1.

INTRODUCTION DEVELOPING PROJECT MANAGEMENT MATURITY FORMS OF ORGANIZATIONAL STRUCTURE

Project management maturity models: organizations benchmark Operating environment: external environment consists of all
Process Project
the best practices of successful project management firms forces or groups outside the organization that can affect the
- Ongoing day-to-day activities to - continuously evolving
Benchmarking: manage the process improvements of the project organization
produce goods or services - unique to meet goals within
delivery by a single organization Functional Organization
- Use existing systems, properties, cost, schedule, quality
1. Evaluate current practices Most common, structured by grouping
capabilities - complex one time processes
2. Compare practices to chief competitors people performing similar activities in ±
- repetitive - developed to resolve a clear
3. Define a systematic route for improving these pratices departments o

- people are homogeneous goal

Understanding Success Criteria Strengths
- part of line organization - customer focused 1. Firms design maintained
- status quo and established - system must be created to 2. Development of in depth knowledge
practice integrate efforts 3. Standard career paths. Team
- outside of line organization members perform only their functional
Project Characteristics
1. Ad hoc with a clear life cycle duties
2. Building blocks for organizational strategies Weaknesses
3. Responsible for newest products, services, processes 1. Functional silos
4. Provide a strategy for management of change 2. Lack of customer focus
5. Crossing functional and organizational boundaries (multiple 3. Projects take longer
Spider Web Diagram
departments or international partners) 4. Projects may be sub optimized
6. Involves planning, organizing, motivation, directing and control 0 - Not defined or poor Project Organization
7. Outcomes of a project involve customer satisfaction with constraints 1 - Defined but substandard Grouping people into project teams on
of technical, cost and schedule objectives 2 - Standardized temporary assignments
8. Terminated upon successful completion of objectives 3 - Industry leader Strengths
1. Project manager sole authority
Cool Facts!! Once establish 2. Improved communication
- 65% of projects go over budget, fall behind schedule and did not shortcomings, chart 3. Effective decision making
perform as expected incremental path to desired 4. Creation of project management
- IT projects become runaways: overshooting their budgets and goal experts
timetables while failing to deliver fully on their goals 5. Rapid response
- 30% of technology based projects and programs are a success PROJECT ELEMENTS AND TEXT ORGANIZATION Weaknesses
- 2.5% of global businesses achieved 100% project success. 1. The firm selects the projects it chooses to undertake 1. Expensive to set up and maintain
- average success of business critical application development = 32% 2. Up-font issues of project planning teams
WHY ARE PROJECTS IMPORTANT 1. Selecting a team 2. Change of loyalty to the project
1. Shortened product life cycles 2. Developing project objectives and a plan for execution rather than the firm
2. Narrow product launch windows 3. Cost estimating and budgeting 3. No pool of specific knowledge
3. Increasingly complex and technical products 5. Scheduling 4. Workers unassigned at project end
4. Emergence of global markets (many more consumers) 6. Managing resources Matrix Organization
5. Economic period marked by low inflation (streamline internal 3. Implementation: actual work of the project, determine tasks Combination of functional and project
processes to save money) 4. Project termination: kill or planned termination Strengths
1. Suited to dynamic environments
2. The Organizational Context 2. Equal emphasis on project
PROJECT LIFECYCLE (stages of development of a project)
- Conceptualization: development of initial goal and technical PROJECTS AND ORGANIZATIONAL STRATEGY management and functional efficiency
specifications for a project. Strategic management: science of formulating, implementing and 3. Promotes coordination across
- Planning: specifications, schematics, schedules evaluating cross functional decisions that enable an organization to functional units
- Execution: actual work of the project performed achieve its objectives 4. Maximizes scarce resources
- Termination: project completed transferred to customer 1. Developing vision statements and mission statements: what top Weaknesses
managers hope it will become at some point in the future 1. Dual hierarchies mean two bosses
2. Formulating, implementing and evaluating 2. Negotiation required in order to
3. Making cross-functional decisions: commitment and shared share resources
resources of all functional areas to meet overall objectives 3. workers caught between competing
4. Achieve objectives: projects are the most effective tools to allow project & functional demands
objectives to be met Heavyweight Project Organization
* Projects are stepping stones of corporate strategy. The firm’s Organizations can sometimes gain benefits from creating fully
strategic development is a driving force behind project development dedicated project organization (Skunkworks)
Three phase approach: - give project managers high status
1. Concentrate on achieving objectives through existing markets - move away from functional maintenance to market opportunism
2. Focus on new market opportunities in foreign or restricted markets PROJECT MANAGEMENT OFFICES
3. Pursue new products in existing markets A centralized unit within an organization or department that
