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Manage   »   Cost   »   Agile Cost Measurement Rules

The rules for the measurement and allocation of cost for your project will be identified at the start and agreed with the project sponsor. They will know such things as the mechanism and sources for funding your project and the cost centres to apportion the various costs to. The project sponsor in this instance is the individual, group or body who own the budget. We will debate roles and responsibilities later in the Toolkit. For now let us look at cost measurement in traditional projects.

In traditional projects we often use the terms: actual and budget. You will soon learn that these two terms become to some extent redundant when you deliver to budget. Your actual is your budget and your budget is your actual, but more soon. For now, we will go back to the traditional project. In a traditional project, you will measure the cost of the project.

Many terms are used to identify costs. There are direct costs and indirect costs. There are variable costs and fixed costs. For our purposes, direct costs are costs that can be identified specifically with this particular project. These may include resource, travel costs for people dedicated 100% to this project. It may also include equipment and supplies uniquely used by this project. Indirect costs are shared or joint costs pooled with other projects or initiatives. These may involve administrative costs for shared functions such as infrastructure, clerical and administrative personnel costs, office supplies, postage etc.

We will anticipate direct costs that are variable or fixed and we will anticipate the same for indirect costs. It is likely that, as part of the early stage estimating during the preparation of the approved change proposal for this project, most of these costs will already have been identified. As part of your estimating workshop for the project, it is wise to spend some time understanding the true cost of the project. A simple matrix showing direct and indirect costs against variable and fixed costs will suffice. The important part of the process is to ensure that all team members have contribution to the process. If the project calculates Break Even analysis, profit and return on investment analysis then the matrix is fit for purpose for now.

Remember, at the outset of the project, you have only high-level requirements. You have done only enough design without going into too much detail. So you are bound to uncover new, unanticipated costs if the design is more complex or the requirement is more intense. Your team and your estimator tried to envision the amount of work that will be involved to satisfy the various high-level requirements using the anticipated design agreed. Your estimating process and the accuracy of the estimates you produce will improve over time with every new project you deliver. Therefore, the cost management process will experience less and less surprises. But for now, we will expect the odd surprise.

The measurement of the earned value or realised benefit in a project is a related activity and often performed at the same time as the measurement of project costs. These are often combined with productivity and performance management techniques to understand and evaluate the true cost of the project and the real benefits gained.

One of the performance management techniques is earned value management. Earned value management is a project management technique for measuring project progress.

It is a mathematical base model which combines measurements of scope, schedule and cost whilst it aims to improve Scope definition, prevent Scope creep, provide accurate progress reporting and keep a project team progressing. However, it has cost all of its own. It is an in-depth complex model and an example of one of the calculations is shown here. It is complex. OK.

We like fit for purpose and we like simple. We do not like complex especially what looks like unnecessarily complex. You get all you need for financial assessment in the Toolkit, anyway.

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Agile Cost Measurement Rules


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