Please Discuss The Following: You Are The Project Manager

Please Discuss The Followingyou Are the Project Manager Of A Project

Please discuss the following: You are the project manager of a project. While reviewing the cost estimates for the project, you notice that one of the cost estimates for a WBS item is 20% higher than previous projects for very similar work. What should you do next? Together with your team, you have applied three-point estimation to a critical path consisting of two activities. The following duration uncertainties are calculated assuming a confidence interval of ±3 sigma. The duration uncertainty -defined as the pessimistic estimate minus the optimistic one- of the first activity is 18 days; the second estimate has an uncertainty of 24 days. Applying the PERT formula, what is the duration uncertainty of the entire path? Your project has exceeded costs in the past due to underestimation of resource costs at the cost baseline: PV: $1,200,000, EV: $1,000,000, AC: $1,200,000. You expect underestimation to influence the future as much as it did in the past. If the BTC (Budget to Complete) is $1,000,000, what should your new EAC (Estimate at Completion) be?

Paper For Above instruction

Managing project costs and estimations is a critical aspect of successful project management. The scenario presented involves multiple considerations, including cost estimate discrepancies, critical path duration uncertainties, and budgeting inaccuracies due to resource cost underestimations. This paper addresses each element systematically, providing insights into appropriate responses, calculations, and adjustments necessary for effective project management.

Addressing the 20% Higher Cost Estimate for a WBS Item

When a project manager notices that a specific Work Breakdown Structure (WBS) item’s cost estimate is 20% higher than previous similar projects, several actions should be undertaken. Firstly, the project manager must verify the accuracy of this new estimate by reviewing underlying assumptions, scope details, and cost components. This involves engaging the project team and subject matter experts to understand the rationale behind the increased estimate (PMI, 2017).

Secondly, it is essential to analyze whether the scope or deliverables of this particular WBS item have indeed changed or if there has been an inflationary trend affecting costs. If the scope has been modified, the estimate might be justified; if not, the project manager should investigate potential errors or overestimations. Comparing this estimate with historical data ensures consistency and helps identify whether the increase is justified (Fleming & Koppelman, 2016).

Once these evaluations are complete, the project manager should update the cost baseline accordingly, documenting the rationale for the change and obtaining necessary approvals from stakeholders. Communication is vital; stakeholders should understand the reasons behind the increased estimates to manage expectations and keep project objectives aligned.

Additionally, it might be prudent to consider contingency reserves or risk buffers if the increased estimate reflects higher risk or uncertainty. It is also advisable to conduct a cost-benefit analysis to determine if the additional resources justify the expected benefits. If the increased estimate is not justified, the project manager should explore ways to reduce costs or scope to stay within approved budgets (Kerzner, 2017).

Calculating the Duration Uncertainty of the Entire Critical Path Using PERT

In project scheduling, the Program Evaluation and Review Technique (PERT) uses three-point estimates to better assess activity durations considering uncertainty. The formula for calculating the standard deviation (σ) of an activity’s duration in PERT is based on the difference between the pessimistic and optimistic estimates divided by six, reflecting a confidence interval of ±3 sigma:

σ = (Pessimistic - Optimistic) / 6

The duration uncertainties provided are already expressed as the difference between pessimistic and optimistic estimates:

- Activity 1 uncertainty: 18 days

- Activity 2 uncertainty: 24 days

Here, the standard deviation for each activity is:

σ1 = 18 / 6 = 3 days

σ2 = 24 / 6 = 4 days

Since these activities are on the critical path, their durations are summed to get the total estimated duration. PERT’s approach involves calculating the combined standard deviation for the entire path, which is the square root of the sum of the variances (square of standard deviations):

σ_total = √(σ1² + σ2²) = √(3² + 4²) = √(9 + 16) = √25 = 5 days

The total duration uncertainty of the entire path, which is the combined standard deviation, is therefore 5 days. This analysis provides the project manager with insight into the overall schedule risk and helps in contingency planning.

Revising the Estimate at Completion (EAC) Considering Past Underestimation of Costs

The project’s past performance indicates a cost underestimation problem, with a planned value (PV) of $1,200,000, earned value (EV) of $1,000,000, and actual costs (AC) of $1,200,000. The fact that EV is less than PV suggests that the project is over budget in terms of value delivered, and the past underestimation has contributed to this discrepancy.

The Estimate at Completion (EAC) should reflect the actual project performance and an anticipated future trend of underestimation. Multiple formulas exist for calculating EAC, but given the context of consistent underestimation and past data, a common approach is:

EAC = AC + (BAC - EV)

Where BAC is the Budget at Completion. Since the original baseline is not specified outright but can be inferred from PV, and assuming the project has an original budget similar to PV ($1,200,000), and considering the pattern of underestimation, the EAC can be adjusted accordingly:

EAC = $1,200,000 + ($1,200,000 - $1,000,000) = $1,200,000 + $200,000 = $1,400,000

However, given the future Budget to Complete (BTC) of $1,000,000, the project manager must consider that continuing trends of underestimation might inflate the final costs further. If the past underestimation is expected to continue linearly, some analysts suggest applying a factor or coefficient derived from past performance (e.g., CPI or specific underestimation ratios). For simplicity, if the pattern holds, then a straightforward adjustment is:

EAC = Actual costs (AC) + Remaining work adjusted for underestimation

Assuming the remaining work should be increased by an estimation correction factor, for example, 20%, aligned with the initial discrepancy, then:

Adjusted remaining budget = BTC (1 + 0.20) = $1,000,000 1.20 = $1,200,000

and the new EAC becomes:

EAC = AC + Adjusted remaining budget = $1,200,000 + $1,200,000 = $2,400,000

This approach underscores the importance of incorporating past performance data into future estimates to prevent cost overruns and improve accuracy. Ultimately, the project manager must communicate these revised forecasts to stakeholders and update project plans accordingly (Hendrickson & Au, 2001).

Conclusion

In project management, addressing discrepancies in cost estimates, accurately quantifying schedule uncertainties, and adjusting forecasts based on past performance are vital to maintaining control over project outcomes. It involves rigorous analysis, transparent communication, and proactive adjustments. Properly managing these aspects enhances the likelihood of project success despite uncertainties and variabilities inherent in complex projects.

References

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