Strategic management is the first oversees or improves the management of projects
important contextual element in - assists project manager in achieving project goals
project management approaches - wide gap in knowledge & expectations placed on project
Client interest: level of enthusiasm of customer managers and teams
Project stake: amount of corporate investment STAKEHOLDER MANAGEMENT - central repository of all lessons learned, project documentation
Resources: commitment of financial, human and technical resources Stakeholder analysis: analyze irresolvable conflicts that occur and pertinent record keeping for ongoing projects
Creativity: degree of innovation through the planned creation and introduction of a project - dedicated center for project management excellence in company
Uncertainty: degree of risk associated with a a project Stakeholders: all individuals who have an active stake in the project - can be place at several locations in a firm
and can impact the development either positively or negatively 1. Weather station: tracking and monitoring device
Determinants of Project Success - What’s our progress
Identifying Project Stakeholders
Quadruple Constraint: - How much have we paid for the project so far
Internal:
- time: constrained by time frame to complete project - What is the status of major project risks
- top management: control over project managers, project is timely,
- budget: limited budget 2. Control tower: treats project management as a business skill to
cost-efficient and minimally disruptive
- performance (quality check): adhere to initially determined technical be protected and supported. Identifies what is working,
- accounting: maintaining cost efficiency
specification shortcomings and how to resolve problems
- functional managers: occupy line positions, control esouces
- client acceptance: projects developed with clients in mind - establishes standards for managing projects
- project team members: divided loyalty between project and
Internal conditions: internal organizational control over expenditures of - consults on how to follow these standards
functional group
money and time - enforces the standards
External:
External conditions: how well the product does in the marketplace
- clients: not interested in expenses, as long as costs not passed on - improves the standards
Promise that the delivered product can generate future opportunities 3. Resource pool: maintain and provide cadre of trained and
- competitors: can force alterations, delays or abandonment
- project efficiency: meeting budget and schedule expectations skilled project professionals as they are needed. Supply project
- suppliers: provides raw materials, project managers makes sure
- impact on customer: meet technical specs and customer needs managers with other skilled professional to the company’s projects
receive info necessary to implement its part and monitor deliveries
- business success: commercial success * critics: place all eggs in one basket, another layer of oversight
- intervenor groups: environmental, political, social groups
- preparing for the future: opens new markets or product lines and bureaucracy, bottleneck for communication
Managing Stakeholders
IT Project success ORGANIZATIONAL CULTURE
1, Assess the environment: low-key or significant, market research
- system quality: satisfy criteria Organization develops its own outlook, operating policies... A
2. Identify goals of principal actors: paint an accurate portrait of
- information quality
stakeholder concerns, hidden agendas in goal assessment of teams collective or shared learning of a group. The solution to external
- use: system must be used and internal problems that have worked for a group
3. Assess capabilities: consider strengths and weaknesses
- user satisfaction
4. Define the problem: problems in terms of our own perspective and - Unwritten, rules of behaviour, held by some subset of the
- individual impact: usefulness of the system organization, taught to all new members
valid concerns of the other party
- organizational impact: how does it improve organization
5. Develop solutions: creating an action plan to address the needs of How Do Cultures Form
* all stakeholders of a project should have a hand in assessing its - technology: transforms input into outputs
the various stakeholder groups, do political homework
success - environment: competition
6. Test & Refine solutions: manager and team are operating under
imperfect information - geographical location: affect culture and attitude
:* Alternative: planning, organizing, directing, motivating and - reward systems
controlling the resources necessary to deal with the various internal - rules and procedures: procedures for employee behaviour
and external stakeholder - key organizational members: founder (Steve jobs)
ORGANIZATIONAL STRUCTURE - critical incidents: public expression of what rules operate (stories)
1. Designates formal reporting, relationships, including the number Organizational Culture and Project Management
of level in the hierarchy and the span of control of managers (how - department interaction: between functional dep. and project team
many people you supervise) - employee commitment to goals: promote employee commitment
2. Grouping together of individuals into departments -> organization - project planning: employees want to support project planning
3. Design of systems to ensure communication and integration - performance evaluation: encourage team to take initiative
 3. CANADIAN FORMS OF BUSINESS ORGANIZATIONS Advantages Professional Construction Management
