After the meeting and reviewing the details of the project, I have summarized that the cost of the project is exceeded than the amount which can be approved by the divisional manager. Analyzing the financials of the project, it can be concluded that the estimation made by the management for the project have been misinterpreted. The cost estimated for the salaries and benefits of the staff were overvalued. The cost estimated for hardware and software purchases along with the cost of lease, maintenance and licenses had been undervalued. This increased the actual cost of the project.
Continuing cost of the project is high. This management must see that the cost and the future value which can be derived from those costs must be assessed. This assessment of the costs will help the board in deciding whether the project must be continued or not. Reducing the cost of the project holds a lot of importance for its feasibility and sustainability. The immediate plan will be to reduce the excess cost which is being incurred on the project. The available human resource will be allocated to the project according to the skills they possess so that the project efficiency can be enhanced. The site of the project will be visited to analyze the scenario and find better propositions for improving the efficiency of the project.
The project manager will ensure that cost incurred for the project is minimized, the time taken for completion of the project is reduced and the quality of the deliverables is maximized. If all these three function are attained then the project can be considered as success. The project manager will use the PERT model to design a critical path for completing the project.
In the meeting with the director of the company I was briefed about the project. The results of the analysis after reviewing the project details have been prepared for the upper level management of the organization and then, suggestions have been proposition by me for making the decision for the feasibility of the project. The session with the director of project support office and the staff working on the site of the project has helped in assessing the situation in a better way. Their cooperation has made proposing new methods of assessment easier.
The actual cost required for completing the project is higher than the estimated/projected cost. This shows that the management has failed to achieve the required level of efficiency for the project. Propositions have been made for reducing the cost of the project but considering the fact that the cost of the project is very high and it will be impossible to limit the budget to the allocated amount.
The calculations to assess the efficiency of the project have been done using the PERT (Program Evaluation and Review Technique). With this a critical path for completing the project will be suggested. This technique will help in evaluating the project and in reviewing all the essentials of the project. This will help the managers in taking the decision and in concluding whether or not the project should be continued.
The assessment of the project shows that the cost which has been incurred by the management up till now is significantly higher. If the upper level management decides to let go of the project then the cost which has been incurred will be lost. The total of investment which the company has made on the project in the first quarter is $874,250. This is $66,725 higher than the projected figures. The figures clearly show that the cost incurred has exceeded the authority assigned to the divisional manager for approval. Initially the project must not have been approved by the divisional manager because the predicted figure had exceeded the budget under his authority for approval.
The difference in the figures of first quarter projected and the actual figures
The figures of 2nd quarter show that the projected cost and the projections from the actual are the same.
The data can help in concluding that most of the cost has already been incurred in the first quarter. Therefore abandoning the project at this point of time may not be a good idea as the cost has already been incurred.
As the project manager, I believe if the management decides to let go of the project in this phase then the project reversal cost will be high. Most of the cost which was incurred was in the form of salaries to the staff and therefore it is irreversible cost. The company had also invested in software which could not realize the cost invested. The management must consider continuing with the existing project and later find out ways to enhance the investment which they have made.
The management is right with its view point that the project will exceed the cost. With the implementation of methods related to project management the efficiency of the project will be revived. Critical path method will propose methods to improve the overall efficiency of the project. The work break down structure will be used to reduce the time and cost for the completion of the project. These steps will ensure that the cost and time both are reduced for the project.
As I have recently started the job, therefore I will form a feasibility of the project and then would let you know that whether the project should be continued or not. I will analyze the market and will assess the project towards satisfying the customer needs. New propositions will be suggested for utilizing the investment efficiently after doing research and knowing more about the project. The management failed to assess the cost being incurred in the project. If the upper management decides to let go the project then the reversal cost will have to be incurred. This will result in a huge loss ultimately for the organization.
Agenda:
The project can be continued by analyzing the two points that are:
- Find the ways by which the existing cost can be reduced.
- Find the ways to eliminate the extra cost that is incurred in the project and make the most of the cost incurred so far.
The team will work on both the matters of concern to control the budget of the project. In the first quarter the company has spend a lot of extra amount on the purchases of hardware/software. At the initial stage of the project the budget was not properly prepared and the costs that would be incurred in the project were not properly estimated. The project manager did a big mistake in calculating the cost of hardware/software purchases, hardware lease maintenance, data center services and contract services.
In order to solve such problems, step by step proceedings need to be done as this would help in controlling the budget of the project. PERT (Program Evaluation and Review Technique) will be used to resolve the step by step cost issues in the project. Using PERT, the management can identify and evaluate different areas and this would help in better handling the project. However, at this time, it is very important to make some changes in the planned budget to accurately allocate the budget for the next quarter.
- The first thing that should be changed in the project is the planner of hardware/software procurement and the planner of hardware lease/maintenance should have control over these expenditures. All the hardware/software purchases have been done so far so this cost will not disturb the budget.
- The maintenance cost of hardware should be handled by a specialized employee of the company. The continuously increasing cost of software maintenance should be controlled with proper supervision.
- Contract services are also exceeding from the budgeted amount so it needs to control in the next quarter by applying budget limits on the contract services.
- A big mistake in the budgeting has been found after the first quarter is that planner did not consider the cost of data center services in the budget. For the next quarter, this cost should be considered in the plan.
- The cost of staff needs to be revised in the budget. The remaining amount from the staff cost should be allocated to the other considerable cost. The cost of other expenditures should be reduced by 50% to overcome the extra cost of other accounts.
I met with Mark and Joyce at the site and in the meeting, the issues regarding the project was highlighted by them. The project was exceeding from all the plans of time and cost. The allocation was not properly managed by the technical and business mangers. The budget should be designed with the collaboration of both financial and technical managers to make budget accurate with proper allocation.
After the meeting I have realized that company is facing serious issues regarding the budget of the project and at this stage company really needs to overcome this issue smartly to get the project done with allocated budget. However, it seems that this would not be possible to complete the project within the allocated budget. Amount incurred will exceed in comparison to the budget allocated. The strategy for the next quarter will be designed under the consideration of controlling the cost of the project by finding the ways by which the existing cost can be reduced and to eliminate the extra cost that is incurred in the project. The planning of budget allocation is not properly done at the initial stage of the project and because of this reason; the company is experiencing such issues. There are some main issues that need to be considered to overcome the cost of the project. The areas where the cost should be controlled are hardware leasing/maintenance, contract services cost and the data services center cost. The cost of staff should be properly analyzed and budgeted for the next three months period to adjust its extra allocated cost to the other expenditure amount of the company. The step by step evaluation will be conducted throughout the project using PERT (Program Evaluation and Review Technique) model. This model will help to identify and solve the issues regarding cost at the initial stage by continuously comparing with the setting standards, and wherever the deviation is identified it will assist the project manger to solve the problem at the basic level. For the other projects in future the company needs to focus on the training of its technical and financial mangers to properly forecast the project cost and allocate the right amount of budget to every account of the project.
