Logo
HOW TO
Windows XP
Windows Vista
Windows 7
Windows Azure
Windows Server
Windows Phone
 
 
Windows 7

Microsoft Project 2010 : Putting a Price Tag on Your Project & Incorporating Resource Costs

3/2/2012 4:58:30 PM

11.1. Putting a Price Tag on Your Project

It's the old chicken-and-egg scenario—which comes first, the project budget or the project cost estimates? Either way, the organization wants to know how much the project will cost. Or, looking at it from the other direction—what's the maximum this project should cost to get the financial benefit the organization requires?

The financial benefit comes down to whether the project is worth the effort. How much money will the project make or how much will it save? What will it cost to get that result? For example, suppose the R&D eggheads have a fabulous idea for a new thingamabob that will revolutionize helium balloon distribution. The bean counters think sales could peak at $200,000 in the first year and then would drop off incrementally, earning $400,000 over the product's life cycle. The company has to decide how much they're willing to spend on the development project and how much profit they need to earn to make the project worthwhile. As the project manager, you're expected to provide cost estimates based on the agreed-upon project scope. The hard part is making the two figures agree with each other.

If you're in the enviable position of proposing the budget, one approach is to develop your schedule, assign resources to tasks, and let Project calculate the resulting costs. You can use that cost figure as you go, hat in hand, to present the budget. The powers that be often reduce that number, although they also set aside contingency funds and management reserve as insurance.

A more scientific method for setting the project budget is capital budgeting, which is a set of financial calculations that help determine a project's potential rate of return, return on investment, and payback period. Capital budgeting can also show the impact of not taking on other projects while the organization's resources are busy with the current project. Thus, capital budgeting analysis can help an organization determine whether a project is in line with its financial and other strategic goals—with the result of a go/no-go decision for that project.

For an example, you can download an Excel capital budgeting template from Microsoft Office Online (http://tinyurl.com/ROIWorksheet). Enter your data, and the spreadsheet calculates the rate of return on an investment, the net present value of the investment, and the payback period, as shown in Figure 1.


Figure 1. Capital budgeting analysis shows the financial benefit based on your estimated costs. Through the magic of mathematics, it can also determine the highest project cost that still achieves those financial benefits. When you plug your numbers into this Excel capital budgeting spreadsheet, it shows you the return on investment of the project, the years required to pay back the investment, and much more.


If you create a work breakdown structure, assign resources, and specify costs for those resources, Project can give you a total cost estimate for the project. The program also breaks it down into its component parts—total costs for a resource, total costs for a phase, even costs for an individual task.

When you compare the amount determined in the capital budgeting analysis with your project's cost estimates, you can see how far apart they are. This comparison is valuable for deciding whether the project is even feasible. For example, suppose the capital budget analysis shows that the project is worth doing as long as the cost doesn't exceed $50,000. If your project cost estimate perches steadfastly at $200,000, chances are good that the project won't fly, because trimming 75 percent from the estimate isn't likely.

Keep in mind that project budgeting is an iterative process. The project sponsor may have a ballpark number in mind, but you can help hone that number with your project cost estimate and give the budget a basis in reality. Explanations and negotiations may ensue, along with further analysis, until finally you obtain a realistic project budget figure that everyone is willing to accept.

Remember that you need to do everything in your power to not exceed that budget once the project gets under way. If you overshoot the budget, you may have to pay dearly, in unpopular schedule adjustments, reduced scope, cost overruns, not to mention your own reputation. In the end, people say two things about successful projects: "It came in on time and under budget."

2. Incorporating Resource Costs

Resource costs are often the lion's share of project cost. They include the human resources and equipment that perform project tasks (work resources), as well as the consumable materials and supplies used while carrying out a task (material resources). To make sure you have accurate costs in your project plan, check that you've entered all resource costs. You enter costs for work and material resources in the Resource Sheet (see Figure 2).


Figure 2. In the Resource Sheet, use the Standard Rate (Std. Rate), Overtime Rate (Ovt. Rate), and Cost/Use columns to enter cost information for people on your team, equipment needed, and materials and supplies to be used in the project. Create cost resources for costs that don't affect the project schedule.