- more flexible than lump sum contracts in design & other changes - suitable when constructibility issues, large projects
Sole Proprietorship: individual carrying on a business under his/her - ensures lowest price bid General Contractor (Professional
name - enable fast track contracts Construction Management at Risk)
Advantages Disadvantages - no risk of unseen conditions for the contractor - owner enters into two seperate
1. Easy & inexpensive to form 1. Unlimited liability Disadvantages contracts with design and general
2. Low cost to start up 2. Income is taxed as personal - true contract price is not known until the project is completed contractor
3. Lowest regulatory burden income tax - susceptible to being manipulated via unbalanced bidding for profit - general contractor enters project during
4. Owner has direct control over 3. Lack of continuity if owner and unbalanced bidding for front end loading the design phase
decisions needs to be absent - owner has more risk than fixed price contracts - general contractor enter into contracts
5. Tax advantage if business is not 4. Difficulty raising capital 3. Cost + Fixed Percentage Contract with subcontractors
doing well because of insufficient personal - used where the project’s product cannot be explicitly defined (r&d) Construction Manager
6. Sole proprietorships have no assets to act as collateral - contractor reimbursed for all direct expenses as well as indirect - owner enters into three contracts
shareholders, all profits go to owner - contractor is paid a percentage of reimbursable cost as the fee - construction manager acts as owner’s agent during bot design and
Partnership: two or more individuals form a business together - % is agreed between the parties before project construction
Advantages Disadvantages Disadvantages - construction manger is an advisor and has no liability
1. Easy to start up 1. No legal difference between - difficult for the owner to accurately predict cost of project - provides input with respect to constructibility and assists with the
2. Start-up costs can be shared partners & business - provides contractor with opportunity to increase cost preparation of schedules & cost estimates
3. Partners have an equal share 2. Difficult to find suitable partner - no incentive for contractor to keep direct expenses to minimum - design liability = designer, construction
in management, profits & assets 3. Conflict with managing - risk is shifted towards the owner liability = independent contractors
4. Tax advantage if income is low 4. Partner is held financially 4. Cost + Fixed Fee Contract - cost savings >= additional cost
or loses money, tax as personal responsible for business decisions - contractor reimbursed for all direct as well as indirect expenses associated with hiring construction
income tax - contractor receives a fixed fee for his expertise manager
made by other partners
- fixed fee is paid even if during fluctuation of the reimbursable cost - negotiated professional fees for
Limited Liability Partnership: liable to amount invested to the business - risk is shifted to contractor construction management services
Corporation: separate legal entity at federal and provincial levels - contractor has incentive to get project done as quickly as possible - negotiated professional fees for design
Advantages Disadvantages - contractors may tend to use expensive reimbursable materials services
1. Separate legal entity liability 1. closely regulated and methods to expedite the completion of the project - lump sum and unit price contracts for
limited to corporation and assets 2. Expensive to incorporate 5. Cost + Fixed Free + Profit Sharing independent contractors
2. Ownership is easily transferable 3. By law need to keep corporate - provides reward to contractor who controls and minimizes costs 6. PROJECT SCHEDULING
from one person to another records of shareholders and - target price is specified for total cost of project
- if contractor completes the project below the target price, the TE = (a + 4m + b)/6
3. Has a continuous existence meetings
a = most optimistic
4. Easier to raise capital as a 4. Conflict between shareholders savings are shared between owner and contractor
- if contractor finishes with cost overrun, no penalty m = most likely
corporation through sale of public and directors
6. Cost + Fixed Fee + Sliding Fee b = most pessimistic
& private stocks/shares 5. by law director must be
5. Tax advantage because resident of the province where - provides bonus for under-run and a penalty for overrunning price
corporate tax is a flat rate corporation is registered - amount of the sliding fee increases as the contractor falls below
Cooperative: owned by association of members the target and decreases as the price is overrun
- Fee = R(T-A). T = target price R = base percent A = actual cost 7. COST ESTIMATION AND BUDGETING
Advantages Disadvantages
Provisions for Risk Allocation
1. Owned and controlled 1. Conflict between members Cost management: data collection, cost accounting and cost control
the total contract price is the primary mechanism that reflects the
by its members 2. Decision making process takes longer Cost accounting & control: identify and maintain control over project
allocation of risks among the parties to a contract
2. Limited liability 3. To be successful participation is needed costs
1. Force majeure: absolves owner from payment for costs due to
3. Profits distributed 4. Less incentive to invest capital since Cost estimation: create a reasonable budget baseline for the project
uncontrollable events
