Homework #7

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Stevens Institute Of Technology *

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612

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Industrial Engineering

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Dec 6, 2023

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1 Stevens Institute of Technology School of Systems and Enterprises Castle Point on Hudson Hoboken, NJ 07030 EM 612 Project Management of Complex Systems Homework #7 1. Would you prefer the use of bottom-up or top-down budgeting for project cost control? What are the advantages and disadvantages associated with each approach? Bottom-up and top-down approaches have their own advantages and disadvantages, the choice among those depends based on the project and its requirements. I would choose the Bottom-down approach as it a detailed and granular approach in which each task or activity in the project is broken down into smaller sub-tasks with cost estimates being made for each task. Advantages of Bottom-down approach:  Accuracy: This approach allows for a precise estimation of costs, as it takes into account all the activities involved in the project.  Control: Since each task of the project is evaluated individually, it gives more control over the project budget and enables project managers to track the progress effectively.  Identification of issues: Bottom-up approach is very detailed, so it can help with identifying any potential issues that can arise during the project lifecycle early in the project. Disadvantages of Bottom-down approach:  Time: Since this approach is granular and detailed it is more time- consuming as it requires significant effort to break down every task and cost estimates.  Micromanagement: The details in this approach can lead to micromanagement that can hinder creativity and innovation among team members.  Over-budget: This approach leads to over-spending and increase of project costs for the business.

2 2. Project contingency can be applied to projects for a variety of reasons. List three of the key reasons why a project organization should consider the application of budget contingency. The key reasons why a project organization should consider budget contingency to a project are:  Uncertainty and Risk: Every project will involve a certain degree of uncertainty and risk. Unexpected events can occur that can impact the project schedule or cost. By applying a contingency budget, the company can be better prepared for uncertainties and mitigate the risks associated with them.  Scope changes: Changes in project scope can impact the project budget. A contingency plan can aid to absorb the additional costs associated with changes in scope without affecting the overall project budget. This can help ensure that the project remains on track and within budget.  Resource Constraints: In cases of skilled labor shortages, the cost of labor can increase impacting the overall budget of the project. Contingency plan can help cover the additional costs associated with resource constraint that will help the project to remain within budget and on track. 3. Calculate the fully loaded cost of labor for a project team member using the following data: Hourly rate: $52/hr Hours needed: 120 Overhead rate: 60% Fully loaded cost = 6240 Overhead cost = overhead rate * direct labor cost = 60% * 6240 = 3744 Fully loaded cost of labor = direct labor cost + overhead cost = 6240 + 3744 = $9,984 4. Calculate the fully loaded cost of labor for the project team using the following data. What are the costs for the individual project team members? What is the fully loaded cost of labor? Name Hours Needed Overhead Charge Personal Time Rate Hourly Rate Fully Loaded Labor Cost Sandy 60 1.35 1.12 $18/hr. ? Chuck 80 1.75 1.12 $31/hr. ? Bob 80 1.35 - 0 - $9/hr. ? Penny 40 Fully Loaded Labor Cost 1.75 = ???? 1.12 $30/hr. ?

3 Fully loaded cost of labor for the project team are = hours needed * hourly rate * overhead charge * personal time rate Sandy = 60 * 1.35 * 1.12 * 18 = 1,632.96 Chuck = 80 * 1.75 * 1.12 * 31 = 4,860.8 Bob = 80 * 1.35 * 9 = 972 Penny = 40 * 1.75 * 1.12 * 30 = 2,352 Fully loaded cost of labor = 1,632.96 + 4,860.8 + 972 + 2,352 = 9817.76 5. It took MegaTech, Inc., 100,000 labor-hours to produce the first of several oil-drilling rigs for Antarctic exploration. Your company, Natural Resources, Inc., has agreed to purchase the fifth (steady-state) oil-drilling rig from their manufacturing yard. Assume that MegaTech experiences a learning rate of 80%. At a labor rate of $35 per hour, what should you, as the purchasing agent expect to pay for the fifth unit? Remember, the simplified formula for calculating learning rate time is given as:

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T N = T 1 C Where T N = Time needed to produce the n th unit T 1 = Time needed to produce the first unit C = Learning curve coefficient Y=AX b Where A=100000 hours b= log 0.8 / log 2 = -0.322 For the 5 th unit, Y= 100000 x 5 -0.322 = 59556.84 hours Payment for the 5 th unit = 59556.84 x 35 = $2084489 6. Case study: The Hidden Costs of Infrastructure Projects—The Case of Building Dams Read the case study and answer the question sat the end of the case. The case study is in a separate pdf file posted on canvas. i. Given the history of large cost overruns associated with megadam construction, why do you believe they are so popular, especially in the developing world? With the developing world, the population is also increasing so there is a high demand for essential services to survive. Megadams are common in developing countries as they provide advantages such as electricity, water for irrigation, flood control and water delivery. But the construction and operation of these huge structures come at a high expense. Despite the history of cost overruns, megadams are popular as they are viewed as a representation of development and modernity. Several nations are keen to how their capacity to carry out such massive infrastructure projects to catch up with the developed countries. These constructions have always been supported by organizations such as World Bank as a means to stimulate economic development, that has led to an emphasis on these projects to achieve rapid growth. Another factor associated with these huge construction projects is the political and economic power dynamics involved in the construction. The decision to build these infrastructure projects is made at the highest level of the government, with little or no consideration of the communities and livelihoods that will be affected. This can usually lead to conflicts between state/federal governments and local communities over land rights, displacement, and environmental impacts of construction.

ii. Develop an argument in support of megadam construction. Develop an argument against these development projects. Argument in support of Megadam construction:  Megadams offer a variety of advantages such as energy production, electricity production, irrigation for nearby lands, flood control and water supply.  Developing countries require these essential resources for economic development, decrease poverty, and improve living conditions.  These mega infrastructure projects can create employment opportunities that will help build the economy.  Despite huge costs involved with construction and operating these projects, the costs can be mitigated with proper planning, design, and implementation during the project lifecycle. Argument against Megadam construction:  Huge infrastructure projects have a long history of negative social, environmental, and economic impact on people.  Negative impacts due to these projects include displacement of local communities, destruction of natural habitats, and disruption of downstream waterflow that can impact on agriculture in the surrounding areas.  These projects are involved with cost overruns, political conflicts, and schedule overruns.

Homework #7

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