Back to School Offer

Get 20% of Your First Order amount back in Reward Credits!

Get 20% of Your First Orderback in Rewards

All papers examples
Get a Free E-Book! ($50 Value)
HIRE A WRITER!
Paper Types
Disciplines
Get a Free E-Book! ($50 Value)

Project Costing, Essay Example

Pages: 9

Words: 2575

Essay

As many have stated previously, a project is by definition a temporary endeavor to produce a unique deliverable at the conclusion of the endeavor.  With any endeavor that will result in a specific deliverable there is a cost associated with the work and other resources that go into the delivery of that good or service.  As the project progresses through the lifecycle the time draws closer to start assigning costs to the project.  At this point, the project’s scope has been appropriately defined.  With that being said the expectations are set with the stakeholders and a deliverable is expected at a certain time in the future.  With this implementation of the Enterprise Resource Planning (ERP) project the scope was determined to launch in iterative rollouts implementing each manufacturing plant one at a time, based on finished good model, in order to mitigate risk and fortify the success of the project.  Each iterative phase will require its own project lifecycle which includes separate cost management analysis and execution.  The next step in the project phase is to develop the costs associated with the project so that a forecasted budget can help determine the required resources for the project completion.  Throughout the project cost management will need to be taken into consideration.  During the current planning phase both cost estimating and cost budgeting activities will occur.  There are multiple tools and techniques for estimating the project costs.  The tools will be examined and applied as needed to result in the cost estimation for the project.  The processes for implementing an effective and accurate cost estimate will include estimating costs, determining budget and controlling the costs (Bloucher, Stout & Cokins , 2009).  All three areas are imperative to project execution and cost management.

Cost Management

In cost management, the first area is to estimate the costs of each individual activity of the project.  This allows for a more focus approach and enables a concentrated effort to produce accurate and reliable estimates.  While the goal is to fully understand the costs associated with a project it is important to note that these estimates are occurring during the early planning stage of the project and not actual costs.  There are multiple techniques to estimate costs for a project.  For example, there is analogous estimating, parametric modeling and bottom-up estimation(.  In analogous estimating, the estimate is derived from comparisons to other projects that are similar in nature to the project under current implementation.  In the case of the ERP implementation, the only other project close in nature are those of the competitors and information is scarce and has a high likelihood of unreliability.  This method would provide a generalized cost estimate but would not provide the level of detail that would instill confidence leadership would require for such a project.  The next method called parametric modeling could be used to determine the cost of the project.  This model used statistics and mathematical formulas to determine costs of the project.  This is normally done using regression analysis or other statistical model to extrapolate the costs.  The downside of this method in the case of the ERP implementation is the estimates derived would only be as good as the assumptions and inputs made by the project team to determine the costs.  Since the team has not worked on a project like this in the past and do not have any data available for calculation this method does not necessarily fit the requirements to produce the most accurate estimate as possible with the given information.  The bottom-up estimation could potentially work as the method to estimate the costs of the project (Bloucher, Stout & Cokins , 2009).  This method involves breaking down the activities needed to complete the project and assign a cost to each activity.

Cost by Functional area

Since our rollouts are broken down into finished good model and within that model each functional area is responsible for the implementation of their sections, the project could be broken down by functional area and then an estimate for integration and overall project management could be assigned.  The areas that the project team is including in the implementation include finance, sourcing, value chain planning, scheduling and a supplier portal.  The cost for these modules include a one-time cost for commercial off the shelf (COTS) software plus the maintenance support once the project goes live.

With this method selected it is important to break down each area into the lowest possible cost element so estimates can be applied to the efforts needed.  There are multiple areas of the project that drive the cost of the project.  These areas include software, hardware, employee resources, expertise, training, transition, support and sustainment to name a few areas.  Each area has multiple factors driving the costs.  The first area that will be addressed is the seemingly easiest to estimate but in reality may prove anything but easy.

The software necessary to implement the ERP project was essentially scoped during the project scope management phase.  Each functional area that is transitioning to the new platform will require the correlating software module.  For example, the financial team will require the costing, accounts payable, accounts receivable and tax modules of the software package.  It is also understood that the foundation for all future implementations of the other finished goods models are dependent on the work and efforts applied to the initial rollout.  The costs for the initial rollout may be greater that those costs experienced by the latter plants.  It is also important to understand when receiving quotes from vendors exactly what is inclusive or exclusive from their quotes.  When a request for quote is performed there is a dilemma that occurs when a vendor provides a quote that is somewhat or sometimes significantly lower than the rest of the vendors in the market.  The dilemma is inherent of whether the quality of work is equitable between the upper tier vendors with higher prices and that of the vendors coming in at lower bids.  There needs to be a risk assessment done on what specifically the company is willing to risk in the case of the potential of using a low bidder.  In the case of this project, the company wants to go with a reputable company that has a proven track record and has completed implementations of this magnitude previously.  In the normal vendor selection process the starting point of using three potential vendors would be optimal but in the current market there are two companies that provide proven ERP solutions.  The determining factor would come down to aspects potentially outside of the purview of cost considering both are direct competitors and both offer similar quality and support.

