1. Make a cost estimate for the following project.

Resource requirements

Work Package Duration Resources

A 2 weeks 1 Excavator

2 Laborers

B 3 weeks 1 Excavator

4 Laborers

64 feet of concrete pipe

C 3 weeks 1 Concrete mixer

20 bags of cement

6 cubic yards of sand

6 Laborers

Resource costs

Resource Unit Cost

Excavator $800 per day

Concrete mixer $200 per day

Laborer $15 per hour

Concrete pipe $12.00 per foot

Cement $16.00 per bag

Sand $8.00 per cubic yard

The project is working five days per week, 8 hours per day. Day rates apply to working days only. The total project cost is the sum of the costs of the three work packages.

2. What is the development cost estimate for a truck that is forecast to weigh 15,000 lbs, given the following information?

Weight of truck (lbs) Development cost (previous projects) ($M)

10,000 200

20,000 400

22,000 390

25,000 420

3. You are managing a project to install anti-virus software on 420 workstations. Using the analagous method, estimate the cost of the project. Here is some historic data that may be useful in your estimation. Hint: be sure to use the analagous method (the project costs the same as a similar historical project) not the parametric method (based on calculations using project characteristics).

Project Cost ERP implementation $2,400,000 Windows 8 upgrade $45,000 Anti-virus installation for 390 workstations $51,000 Software development $365,000 Software development $1,200,000

4. A project requires $1M in annual investment in years 0 and 1. Annual support and maintenance costs in years 2 through 6 will be $100K. The annual economic benefits in year 1 will be $200K. The annual economic benefits in years 2 through 6 will be $500K. What is the NPV of this project, assuming a cost of capital of 9%? If NPV is the evaluation criterion, is this project worth pursuing?

5. After analyzing some software application development projects that have been done by your organization over the past few years, you learn that the actual costs of the projects have ranged from 10% to 50% higher than the estimated costs that were used when seeking approval from company management to initate the projects. These cost overruns were caused by technical problems, changing requirements and delays caused by inadequate project team staffing. In each

case of a cost overrun, the project manager had to go back to management to get more funds to complete the project. You are managing a project and your team has estimated that it will cost $700,000. You want to submit a funding request to management that will not require you to deal with a cost overrun later in the project. How much should you funding should you request for the project?

6. Why do you think that analogous cost estimation is most useful in the initial phase of a project?