Chapter 4: Schedule,
cost, and situation
analysis (pt. 2)
ISE 443 / ETM 543
Fall 2013
Using the schedule and the TRM, build a
detailed budget
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The largest cost in the budget will be labor
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Direct labor cost
Fringe benefits
Overhead
General & Administrative
Profit/Fee
Other Direct Costs (ODC) – supplies, software, etc.
The PM generally is concerned with fringe, overhead,
and G&A, and a shortcut calculation might be ...
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CF = (1+FR)*(1+OH)*(1+GA)
Total Labor Cost = DLC*CF
NOTE: this doesn’t take the effect of ODC on G&A
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Let’s work through an example ...
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See Table 3.3, pg. 86
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Use the weekly or hourly rate for each
person or labor category
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For our example, assume –
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Also assume –
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Senior software engineer = $1,000 / week
Software engineer = $700 / week
Documentation specialist = $500 / week
Training specialist = $600 / week
Fringe benefits (FR) = 30%
Overhead (OH) = 70%
General & administrative = 15%
Develop the cost factor (CF) and Total Labor Cost for the
project.
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Add the ODC
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Assume ODC = $8000
Add ODC to the total labor costs – this is the
Total Cost for the project.
Compare this to the total cost in Table 3.4, pg.
87.
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What is the difference? Why?
What does this say about whether or not ODC is included in
G&A cost?
Note that the profit or fee is added to determine the total
price for the contract, but the PM only controls total cost.
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In addition to the total cost, the PM must also
develop a weekly budget for the project
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Sometimes, the customer may ask for a budget
breakdown by period (weekly, monthly, etc.) or by task
(especially when payments are based on task
completion)
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Ongoing cost monitoring is based on
the weekly cost budget
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For example, let’s say we have a cost report for the first 4
weeks of the project ...
X
(2.3)
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Note that we can calculate the weekly and cumulative
differences and percent deviation
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If the weekly and (especially) cumulative differences are negative,
the PM will investigate.
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It’s important to predict and control for future
budget & schedule problems
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Earned Value Analysis (EVA)
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An integrated project management
system based on the earned value
concept that uses a time-phased
budget baseline to compare actual
and planned schedule and costs
3 cost curves illustrate the concept
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Budgeted Cost of Work Scheduled
(BCWS)
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Budgeted Cost of Work Performed
(BCWP)
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Actual Cost of Work Performed
(ACWP)
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Cost Variance (CV) compares the
actual vs budgeted cost at each
point in time, while the Schedule
Variance (SV) compares the
budgeted amount scheduled vs
the budgeted amount performed,
i.e.
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CV = BCWP – ACWP
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SV = BCWP – BCWS
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We can also extrapolate from these to
predict …
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Estimated Cost at Completion (ECAC) and Estimated
Time at Completion (ETAC)
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ACWP
ECAC 
 BAC
BCWP
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ETAC 
BCWS
 TAC
BCWP
Where BAC is the original budget at completion and TAC
is the original time at completion.
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Let’s look at the example on pg. 111
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See figure 4.3
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