Costs

When determining the cost of the software and implementation it is also imperative to associate the necessary hardware and security requirements in that estimate.  The initial software cost for implementation for all areas denoted in the scope including the three year maintenance agreement is $1,500,000.  This includes the software and maintenance.  There is also an additional $500,000 for the dedicated servers to run the software in a production environment.  This includes the actual hardware and the option to virtualize the servers to run multiple applications concurrently.  Since the software is purchased strictly out of the box this means that the project team must be cognitive of the potential costs associated with customizing the software to fit specific business requirements and the impending maintenance and support issues that could arise from such customizations.  In order to mitigate that risk an additional cost will be included in the integration and project cost as an overall estimate impacting all areas of the project.

An additional $100,000 is associated to the required tools such as personal computers, handheld devices and scanners necessary to provide the necessary tools for the employees to use the new system.  This additional cost is an estimate based on the functionality of the software system and the corresponding tools used to take advantage of the software benefits.  An example of a necessary tool is a hand held scanner for the receiving of goods at the dock.  This helps take advantage of the automation of the receiving process and allows for immediate verification and inventory control.

Outside of actually purchasing hardware and software there are costs associated with the people that are required to drive the project to completion.  The project team cost will be addressed later.  The first area includes obtaining the appropriate level of expertise in three different areas.  The first is the expertise in how to actually use the new software.  If the resources on the project team already have the expertise in the usage of the software that is an added bonus to the project team but if not there will be a time period where external or contractor support will need to be used to bridge the gap while the project implementation team is brought up to speed.  There is also the expertise on the Information Technology section for the actual software implementation.  The company currently does not have enough resources to implement the program and keep the legacy systems up and running so there is a requirement to hire out software implementation expertise to facilitate the transition.  Since the contractor resources are billed hourly we can estimate the cost by determining the level of expertise needed for each function and providing a cumulative number for the project overall.  There will be a required system expert for the function team designated for each of the five tracks annotated above.

In the same fashion as the software vendor selection, a request for quote can be utilized to obtain a fairly accurate cost estimate.  The contractor companies would be provided the requirements for the project and in return provide a cost associated with those requirements.  The initial project is based on an eighteen month implementation estimate.  There is a requirement for three subject matter experts spanning the five track areas and three IT resources to facilitate the technical portion of the project.  The median cost per hour of the subject matter experts is $125 per hour and the IT experts is $175 per hour.  Over eighteen months there will be a total of 3120 hours per expert.  This is a total of $1,170,000 for the subject matter experts and $1,092,000 for the technical support required.  As the transition nears from the old system to the new system, the contract could either be renewed on a monthly basis or cancelled without ramifications.

As the knowledge transfer occurs between the subject matter experts and the internal teams, there will be a time when the internal team takes on the responsibility of training the users on the new business processes and system.  This project will utilize a train the trainer formula to help facilitate the process.  The underlying tone of the project is to ensure that proficiency is owned by each of the functions in the organization.  The tools for training including in person training sessions, virtual session and documentation on the changes and manuals to conduct the operations will fall onto the shoulders of the project team.  This will be included in the project transition plan and the costs associated with training include expenditures for training sessions, travel to supplier sites and material.  The estimate for training is $45,000.

To mitigate potential failures due to lack of support, the current support desk team will need to be trained and staffed appropriately.  This includes bringing on talent prior to launch and having the support team fully functional and prepared for both internal and external requests.  This includes both tier one and tier two support.  Tier one would include basic support such as password resets, functionality requests and data management.  Tier two would include in depth problem management and root cause analysis.  The support team is based on the users of the system.  The team will include four tier one support personnel and two tier two personnel.  The tier one support earns $14.50 per hour and the tier two team members earn $17.50 an hour.  This is $120,640 and 72,800 per year respectively.  This is an ongoing cost and will be required for one year from the time of inception and the team will be reassessed at the one year mark.

The project management cost associated to the overall endeavor should be noted as to not overlook a potential cost center.  The project management team will consist of track leads for each section which are dedicated full time to the project.  This includes five full time employees for the tracks and an overall program manager.  The allotted rates are derived from industry standards and company salary surveys for the skillsets necessary for each position.  The total annualized cost is $550,000.  There is also a cost incurred for the overall implementation and risks associated with implementation.  This project is a high risk implementation due to the complexity of the overall implementation and the inherent responsibilities for creating the foundation for future implementations.  This being said, the foundation building requires time and effort to determine how the company is currently doing business and encapsulate those processes into a manageable project.  Since the ERP implementation will require slightly modified business processes the project team must expend more resources to document the current processes and ultimately to understand why certain functions are performed throughout the business (Monk & Wagner 2009).