proportional to business surpluses are paid to members based on Common Sources of Project Cost: labor, materials, subcontractors,
2. Indemnification: absolves party from payment for losses incurred
done by each member amount of business done by each member equipment & facilities, travel
by third parties
4. CONTRACTS AND CONTRACT TYPES 3. Occupational safety and health of workers COST MANAGEMENT
4. Suspension of work Direct costs: clearly assigned to the aspect of the project (labor &
A contract is an agreement between the owner of a project & an
5. Liquidated damages materials)
organization to execute a defined scope of work. A legally binding
Indirect costs: overhead, selling & general administration
agreement that obligates the seller to provide the specified product 5. PROJECT DELIVERY SYSTEMS Nonrecurring: charges applied once at the beginning or end of a
and obligates the buyer to pay for it
Contracting method, contract strategy or procurement strategy. project
Proof of a contract
Framework for the relationships between the owner and other Recurring costs: operate over the project’s life cycle
1. An offer was made
project participants. Fixed costs: do not vary with respect to their usage
2. An offer was accepted
Risk & Uncertainty Variable costs: accelerate or increase through usage
3. There was a mutual agreement
- risks should be delegated to the party who has the most ability to Normal costs: incurred in the routine process of working to complete
4. There was consideration usually as a form of payment
control risks the project according to the original planned schedule
5. The subject matter of the contract is legal
- project’s cost should be lowest when risks are transferred and Expedited costs: unplanned costs incurred when steps are taken to
6. Both owner and seller have the capacity to enter into agreement
allocated correctly speed up the project’s completion
Specifications of a Contract
- owner should not delegate risks that the owner has the most COST ESTIMATION
1. Names of the parties involved in contract with their addresses
ability to control Ballpark 30% Feasibility: 10%
2. The scope of work that is covered by the contract
Traditional Comparative: 15% Definitive: 5%
3. The period of the contract
Design Bid Build Function Points
4. Contract price & the method/terms of payment
Lump sum, unit price or cost Standard unit of measure that represents the functional size of a
5. The language and source of law governing the contract
software
6. Listing of other documents that are considered part of the contract + fixed fee, negotiated pro. fee
- owner enters into two separate Function Point Analysis: system for estimating size of software
Contract Types
contracts projects based on what the software does
1. Lump Sum Contract:
Problems with Cost Estimation
- possible to compute accurate quantities of work prior to construction - single general contractor uses
his own workforce 1. Low initial estimates
- contractor quotes one price which covers all work and services
Turnkey 2. Unexpected technical difficulties
- lump sum price includes contractors direct costs, indirect costs,
Lump sum & cost+ 3. Lack of definition
contingency, profits
Suitable for large industrial projects 4. Specification changes
- difference between the quoted lump sum price & contractor’s total
- implies the project is delivered to the owner ready for use 5. External factors: inflation, financial crisis
cost is the profit
- the owner transfers risk to a single entity CREATING A PROJECT BUDGET
- if contractor exceeds quoted price, must absorb loss
Design-Build Design-Manage Budget: identifies the resources, goals and schedule that allows a
- owner has no right to direct contractor’s means and methods
firm to achieve those goals
- owner has no right to inquire about the actual cost of the work
Top-down budgeting: direct input from the organization’s top
- scope of project must be well defined
management. Top management has past experience with past
- drawing & specifications describes the project’s end result = accurate
estimates, so costs are estimated downwards
- contractor sets higher mark-up to account for risk
Bottom-up budgeting: from WBS to apply direct and indirect costs
- payment made to contractor according to % of work complete
to project activities, costs are accumulated upwards
Advantages
Activity based costing:
- price quoted is guaranteed price for work
1. Identify activities that consume resources
- owner has a fairly good idea of how much to budget for project Owner-Builder 2. Identify cost drivers associated with each activity
- majority of risk is on contractor Lump sum, unit price contracts 3. Compute a cost rate per cost driver unit
- contractor will maximize his production, performance & finish faster Used by large organizations that 4. Multiply the cost driver rate times the volume of cost driver units
- bidding analysis and selection process is easy have both design and construction/ Developing Budget Contingencies
Disadvantages fabrication department 1. Project scope is subject to changes
- owner needs detailed plans & specs complete before bidding & impl. - owner responsible for design and 2. Murphy’s law: if something can go wrong, it will
- no flexibility to make design changes or modify contract construction/fabrication 3. Cost estimation must anticipate interaction costs
- deviation from original plans & specs must be handled as a change - owner retains risks associated with 4. Normal conditions are rarely encountered
2. Unit Price Contract design and construction
- used when it is not possible to calculate exact quantity of work
