Estimating the Budget and Cost (Part 1)

1. Estimating the Budget and Cost (Part 1) Developing a Bottoms Up Estimate Felix Sanchez Project Management for ARA Engineers and Scientists

2. Desired Learning Objectives • Be able to develop a “bottoms up” cost estimate and budget for a project • Recognize that a Responsibility Assignment Matrix identifies who is responsible for work and budgets for each WBS • Be able to represent what it will cost to do the work and who will do the work with a Resource Loaded Network (RLN) in order to estimate costs • Identify challenges in staffing a project at ARA • Know all the elements required to make up an ARA project budget

3. Designing the Program Structure Planning and Scheduling and Pre-Cost Proposal Estimate • Define the Scope • SOW Review • Design the WBS – driven by SOW • Design the Team Organization • Driven by WBS • Driven by customer (IPT, contract requirements, etc.) • Driven by size of project or cost • Design the Plan and Schedule • Integrated Master Plan • Integrated Master Schedule • Identify the staff and allocate the resources (Resource Loaded Network) • Do a pre-cost proposal – ROM – within customer’s bogey

4. Five Elements for Program Management Program Organization Work Breakdown Structure (WBS) • Organization: Define contractual effort and assign responsibility for work. • Planning and Budgeting: Plan, schedule, budget and authorize work. • Cost Reporting: Accumulate cost of work and material. • Analysis: Compare planned and actual costs to performance and analyze variances. Develop estimates of final cost. • Close Out: Ensure within cost and schedule and market follow-on efforts. Budget (Resource Loaded Network) Task Definition Schedules Cost Reporting Performance Measurement Estimate at Completion (EAC) Performance Measurement Variance Analysis Reports (VAR) Close Out Close Out

5. Resource Allocation • Schedules usually drive the cost • An integrated master schedule provides the foundation for developing the cost plan • Need to reconcile with customer’s funding profile • WBS is used to segregate budgets and identify costs based on who is performing the tasks • Who is assigned to work tasks provides the first cut for the cost of staff based on the WBS Schedule

6. Who’s Responsible for Work and Budgets for Each WBS?Results in a Responsibility Assignment Matrix Program L. Anderson HEL TSTM System Manager Team T. I.M. B. Gone Leader Jones Thguy Control Account B. Gone E.Segoing D. Puty B. Cuz T. Jones G. Wizz M. Too Manager (or Task Leader) WBS Level Element Element Total Number Title Value 1 2 3 4 5 Total HEL TSTM System X 0001 TEL TSTM Item X 1000 Subsystem 1 X 1100 $1873.3 $1873.3 $1458.2 Hardware Design X $501.5 $702.9 $253.8 1110 Software $415.1 1120 X $325.3 $89.8 $66.5 X 2100 Program Management Budget at completion for Mr. E. Segoing’s task X = Denotes Control Account Level

7. Who’s Responsible for Work and Budgets for Each WBS? Responsibility Assignment Matrix (RAM) • RAM: a communication device providing a summary level picture of • Where work and budgets are assigned • From which cost build up is developed • Identifies the tasks or products to an organization (or other Division) by WBS elements • All WBS’s identified are assigned to an individual (Task Leader or Control Account Manager) who is responsible for managing the completion of that task • Budget at Completion (BAC) is associated with the reporting account level and is reflected at the intersection of WBS and Task Leader or CAM (as shown on previous slide) hrs $ Task 1

8. What Will the Work Cost?Who Will do It? Create a Resource Loaded Network (RLN) • RLN = IMS + (Who and # of Hours +ODCs) for each task • For each task • Who is going to do that work? determines staffing • How many hours by each staff member/rate? labor cost • What materials and procurements needed? ODCs • What travel needed? ODCs • What subs needed? ODCs plus M&S fee • Details of understanding cost elements, loading and escalation of rates in Part 2 Summation of each Task equals ROM program cost

9. Sample RLN in MS Project

10. Sample RLN Template in Excel Note: Sample electronic Excel template in handouts

11. S/W Development Project:RLN = IMS + Who + # Hours (or $)

12. S/W Project Sample RLN (cont.)

13. Challenges in Staffing • What expertise is available in your Division? • What SME available in other Divisions? • Do they have the time to dedicate to your project? • What happens when they get pulled for higher priority projects? • How do you manage remotely to staff in other Divisions?

14. Planned Actual Typical Staffing Challenges Headcount Analysis 10 8 6 Staffing 4 2 0 Jul Aug Sep Oct Nov Dec Months CC24253287.ppt

15. Other Elements of An ARA Budget • What expertise is not available in your Division? • Include all loading factors (more detail in part 2): • Labor – load with overhead (x%), G&A (y%) and profit (7.5-20%) • ODCs – load with G&A and profit • Materials and Subcontracts – load with G&A (x%) and profit • Travel – load with G&A and profit (if acceptable to client) • Include management reserve • Equal to approximately 10+ percent of the value of the project • Be careful on T&M and CPFF projects to spend the management reserve prior to completing the project • Include budget for technical computer usage

16. Summary • A “bottoms up” cost estimate for a project is most accurate and provides most insight in your planning • Resources Loaded network (RLN) = IMS + (Who and # of Hours (or $) + ODCs) for each task • Must account for all the elements required to make up an ARA project budget • Or else it comes out of your management reserve • Or worse, your profit! Budget