Introduced in Project 2007, cost resources represent things that are instrumental to completing a task but don't include work time, duration, or an amount of material consumed. Examples of cost resources are travel costs, room rentals, printing services, training costs, and so on. These costs affect the project price tag, but not the project schedule.

Like work and material resources, you create a cost resource in the Resource Sheet . Unlike work and material resources, however, you don't enter the cost in the Resource Sheet. Instead, you enter the cost after you assign the cost resource to a task .

Other -----------------
- Customizing Project 2010 : Creating and Editing Views
- Microsoft Outlook 2010 : Processing Messages Automatically - Controlling Rules & Sharing Rules with Others
- Microsoft Outlook 2010 : Processing Messages Automatically - Creating and Using Rules
- Managing Printing : Migrating Print Servers
- Managing Printing : Deploying Printers Using Group Policy
- Microsoft Visio 2010 : Annotating Visio diagrams with issues
- Microsoft Visio 2010 : Extensions to our ribbon
- Managing Printing : Managing Client-Side Printer Experience Using Group Policy
- Managing Printing : Client-Side Management of Printers
- Testing Code with Visual Studio 2010 : Approaches to Unit Testing
 
 
REVIEW
- First look: Apple Watch

- 10 Amazing Tools You Should Be Using with Dropbox

- 3 Tips for Maintaining Your Cell Phone Battery (part 1)

- 3 Tips for Maintaining Your Cell Phone Battery (part 2)
 
VIDEO TUTORIAL
- How to create your first Swimlane Diagram or Cross-Functional Flowchart Diagram by using Microsoft Visio 2010 (Part 1)

- How to create your first Swimlane Diagram or Cross-Functional Flowchart Diagram by using Microsoft Visio 2010 (Part 2)

- How to create your first Swimlane Diagram or Cross-Functional Flowchart Diagram by using Microsoft Visio 2010 (Part 3)
 
Popular tags
Microsoft Access Microsoft Excel Microsoft OneNote Microsoft PowerPoint Microsoft Project Microsoft Visio Microsoft Word Active Directory Biztalk Exchange Server Microsoft LynC Server Microsoft Dynamic Sharepoint Sql Server Windows Server 2008 Windows Server 2012 Windows 7 Windows 8 Adobe Indesign Adobe Flash Professional Dreamweaver Adobe Illustrator Adobe After Effects Adobe Photoshop Adobe Fireworks Adobe Flash Catalyst Corel Painter X CorelDRAW X5 CorelDraw 10 QuarkXPress 8 windows Phone 7 windows Phone 8 BlackBerry Android Ipad Iphone iOS
Popular keywords
HOW TO Swimlane in Visio Visio sort key Pen and Touch Creating groups in Windows Server Raid in Windows Server Exchange 2010 maintenance Exchange server mail enabled groups Debugging Tools Collaborating
Top 10
- Microsoft Excel : How to Use the VLookUp Function
- Fix and Tweak Graphics and Video (part 3) : How to Fix : My Screen Is Sluggish - Adjust Hardware Acceleration
- Fix and Tweak Graphics and Video (part 2) : How to Fix : Text on My Screen Is Too Small
- Fix and Tweak Graphics and Video (part 1) : How to Fix : Adjust the Resolution
- Windows Phone 8 Apps : Camera (part 4) - Adjusting Video Settings, Using the Video Light
- Windows Phone 8 Apps : Camera (part 3) - Using the Front Camera, Activating Video Mode
- Windows Phone 8 Apps : Camera (part 2) - Controlling the Camera’s Flash, Changing the Camera’s Behavior with Lenses
- Windows Phone 8 Apps : Camera (part 1) - Adjusting Photo Settings
- MDT's Client Wizard : Package Properties
- MDT's Client Wizard : Driver Properties
 
Windows XP
Windows Vista
Windows 7
Windows Azure
Windows Server
Windows Phone
2015 Camaro