Final Module55

7/25/2019 Final Module55

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Earned Value Management TutorialModule 4: Budgeting

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Module 4 Budgeting 2

Module 4: Budgeting

Welcome to Module 4. The objective of this module is to introduce you to

Budgeting Concepts and Definitions.

The Topics that will be addressed in this Module include

! Cost"#chedule Baselines! WB# $evels Control %ccounts& Wor' (ac'ages& (lanning (ac'ages

! )lements of an )arned *alue Contract Baseline

! (roposed Cost and the Contract Budget Baseline

! Control %ccount Manager +oles and +esponsibilities

! +eview


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The Budgeting Process

,n the previous module,we defined (lanning as ma'ing decisions with the

following objectives

! Define what will be performed -#tatement of Wor'

! Determine how the wor' will be structured and trac'ed -Wor' Brea'down#tructure

! %ssign +esponsibility for elements of wor' -/rgani0ational Brea'down#tructure

! #chedule the authori0ed wor' in a manner which describes the se1uence ofwor' and identifies significant tas' interdependencies re1uired to meet there1uirements of the program

2ow let3s discuss Budgeting.


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The budgeting process establishes a means for developing and trac'ing the costgoals for all contractually authori0ed wor'.

/ne of the 'ey criteria for establishing an earned value management system is thatall major components of a project must be integrated and baselined. Majorcomponents of the earned value management system include scope& scheduleand cost. The cost and schedule performance are measured against a baseline tohelp trac' the progress of the project.

But what is a baseline& and how do you establish one

$et3s review the steps re1uired to establish a cost and schedule baseline on the ne5tpage.


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Establish the Schedule Baseline

Project Mgmt

Prelim esign

!.!.!

Title " esign

!.!.#

$inal esign

!.!.%

esign!.! Procurement!.# &onstruction!.% !.4

'&ME Project (

!.)

+ecall the Wor' Brea'down #tructure from Module 6& which defines aproject3s tas's& processes& responsible parties& etc. )stablishing the WB#is the first step in defining the project and in establishing the baseline.

%cme (roject Wor' Brea'down #tructure


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Establish the Schedule Baseline

Project Mgmt

Prelim esign

!.!.!

Title " esign

!.!.#

$inal esign

!.!.%

esign

!.!

Procurement

!.#

&onstruction

!.% !.4

'&ME Project (

!.)

Preliminary esign !.!.! 7an 8eb Mar %pr May

9.9.9.9 Define #pecifications : +e1.

9.9.9.6 Develop (reliminary Design

9.9.9.; +eview (reliminary Design

9.9.9.4 ,ncorporate Comments

9.9.9.< (reliminary Design Complete

Schedule Baseline

Based on the (roject #cope and availableresources& the wor' activities in the WB# are

scheduled to establish the #chedule Baseline.This important step was covered in Module ;.


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Establish the &ost Baseline

Preliminary esign !.!.! *ours 7an 8eb Mar %pr May

9.9.9.9 Define #pecifications : +e1. 9&



"ntegrated Scope, Schedule and &ost

Preliminary esign !.!.! *ours 7an 8eb Mar %pr May

9.9.9.9 Define #pecifications : +e1.9&



or- Brea-don Structure /eporting 0e1els

2ow let3s discuss how the budgeting process and the cost"schedule integrationis accomplished in an earned value environment.

The Wor' Brea'down #tructure is the framewor' used to facilitate there1uirement for integrating these major components. The Wor' Brea'down#tructure is further bro'en down by Control %ccounts& Wor' (ac'ages& and

(lanning (ac'ages.

$et3s discuss these three 'ey elements in more detail& starting with Control%ccounts& on the ne5t page.



&ontrol 'ccounts

% Control %ccount is an assigned WB# $evel used to monitor the cost and

schedule performance of a significant element of the wor'. Control %ccountsare also referred to as Cost %ccounts. These terms are interchangeable&however& we will use the term Control %ccounts.

% Control %ccount is a major management control point for

! Cost #ummari0ation

! *ariance %nalysis and +eporting

! +esponsibility %ssignment

! #cope Description

! Corrective %ction (lanning

% Control %ccount Manager -C%M is responsible for e5ecuting the #tatement ofWor' associated with their assigned Control %ccount-s.

The illustration on the following page depicts the %CM) >ouse (roject WB#down to the Control %ccount $evel.



