates from the outset. Many information technology professionals think preparing cost estimates is s job of accountants. Preparing good cost estimates is a ve
8、ry demanding, important skill that all information technology professionals need to acquire. Many information technology projects involve new technology or business processes. Cost grow and failure are to be expected? Wrong. Using good project cost management can change this false perception.,5,Info
9、rmation Technology Project Management, Fourth Edition,What is Project Cost Management?,Project cost management includes the processes required to ensure that the project is completed within an approved budget. It is project managers job to satisfy project stakeholders while continuously striving to
10、reduce and control costs. Project Cost Management Processes Cost estimating: Developing an approximation or estimate of the costs of the resources needed to complete a project. Cost budgeting: Allocating the overall cost estimate to individual work items to establish a baseline for measuring perform
11、ance. Cost control: Controlling changes to the project budget.,6,Information Technology Project Management, Fourth Edition,Chapter 7:Project Cost Management,The Importance of Project Cost Management Basic Principles of Cost Management Cost Estimating Cost Budgeting Cost Control Using Software to Ass
12、ist in Cost Management,7,Information Technology Project Management, Fourth Edition,Basic Principles of Cost Management,Most members of an executive board have a better understanding and are more interested in financial terms than IT terms, so IT project managers must speak their language. Profits ar
13、e revenues minus expenses. Life cycle costing considers the total cost of ownership, or development plus support costs, for a project. Cash flow analysis determines the estimated annual costs and benefits for a project and the resulting annual cash flow. Tangible costs or benefits are those costs or
14、 benefits that an organization can easily measure in dollars. Intangible costs or benefits are costs or benefits that are difficult to measure in monetary terms. Direct costs are costs that can be directly related to producing the products and services of the project.,8,Information Technology Projec
15、t Management, Fourth Edition,Basic Principles of Cost Management,Indirect costs are costs that are not directly related to the products or services of the project, but are indirectly related to performing the project. Sunk cost is money that has been spent in the past; when deciding what projects to
16、 invest in or continue, you should not include sunk costs. Learning curve theory states that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced. Reserves are dollars included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict. Contingency reserves allow for future situations that may be partially planned for (sometimes called known unknowns) and are included in the
