MGT 3302, Introduction to Project Management 1 Course Learning Outcomes for Unit VI Upon completion of this unit, students should be able to: 5. Analyze factors impacting control of project costs. 5.1 Discuss creating a budget for a project. Course/Unit Learning Outcomes Learning Activity 5.1 Unit Lesson Chapter 7, pp. 242–269 Unit VI Course Project Required Unit Resources Chapter 7: Determining Costs, Budget, and Earned Value, pp. 242–269 Unit Lesson In the previous unit, we discussed resource planning, resource utilization, and creating and managing a Gantt chart. If you remember from Unit I, the three main constraints of the project are scope, time, and budget. Activities and resources fit under the scope component. However, resources also fit under the budget component. One of our biggest expenses for a project involves the resources we use. Regardless, we have to calculate our total project cost. Estimating Activity Cost Estimating activity cost is a very important part of the budgeting process. Once we have identified our specific activities, then we can estimate the resources needed and the cost for those activities. Until now, we have referred to employees who will perform the activities as resources. However, for the purpose of budgeting, resources could be people, materials, equipment, facilities, or licenses. Any activity could have multiple costs associated with it. For example, painting a room would have labor costs, material costs, and equipment costs. Other types of costs are facility costs, travel costs, or contingency costs. As another example, let’s suppose we need to send an information technology (IT) professional to training. The cost associated with this resource’s activities would be labor costs and travel costs. Let’s discuss some of the details of these different costs. Labor costs: As mentioned, labor cost can be one of the highest costs in a budget. How many people will we need to work on this project? How many hours will each person need for the project? How much will we pay each individual person? How will we account for technical experts or skilled workers versus administrative personnel? Will we have overhead? Overhead costs are those costs that are not specifically attributed to work performed. For example, how will we account for health benefits or 401(k) donations? What about training costs? Materials costs: In our fair project, the cost of materials might be fairly high. But let’s suppose we were undertaking an IT project. The cost of materials might be fairly low. If our project involved building a house, the cost materials would definitely be high. UNIT VI STUDY GUIDE The Project Budget MGT 3302, Introduction to Project Management 2 UNIT x STUDY GUIDE Title Equipment costs: What if we have to rent some machinery in order to complete our project? For example, what if some of the activities in our project required t.

1. MGT 3302, Introduction to Project Management 1
Course Learning Outcomes for Unit VI
Upon completion of this unit, students should be able to:
5. Analyze factors impacting control of project costs.
5.1 Discuss creating a budget for a project.
Course/Unit
Learning Outcomes
Learning Activity
5.1
Unit Lesson
Chapter 7, pp. 242–269
Unit VI Course Project
Required Unit Resources
Chapter 7: Determining Costs, Budget, and Earned Value, pp.
242–269

2. Unit Lesson
In the previous unit, we discussed resource planning, resource
utilization, and creating and managing a Gantt
chart. If you remember from Unit I, the three main constraints
of the project are scope, time, and budget.
Activities and resources fit under the scope component.
However, resources also fit under the budget
component. One of our biggest expenses for a project involves
the resources we use. Regardless, we have to
calculate our total project cost.
Estimating Activity Cost
Estimating activity cost is a very important part of the
budgeting process. Once we have identified our specific
activities, then we can estimate the resources needed and the
cost for those activities. Until now, we have
referred to employees who will perform the activities as
resources. However, for the purpose of budgeting,
resources could be people, materials, equipment, facilities, or
licenses. Any activity could have multiple costs
associated with it. For example, painting a room would have
labor costs, material costs, and equipment costs.
Other types of costs are facility costs, travel costs, or
contingency costs. As another example, let’s suppose
we need to send an information technology (IT) professional to
training. The cost associated with this
resource’s activities would be labor costs and travel costs.
Let’s discuss some of the details of these different costs.
Labor costs: As mentioned, labor cost can be one of the highest
costs in a budget. How many people will we
need to work on this project? How many hours will each person
need for the project? How much will we pay

3. each individual person? How will we account for technical
experts or skilled workers versus administrative
personnel? Will we have overhead? Overhead costs are those
costs that are not specifically attributed to work
performed. For example, how will we account for health
benefits or 401(k) donations? What about training
costs?
Materials costs: In our fair project, the cost of materials might
be fairly high. But let’s suppose we were
undertaking an IT project. The cost of materials might be fairly
low. If our project involved building a house,
the cost materials would definitely be high.
UNIT VI STUDY GUIDE
The Project Budget
MGT 3302, Introduction to Project Management 2
UNIT x STUDY GUIDE
Title
Equipment costs: What if we have to rent some machinery in
order to complete our project? For example,
what if some of the activities in our project required the
installation of some computers? In a building project,
what if we had to rent a crane?

