Leah graduated in July 2012 with a degree in Business majoring in Project Management. She accepted a
Question:
Leah graduated in July 2012 with a degree in Business majoring in Project Management. She accepted a job as a project coordinator for Housing New Zealand in the Building Maintenance Department. She worked on fixed cost estimates for housing projects, where the work was uncomplicated to estimate, and she worked with experienced building teams and a supportive management team which allowed her to generate accurate quotes most of the time, a few quotes were +/-10% on the original quote, however, this was an acceptable margin for maintenance quotes such as these.
Leah had been promoted to a new position in Housing New Zealand to the project office. Her responsibility now was to coordinate estimates for all major projects for the company.
The project was to build low-cost housing units on land owned by Housing New Zealand. The cost of the houses was estimated to be $400,000. Leah attended a Kick-Off meeting to approve the Charter of the project, where the management team approved the budget overall budget of the project at $500,000 with a budget of the “product” at $400,000. This type of project had never been planned and executed before, but the management team was confident in the estimates from information from previous projects.
Couple of senior contractors were worried about materials required to build the low cost housing to Council Standards with the $400,000 budget. But given the excitement of the moment, everyone agreed the project was worth doing and was possible to execute. This project was to have the highest project priority in the company.
Estimates were due in two weeks.
Leah started off by compiling estimates for the project. The corresponding cost estimates had seemed to be in error. The cost estimate was $80,000 over the management estimate; this represents about a 20 percent overrun.
The time estimate from the developed project network was only four months over management's time estimate. Another meeting had been scheduled with the significant stakeholders for checking the estimates and to brainstorm for alternative solutions; the cost and time estimates appeared to be reasonable. Some of the suggestions for the brainstorming session are listed below.
1. Change scope
2. Outsource the building
3. Use the priority matrix to get management to clarify their priorities
4. Cancel the project
5. Commission a break-even study for the build
Very little in the way of concrete savings were identified, even though there was consensus that time could be compressed to the proposed dates, but at additional costs.
write up a response to each question with references in order to project management theory:
a) Explanation of cost management, what it is, and the importance of creating a cost management plan. What should Leah do now?
b) What the purpose of the rough order of magnitude cost estimate is? should Leah reply on this for the cost estimates?
c) Housing New Zealand management team based the cost estimate on previous projects, what type of cost estimate is this? Explain when this type of estimate is best used.
d) Was the management team acting correctly in developing an estimate? Give an explanation to the answer.
e) Explain the three following cost estimating techniques: Analogous, parametric, and bottom-up estimating.
f) Which estimating technique must be used for this project? Give an explanation of the answer.
Expert Answer:
Cost management is the process of planning controlling and monitoring the costs associated with a project The goal of cost management is to ensure that the project is completed within the budget Creat... View the full answer