required to complete the project
8. PROJECT CONTROL
- project broken down into work items characterized by units m^2, m^3 EVM: project control technique that integrates project scope, cost
- engineer estimate quantities for various work items and contractor and schedule to assess performance and progress
quotes the price by unit for each work item using estimated quantities Cost Schedule plan: plot of a projects planned cummulative costs
- total contract price is determined by summing total $ of work item that serves as a basis for comparison with the actual cost of work
- owner uses consultant to supervise construction & keep track of performed and budgeted cost of work performed
actual quantities
- progress payments are made for quantities of work completed
- when actual quantity differs by more than 10% -> renegotiation
5 curve :
/
11. COMPARISON METHODS I 13. Depreciation (and Financial Accounting)
Present Worth (PW): look at present worth of all cash flows Market value: actual value of an asset is sold for in an open market
associated with projects Book value: depreciated value of an asset for accounting purposes
Annual Worth (AW): convert cash flows to annuity Elements of Financial Accounting
Payback period: how long it takes to pay back investments Financial accounting: recording and organizing the financial data of
Relations Among Projects business, including revenues and expenses and an enterprise’s
1. Independent: expected costs and expected benefits of each resources and the claims on those resources
project do not depend on whether the other one is chosen Management accounting: costs and benefits of the various activities
2. Mutually exclusive: in the process of choosing one, all other of an enterprise.
alternatives are excluded Cost accounting: determine costs of products, processes and
3. Related but Not Mutually Exclusive: the expected costs and services and an important foundation for estimating the cost of a
benefits of one project depend on whether the other one is chosen proposed engineering project
(2^n including do nothing option) Measuring the Performance of a Firm
4. Contingent: project A could be done alone or A and B could be Through variable: measured with respect to time
done together but B could not be done by itself. B is contingent on A Across variable: measured at a point in time
Minimum Acceptable Rate of Return (MARR): interest rate that must The Balance Sheet
be earned for any project to be accepted - snapshot of the financial position of a firm at a point in time
Mutually Exclusive & Independent Comparison With Equal Lives (across variable)
- PW or AW must be positive. Choose project with largest PW or AW. Assets: economic resources owned by the enterprise.
Mutually Exclusive Comparison with Unequal Lives |_ current assets: cash and other assets that could be converted to
1. repeated lives: each alternative is repeated with the same costs cash within a short period of time
and benefits (least common multiple) * |_ long-term assets (fixed or non-current assets): assets that are not
2. study period: choose a period and make assumption about expected to be converted to cash in the short term
salvage. Set PW(1) = PW(2) and solve for salvage value * Liabilities: everything a business owes (debts)
Payback Period First cost
|_ current liabilities: liabilities that are due within some short period
Payback Annual Savings =
of time
|_ long-term liabilities: liabilities not expected to draw on the
Advantages: Disadvantages: business’ current assets. (loans and bonds)
1. Easy to understand 1. Discriminates against long term projects Owners’ equity = Assets - Liabilities
2. Easy to calculate 2. Ignore the effect of the timing of cash Assets = Liabilities + Owners’ equity
3. Accounts for need to flows within the payback period Owners’ equity: interest of the owner of a firm in its assets
recover capital quickly 3. Ignores expected service life The Income Statement
The future is unknown summarizes revenues and expenses over a period of time (through
variable)
APPENDIX 11
Revenues: increase owners’ equity (sales of goods/services)
Investments in a company
Expenses: decrease owners’ equity (cost of goods sold, rent,
1. Debts: lending money to a company
insurance, wages)
2. Equity: owners of the company
Profits: before taxes os Revenue - Expenses
Reliance on debt is limited:
Net Profit: profit after deducting taxes
1. If a company increases the share of capital from debt, it increases
Estimated Values in Financial Statements
the chance it will not be able to pay it back -> bankruptcy
- estimates, may not reject market values based on cost principle of
2. Lenders are aware of the dangers of high reliance on debt and will
accounting
therefore limit the amount they lend to the company
Assets: valued on the basis of their cost (book value)
Company Size & Sources of Capital
Land: listed at the price paid, not its market value
- large well known companies can secure capital both by borrowing
Plant and equipment: listed at the price paid - depreciation
and by selling ownership shares with relative ease because there
Stock or Shares: listed at par value ((issue price)
will be ready markets for their shares
Finished Goods: inventory - manufacturing cost
Weighted Average Cost of Capital (WACC): weighted average of the
Financial Ratio Analysis
costs of borrowing and of selling shares. The cost of capital is the
- key performance indicators (KPIs)
company’s MARR
- For smaller companies, large companies are not willing to invest.
2 good
The cost of capital is the opportunity cost of investors is