As with the project team the costs for risk mitigation are necessary.  For this high risk implementation and the scope of work being performed there is an additional 30% increase to the overall cost of the project.  This increase is based on the risk of the project due to the fact that it is larger in scale than any other project the company has undertaken and the fact that during the process of understanding all the nuances of the business there may be unknown cost factors discovered.  The costs associated with this project include not only bringing one factory up and running on the new software with the associated changes in business processes but also the fact that the foundation for all other iterations is being developed in the process.  The project cost estimate includes the factors from equipment, personnel and the expertise required to limit risk and ultimately make the first rollout a success.  Overall the costs are broken down into the major functional cost areas:

The costs associated with the project come in at approximately $6.5 million.  This estimate includes all of the necessary areas to conduct a bottom-up cost estimate breaking each cost area into smaller more managed cost elements.  As the project progresses the costs associated with the project will become clearer and revised cost estimates for the remaining project can be conducted to help facilitate the management and controllership of the project costs.

References

Bloucher, E., Stout, D., & Cokins , G. (2009). Cost management:a strategic emphasis. (5 ed.). McGraw-Hill.

Cooper, D. F., Grey, S., Raymond, G., & Walker, P. (2005). Project risk management guidelines, managing risk in large projects and complex procurements. John Wiley & Sons.

Highsmith, J. A., & Highsmith, J. (2010). Agile project management, creating innovative products. Addison-Wesley Professional.

Magal, S. R., & Word, J. (2011). Integrated business processes with erp systems. RRD/Jefferson City: Wiley.

Monk, E., & Wagner, B. (2009). Concepts in enterprise resource planning. (3 ed.). Boston, MA: Course Technology Cengage Learning.

Prencipe, A., Davies, A., & Hobday, M. (2007). The business of systems integration. Oxford University Press, USA.

Project Management Institute, P. M. (2008). A guide to the project management body of knowledge. (4th ed.). Newtown Square: Project Management Inst.

Time is precious

Time is precious

don’t waste it!

Get instant essay
writing help!
Get instant essay writing help!
Plagiarism-free guarantee

Plagiarism-free
guarantee

Privacy guarantee

Privacy
guarantee

Secure checkout

Secure
checkout

Money back guarantee

Money back
guarantee

Related Essay Samples & Examples

Human Trafficking, Research Paper Example

Human trafficking is definitely one of the most severe problems in contemporary society. “Annually, about 600,000 to 800,000 people – mostly women and children –are [...]

Pages: 4

Words: 1058

Essay

Alternatives to Imprisonment, Essay Example

What alternatives to imprisonment exist to deal with non-violent criminals who are repeat offenders? The populations of prisons around the world and United States in [...]

Pages: 1

Words: 270

Essay

Immunity, Essay Example

What is meant by immunity? What are types of immunity? How does it work to insulate a defendant from criminal prosecution? “In legal contexts, immunity [...]

Pages: 1

Words: 259

Essay

Unappreciated Heroes, Essay Example

Though viewed by many as a great bastion of upward mobility for the black people and other minorities, the United States armed forces have not [...]

Pages: 5

Words: 1445

Essay

Hepatitis C, Essay Example

In fact, Hepatitis C is a liver disease, which is caused by Hepatitis C virus, so called HCV infection. “HCV infection sometimes results in an [...]

Pages: 3

Words: 710

Essay

Plato’s The Apology, Essay Example

Plato’s The Apology is a description of the speech, which Socrates makes at the trial when charged with not acknowledging the gods accepted by the [...]

Pages: 5

Words: 1264

Essay

Human Trafficking, Research Paper Example

Human trafficking is definitely one of the most severe problems in contemporary society. “Annually, about 600,000 to 800,000 people – mostly women and children –are [...]

Pages: 4

Words: 1058

Essay

Alternatives to Imprisonment, Essay Example

What alternatives to imprisonment exist to deal with non-violent criminals who are repeat offenders? The populations of prisons around the world and United States in [...]

Pages: 1

Words: 270

Essay

Immunity, Essay Example

What is meant by immunity? What are types of immunity? How does it work to insulate a defendant from criminal prosecution? “In legal contexts, immunity [...]

Pages: 1

Words: 259

Essay

Unappreciated Heroes, Essay Example

Though viewed by many as a great bastion of upward mobility for the black people and other minorities, the United States armed forces have not [...]

Pages: 5

Words: 1445

Essay

Hepatitis C, Essay Example

In fact, Hepatitis C is a liver disease, which is caused by Hepatitis C virus, so called HCV infection. “HCV infection sometimes results in an [...]

Pages: 3

Words: 710

Essay

Plato’s The Apology, Essay Example

Plato’s The Apology is a description of the speech, which Socrates makes at the trial when charged with not acknowledging the gods accepted by the [...]

Pages: 5

Words: 1264

Essay

Get a Free E-Book ($50 in value)

Get a Free E-Book

How To Write The Best Essay Ever!

How To Write The Best Essay Ever!