6. Managing the cost of an IT project

6.1. Development of a basic plan for the cost of the project

The cost baseline is the project’s distributed total cash flow of a project used to measure and monitor the execution of a project’s value. Its development is made by summing up the estimated costs during a certain time period; such a plan reflects the value of the estimated costs and the time when they are expected to occur, subject to following a certain order of implementation of project tasks and work. Often depicted in the form of S-curve (see. Fig. 6.1).

Table 6.1. Sample project estimates

Construction of a basic plan at a cost of [18]

The construction of a basic plan at a cost begins with the collection of baseline information, which includes:

• results of the project cost estimate;
• SRI;
• project schedule.

The preparation of a baseline cost plan is the establishment of a relationship between the cost estimate and the project time parameters. For building this correspondence, clear criteria are required that define both project events initiating payments for the included in the items (items) of expenditures and the time elapsed between the initiating events and the corresponding payments. For example, when paying salaries to members of project management teams, this role is played by the work schedule of these employees, who initiates the calculation at the end of each month. Intervals - for payments inside and outside the organization - are determined by the time required for internal and external communication, approval and execution of administrative procedures, as well as company policies that tend to hold money as long as possible, since this shortens the receivable cycle, consequently, reduces the working capital of the company. This is followed by an analysis of the criteria and their written definition, which allow you to distribute the costs over time periods in the process of forming a basic plan.

Fig. 6.1. S-curve baseline cost

Once the type of the basic cost plan is selected, the items of expenses to be included in it are identified and the formation criteria are determined, we can assume that the basis for the distribution of expenses over time periods is laid. Then follows the process of naming and structuring expenditure items.

It is desirable that the project has its own system of cost notation, consistent with the company's cost notation system or with industry standards. If the cost is developed on the basis of a bottom-up ("bottom-up") assessment, its elements can be structured in accordance with the SRI, using work packages from the SRI project. If, for its construction, an estimate by analogy or parametric estimation is used, it is better to use other methods of structuring.

Summation of estimated costs for time periods. When all assessments of items of expenditure are distributed over specific time periods, it is necessary to sum up the expenditures for these periods. In this way, information is obtained about the incremental costs of these periods (the costs that occur during each month) that will be required in the next step to graphically display the basic cost plan.

Graphic display of basic cost plan.

The S-curve is a common way to show a basic cost plan, expressed as cumulative costs (see Figure 6.1). To calculate the cumulative expenses of the first two periods, it is necessary to add the expenses of the first period to the expenses of the second. By adding this value to the incremental expenses of the third period, one can obtain the cumulative value of the expenses of the first three periods. This procedure can be continued by finding successively cumulative costs for the first four, five, and so on periods, and then constructing a curve of cumulative costs along the ordinate axis with respect to time along the abscissa axis. The result will be in the form of an S curve. Further, as with the development of other types of cost estimates, the base plan needs to be checked and revised.

The benefits of building a basic plan at a cost . The lack of an effective baseline cost plan, even with an estimate of the cost and labor requirements, is a significant threat to the project: measuring the progress of the project and cash flow becomes difficult if not impossible. The existing basic plan at a cost is permissible to use as a basic plan for assessing the progress of the project implementation by the method of mastered volume (see the relevant section).

Cash flow forecasting is another merit provided by an effective base plan: it informs the management or customer in advance that at some point certain funds must be available that will be required to deliver resources and continue the project. In order to properly fulfill this role, it must be organized to reflect the progress and progress of the performance on the current date [18]. The steps to create a basic cost plan are relatively simple, regardless of whether they are performed manually or using a computer. It should also be said that the visual representation of the plan in the form of an S-curve facilitates its perception.