Value of shares : $327723 Debt : $100000

1 is
good
wacc = 0.1 ( 49,002,031 ) t 0.615 ( }}}}}÷ ) = 0.15
smaller :
dependent on debt

12. COMPARISON METHOD II

Internal Rate of Return (IRR): rate of return calculated for a project
such that all cash inflows equal cash outflows Liquidity ratio: assess firms ability to meet short term financial
PW(disbursements) = PW(receipts) solve for i* obligations & weather fluctuations in cash flows
AW(disbursements) = AW(receipts) solve for i* Working capital: reserve of cash and liquid assets
FW(disbursements) = FW(receipts) solve for i* Debt management ratio: extent to which firm relies on debt
IRR For Independent Project Efficiency ratio: assess the efficiency of the use of its assets
- Invest in any project equal to or greater than the MARR Profitability ratio: how productively assets have been employed in
Mutually Exclusive Projects producing a profit
- Perform incremental investment *
External Rate of Return
14. Taxes
- funds are invested elsewhere and earn an explicit rate of return
equal to the MARR Personal Income Taxes
*
External Rate of Return (ERR) ie: the rate of return on a project - income less tax credits or deductions
where any cash flows that are not invested in the project are - progressive
assumed to earn interest at a predetermined explicit rate (MARR) - no capital expenses
- computing a precise ERR can be complex because of the difficulty Corporate Income Taxes
in determining when the explicit interest rate should be applied - Net income is based on gross income less expenses
Approximate ERR - Tax rates flat
1. Take all net receipts forward at the MARR to the last cash flow - presence of capital expenses
2. Take all net disbursements forward at interest rate i *ea to the last
cash flow
3. Equate the future value of receipts to disbursements and solve for
15. Inflation
*
i ea Inflation: Increase in average price paid for goods and services
When to Use ERR over time
- when multiple IRRs are possible Deflation: decrease in average price paid for goods and services
- can evaluate simple or non simple investments over time
- less accurate than the IRR CPI: measures price changes in food shelter, medical care ..
Simple investments: one or more periods of outflows at the start |_ current cost of bundle of goods/services compared to bundle in
followed by one or more periods of inflows base year. Base year index = 100
Causes of Inflation
1. Demand pull-inflation
2. Cost-push inflation: rising wages, import prices, raw materials
prices
3. Rising House prices
4. Printing more money
CHAPTER 8 FORMULAS

Budgeted Cost of Work Scheduled ( BCWS ) or Planned Value ( PV )

↳ to be done for
budget assigned to work an
activity

Budgeted Cost of Work performed ( BCWP ) or Earned value : EV= % completion .

total budget

Actual Cost of Work Performed ( ACWP ) or Actual cost ( AC )

↳ total costs for accomplished work

Budget at Completion ( BAC )

↳ total planned value of a project or total cost of a project

Cost Variance : CV =
BCWP -

ACWP =
EV -

AC + less $ spent More $ spent

Schedule Variance : SV -
BCWP -

BCWS =
EV -

PV

Cost Performance Index : CPI =

BCWP = EI > 1 cost under run

ACWP AC

Schedule Performance Index : SPI =

BCWP =
EI > 1 ahead of schedule

BCWS PV

Estimated ( remaining EV
cost ) to Completion YPKAL ETC BAC ATYPICAL ETEBAC EV
=
-
-