&ontrol 'ccounts

8or the %CM) >ouse project& it was determined that the performance

measurements for the project will be ta'en at $evel ; -see graphic below.The project manager and the sta'eholders must determine the level atwhich the performance measurement will be re1uired.

%CM) >ousing Corporation

9

>ouse Building(roject

9.9

Concrete

9.9.9

8raming

9.9.6

(lumbing

9.9.;

)lectrical

9.9.4

,nterior

9.9.ere is an e5ample of indirect rates applied to prime dollars or direct costs.

/verhead costs are applied to prime dollars to derive the Total Cost. Theapplication of indirect rates and factors is based on a company3s accountingpolicies and procedures.

esign Engineering Tas-

Design )ngineer >ours 9&===

Design )ngineer +ate">our 4=.==G

Prime ollars 4),))).))6

/verhead +ate 9==H

/verhead Dollars 4=&===.==G

Total Burdened ollars 7),))).))6

:% +ate 9=H

:% Dollars I&===.==G

Sub8Total 77,))).))6C/M +ate =.=


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'&ME *ouse &ost Proposal e1elopment

By now you should be familiar with the difference in types of costs& but how

e5actly do you go about determining costs in a project Ta'e some time tosee how to develop a proposed cost using the %CM) >ouse Buildingproject.

#o far in the %CM) >ouse Building project& we have

@ Defined what will be performed -#tatement of Wor'@ Determined how will it be trac'ed -Wor' Brea'down #tructure

2ow we have to

@ Determine the (roposed Total Cost and (rice

@ %ssign $abor& Material& /DC& and #ubcontractor +esources to the Wor')lements.

@ %pply Burdens and 8ee to derive the Total Cost and (rice.


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Tostart& weneed our %CM) >ouse Wor' Brea'down #tructure as shown here.

This insures that we develop cost for only approved project scope.

%CM) >ousing Corporation9


9.9

Concrete9.9.9

(our 8oundation9.9.9.9

,nstall (atio

9.9.9.6

#tairway9.9.9.;

8raming9.9.6

8rame )5teriorWalls9.9.6.9

8rame ,nteriorWalls9.9.6.6

,nstall +oofingTrusses9.9.6.;

(lumbing9.9.;

,nstall Water$ines

9.9.;.9

,nstall as $ines

9.9.;.6

,nstall B"8i5tures9.9.;.;

)lectrical9.9.4

,nstall W iring9.9.4.9

,nstall /utlets"#witches9.9.4.6

,nstall 8i5tures9.9.4.;

,nterior9.9.ours& Material& and /DC Dollars&burdened by all the indirect rates& a Total (rice of G99&


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The proposed resources for the entire project have been priced as described

on the previous page. The following chart reflects the Total (rice for eachWB# of the %CM) >ousing Building project.


G6;9&IK4

>ouse Building(roject 9.9G6;9&IK4

Concrete 9.9.9G


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'&ME *ouse &ost Proposal >egotiations

2ow let3s review the proposed price and complete the negotiations.

The proposed price is G6;9&IK4L however& the buyer of the %CM) house can onlyafford to pay G66=&===. The %CM) house builder has agreed to build the %CM)house for G69K&KKK& but some revisions had to be made to the plans to utili0eless e5pensive materials.

The following summary reflects the negotiated cost and price to build the %CM)>ouse.

>egotiated '&ME *ouse &ost and Price

Total &ost $ee Total Price

G9I;&I


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'&ME *ouse &ost Proposal >egotiations

The following summary reflects the negotiated price by WB# to build the %CM) >ouse.


G69K&KKK

>ouse Building(roject 9.9

G69K&KKK

Concrete 9.9.9G4J&6==

(our 8oundation9.9.9.9

G6=&


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2ow that we have a negotiated contract& we can establish the Contract Budget

Base.

The %warded %mount to the Builder is G69K&KKK. This includes (rofit"8ee.

The 2egotiated Total Cost& without (rofit"8ee& for the %CM) >ouse e1ualsG9I;&I


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%fter the Contract Budget Base has been established& the Management

+eserve is established by the (rogram Manager.

,n the case of the %CM) >ouse& the (rogram Manager has decided to establisha Management +eserve amount e1ual to 9=H of the Contract Budget Base.This e1uates to G9I&;I


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2ow that the Management +eserve has been established by the (rogram Manager&

target budgets are developed and distributed to the Control %ccount Managers.

