Download PRJ566 Project Planning and Management

PRJ566: Project Planning and
Management
Cost Benefit Analysis
Agenda
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Project Management Review
What is cost benefit analysis?
The process
Examples – identifying costs and benefits
Project Management
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Project has to be:
• Define/Initiated….
Recognize the need for a project: strategic
plan/tactical plan/client change request
• Planned….
Define Scope; Create WBS; cost/benefit estimates
• Executed….
Build project
• Monitored & Controlled….
Track costs/benefits/WBS/change requests/project
status reports/meeting minutes
• Closed….
Implement phase
3
Project Management
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Project has to be (in PRJ566):
• Define/Initiated….
Recognize the need for a project: client request
• Planned….
Define Scope, Create WBS
• Executed….
Build project: use case diagram ; use case specs;
domain class diagram ; sequence diagrams; data base
design; user interface design
• Monitored & Controlled….
Track WBS/change requests/project status
reports/meeting minutes
• Closed….
Complete PRJ566
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Agenda
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Project Management Review
What is cost benefit analysis?
The process
Examples – identifying costs and benefits
What is cost benefit analysis?
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Shows the benefit or return the project will
bring to the business
Helps a company decide which projects are
most important to the business
Helps the project manager prove how
important their project is
Why is it important?
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Project success is defined by a project that
comes in on-time and on-budget and for the
agreed-to scope
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http://en.wikipedia.org/wiki/Cost_overrun
http://en.wikipedia.org/wiki/Canadian_Firearms_
Registry
Costs
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The costs that your project will incur
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Hardware
Software
People
Ongoing maintenance
These are usually tangible because they are
easy to identify and to attribute a $ value to
Benefits
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The benefits that your project will incur
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Tangible:
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People costs saved
Increase in sales to the company
Intangible:
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i.e. Improving employee moral
Agenda
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Project Management Review
What is a cost benefit analysis?
The process
Examples – identifying costs and benefits
The Process
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Determine costs, both one-time and on-going,
of all solutions being investigated
Determine and quantify all benefits of all
solutions being investigated
The secrets
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Effective estimates
Measures that reflect business value
Good organization
Costs--one time
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Development costs – wages, contract
fees
Initial Training costs
Initial equipment costs – hardware,
software, network
Costs--ongoing
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Overhead - facilities, office space, etc.
Web site costs--domain name renewal, Web
hosting
Communication costs--phone, Internet, and so
on
Maintenance of software and hardware
“Maintenance” of staff (ongoing training, and
so on)
Benefits-can come from
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Cost savings
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New services to clients - revenue
Mandatory changes
Strategic advantage
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People (use less), time (get work done faster),
equipment (eliminate), mistakes (make less)
Make more money!
Technical reasons
Cost Benefit Analysis
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Place all costs and benefits in a table
(spreadsheet)
Table has costs/benefits in first column on left
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One time costs are reflected once in the table
Ongoing costs occur over time (i.e. software
maintenance goes on forever!)
Benefits occur over time
Top row is the time-frame for the project
Cost Benefit Analysis
Project timeframe: months or years, etc
Cumulative means
add in total from
previous column Costs
ongoing cost 1
ongoing cost 2
recurring cost 1
Cumulative Costs
Note: be sure all
costs are consistent
to fit your timeframe.
i.e. if your timeframe
is months, each cost
amount must be a
monthly cost
Benefits
benefit
Cumulative benefits
Timeframe0 Timeframe1 Timeframe2 Timeframe3
0
0
0
0
Include previous column total into next column
0
0
0
Agenda
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Project Management Review
What is a cost benefit analysis?
The process
Examples – identifying costs and benefits
Example 1
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You are implementing a software package called
SAP for Seneca College. This software package
provides Human Resources (HR) functionality. The
software costs $275,000 and it will take
approximately 2 weeks (10 days) to implement it and
a week (5 days) to train HR on it’s functionality. 3
IT employees will be installing it and 1 IT employee
will conduct the training. Cost for an employee is
$175/day.
Example 1
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Seneca estimates they can save the equivalent
of 2 employees per year. Cost of each
employee is $23,000 per year
Identify the costs and benefits
Example 2
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You have decided to create a company that
will provide driver education training to
students. You will need to develop materials
for in-class training, market your company
and then arrange both the in-class training
classes and the in-car driving instruction.
Example 2
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Some information about this business:
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Each in-class training session must last 24 hours
which can be split over 3 Saturdays (8 hours per
day), or 8 evenings (3 hours per evening).
Each student will have 10 hours in-car
instruction.
Students will pay $1150 which will cover both
the in-class and in-car instruction.
A class will only run when it’s full and can have
20 students.
Example 2
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More information about this business:
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It costs $50 per hour to rent the room for classes.
It will cost about $300 to develop the advertising.
It will take about 150 hours to develop the
materials and the employee who develops the
materials charges $20 per hour.
You will mail out 5000 postcards and it costs
$.50 to mail out each postcard.
Identify the costs and benefits to put a course
on for the first time