CPI

Project ( total cost ) Estimated At Completion : EAEETCTAC

CHAPTER 7 FORMULAS
Direct Labor Costs =

Hourly rate x Hours needed x Overhead x Personal

earning Rate

Nb
Tn=T
"

, Tn= time required for N iteration

b= log ( learning rate )/1og( T, time required for initial iteration

g)
=

N= number of units to be produced

not always
2
 CHAPTER 7+ FORMULAS

Cost Indexes : Costattimea =

lndexvalueattimea
Costattimeb lndexvalueattimeb

x ×=1 → linear
Cost of equipment
Power sizing model Size capacity ) of equipment A
A= B)
:

( × > 1 diseconomies ofscak

Cost of equipment B Size capacity ) of equipment x< 1 economies ofscale

Applications of Cost Indexes to Estimating

1. Exclude special local conditions in historical data $100 mil $5mil=$95mil -

2. Determine new facility cost on basis of specified size ( 3%0%0-56

3. Adjust for inflation index ( 1.08 )
4

4. Adjust for local index of construction costs Hoh

5. Adjust for different regulatory constraints $7mil +

6. Adjust for local factors for the new facility ×( 0.99 )

CHAPTER 9 FORMULAS CHAPTER 10
Interpolation
Simple Interest F=P+PiN Effective and Nominal Interest Continuous Compounding
×i=y*
x* .

y
ie=e"
,
.

1
p; p; Pi Ie :( ltis )m -
1
× ,
.
× , y , .y ,

ie ( Itf )m Arithmetic Gradient Arithmetic Gradient

--

Annuity (Uniform Series)

. . .
.

2) G ( N' 1) G
z µ })g( N -

( n .

)N
1629
aautg )Al Hgl? .A( Hg
P
06
,

0 1 2 3 N -1 N N
4 0 I 2 3 N -2 N -
I
0 I 2 3 N

p= purchase price
tstearrotsat
ifg=iP=N( tag )
CHAPTER 13 FORMULAS S= salvage value

N= Useful life

Straight-Line Depreciation Declining Balance Depreciation Double Declining Balance

DDDBH )=( 4N )B✓DDB(

Depreciation
Depreciation at n Book value at n Book value
"
n' 1)
BVDBH )=P( d) D•B(n)=BVpB( n 1) d
n( %)
1-
)=Pj5 BVsL=P
.

Dslln .

150% Declining Balance

"N
Accumulated Depreciation
p .Bvs[ ( n
)=n( Pf )
d=1 '

(F) D , .ssB(n)=(
"
51N
)BV .5DB( , n .

1)
Sum of Years Digits CCA
nt1)/S0YD
Capital Cost Allowance (CCA) = depreciation
Dsoypln )=( P .

5) ( N -

Undepreciated Capital Cost (UCC) = book value CHAPTER 14 FORMULAS

CCAi=P( %) ni -1

BVsoyD( n )=BVsoyD( h -

1) -

Dso ,vp( n )
CCAn=dUCCne n 't
MARRafter.la/=MARRbefore .
tax ( I -

t )
-jt1 )
2
d)
n

BVsoyD( n )=P -

spjyd ,§" ( N CCAn=P( )d(

t.dk 1- nzz

TF=td( %)
itdd ,
UCCn=UCCna CCAN n 't +

( Sf=
1

1 (
-

" 1

VcCn=p( 1- %)( 1- d) n > 1 litd )( It :)

First Cost
salvage
CHAPTER 15 FORMULAS 40-0.42/5=5/3360 pW= 50004-0.42 )( PIF 12%5 )
,

PW= -

45000+3360 ( Pla ,12%,5 )

Cn= current dollars in
yearn
Savings
Ro ,n= real equivalent TO CNMIAHVCTOYLWO
dollars pw=( zzooo -7300 )( 1-0.42 )( PIA ,l2%i5 )
0
Ian :
valueofaglobalpricemdexatyearmrelativetoyear
RaN=

.io?nY,ooRaN=(f+Nf)nRN=(f+Nf,nRn=Cn(PlF.f.N)orsmaHva1uesofi&fit=YIff-1=i'+f+i'fi=i'+f
Real Interest Rate i’