)stablishing the target budgets will often be accomplished through a joint effort bythe (rogram Manager& Team $eaders& and the Control %ccount Managers.

W o r ' ( a c ' a g e s

( l a n n i n g ( a c ' a g e s

C o n t r o l % c c o u n t s

D i s t r i b u t e d B u d g e t sG 9 ? < & 4 ? J

n d i s t r ib u t e d B u d g e t - B .G =

( e r f o r m a n c e M e a s u r e m e n t B a s e l i n e - ( M B .G 9 ? < & 4 ? J

M a n a g e m e n t + e s e r v e - M + .G 9 I & ; I ere3s the distributed budget for the entire %CM) WB#. +emember& this doesnot include (rofit"8ee& or Management +eserve.


G9?ouse Building(roject 9.9

G9?


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Time phased budgets are prepared for each wor' pac'age and planningpac'age. )ach wor' pac'age and planning pac'age contains a budgetdivided into time increments -typically monthly by elements of cost& such asdirect labor& material& subcontract& and other direct cost -/DC.

During the phasing process& Management ensures that re1uirements will be

met& wor' se1uences are logical& and resources are available to e5ecute theplan.

The development of detail planning for the control account and ultimateapproval of the budget& schedule& and associated Wor' %uthori0ationDocument -W%D is accomplished through an iterative process.

% Wor' %uthori0ation Document -W%D authori0es and documents the wor'scope& schedule and budget to organi0ations supporting the project. 2owor' is to proceed without a proper W%D.


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The Budget Process

The Control %ccount Manager -C%M uses wor' pac'ages and planningpac'ages to divide the control account into specific manageable andmeasurable units of wor' for the purpose of developing plans anddetermining progress.

)ach wor' pac'age and planning pac'age is se1uenced in a manner that

provides logical support for the program schedule. The C%M assigns eachwor' and"or planning pac'age a budget value in hours and"or dollars.

The sum of the wor' pac'ages and planning pac'age budgets are e1ual to thetotal budget assigned to the C%M on the wor' authori0ation form. The total

budget for the control account is timeAphased in hours and dollars.


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Baseline ocumentation

#ummaries of schedules and budgets at the wor' pac'age level are integrated

using a Control %ccount (lan -C%(. % C%( is a low level detail planprepared by the C%M showing time phased planning of tas's and theirassociated budget for a Control %ccount. The C%( also provides brief wor'pac'age and milestone descriptions that enable the C%M to clarify anddifferentiate the uni1ue content of each wor' pac'age.

The C%M and (rogram Control develop the cost and schedule database byusing the control account planning documentation and other data. % seriesof chec's and balances are performed to ensure the data is consistent.pon completion of the baseline development& reports displaying theplanning data as it appears in the system are reviewed and verified foraccuracy.

The baselining process is complete when all Wor' %uthori0ation Document-W%Ds have been issued and accepted& and all C%(# have beendeveloped and e1ual the W%D budget amounts.


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Schedule and &ost Baseline

Below is the timeAphased budget for the %CM) >ouse Building (roject. This

profile represents the cost and schedule baseline in Total Dollars.

$38,26 $!3,4"2 $4,"3#otal $"6%,46! $4,6%6


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/e1ie o2 Module 4: Budgeting

Many new terms and concepts were presented in this module. $et3s summari0e

what was covered.The budgeting process establishes a means for developing and trac'ing the

cost goals for all contractually authori0ed wor'.

/ne of the 'ey criteria for establishing an earned value management system isthat the scope& schedule and cost must be integrated and baselined. Thebaseline is what cost and schedule performance is measured against


G9?ouse Building(roject 9.9G9?


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9.9

Concrete9.9.9

(our 8 oundation9.9.9.9

,nstall (atio9.9.9.6

#tairway9.9.9.;

8raming9.9.6

8rame )5teriorWalls9.9.6.9

8rame ,nteriorWalls9.9.6.6

,nstall +oofingTrusses9.9.6.;

(lumbing9.9.;

,nstall Water$ines

9.9.;.9

,nstall as $ines9.9.;.6

,nstall B"8i5tures9.9.;.;

)lectrical9.9.4

,nstall Wiring9.9.4.9

,nstall /utlets"#witches9.9.4.6

,nstall 8i5tures9.9.4.;

,nterior9.9.

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Final Module55