4. Facility costs: Facility costs involve the special facilities
needed for the project. In a building project, what if
we needed to rent a storeroom for our materials? What if our
project is remote, and we needed to set up
temporary office space?
Subcontractor costs: What if we have to hire subcontractors or
consultants? Would this cost fit under labor
costs? The answer is no. We need a separate category for
personnel outside of our organization.
Travel costs: What if we have some employees who we have to
send offsite? For example, suppose our
organization involves convenience stores, and we have specific
employees to scout potential build sites. The
costs associated with sending the employee to another location
would be categorized as travel costs and
would include lodging, meals, and airfare.
Other cost classifications: It is also important to note that some
organizations are very detailed in their
classification of costs. For example, some organizations may
have direct costs versus indirect costs. For
example, paying an employee is an example of a direct cost.
Contributing to an employee’s health care or
401(k) plan would be considered an indirect cost. There are also
recurring and nonrecurring costs. Recurring
costs are those that continue over the life of the project.
Nonrecurring costs are those that occur one time. An
example of a nonrecurring cost might be sending an employee to
a training class.
There are also fixed or variable costs. For example, renting a
building would be an example of a fixed cost.
Fuel or oil is an example of a variable cost because it

5. completely depends on how much equipment needs
fuel or oil and for how long.
Finally, there are also normal or expedited costs. Normal costs
are those for which we plan. Expedited costs
are those occurring because we have to speed up a project. For
example, if we have to pay overtime pay,
then that is an expedited cost.
Whether or not you have to account for each of these costs
separately would likely depend on the
organization for which you work. Many organizations require
PMs to develop a time-phased budget. A time-
phased budget is simply a budget that distributes certain costs
over the life of the project. For example, if we
know we are going to need concrete in week 1, then the
concrete cost is accounted for in week 1. But, if we
know we are not going to need paint until week 6, then we will
not account for that cost until later. The same
principle applies to labor. We can distribute the cost of our
labor throughout the life of the project.
Again, the type of budget needed depends on the organization.
Some organizations may only need totals for
each category and then a total budgeted cost (TBC). According
to Gido et al. (2018), the TBC is “the
aggregate amount of the estimated cost of all the specific
activities to perform and complete a work package
or the project” (p. 247).
Calculating Labor Cost
Any resource could have its own hourly rate, hours needed, and
overhead rate. If we had specific resources
who all had the same hourly rate, hours, and overhead rate, then
we could calculate total direct labor cost

6. very easily.
Hourly rate: $25/hr
Hours of work: 240
Overhead rate: 30%
Hourly rate x Hours needed x Overhead charge = Total direct
labor cost
$25 x 240 x 1.35 = $8,100.00
MGT 3302, Introduction to Project Management 3
UNIT x STUDY GUIDE
Title
It cannot be that simple, can it? No, it is likely not going to be
that simple. Most of the time, employees make
different hourly wages. Different levels of employees will have
different overhead rates, and we certainly will
not need all of the employees for the exact same number of
hours. So we just need to create a table to
calculate the total direct labor cost.

7. Name Project Hours Overhead Hourly rate Total Direct
Labor Cost for
Project
Bob 120 1.25 $25
Annie 80 1.30 $40
Michele 60 1.35 $35
James 100 1.50 $32
Total
Our completed table would look like the one below.
Name Project Hours Overhead Hourly rate Total Direct
Labor Cost for
Project
Bob 120 1.25 $25 $3,750.00
Annie 80 1.30 $40 $4,160.00
Michele 60 1.35 $35 $2,835.00
James 100 1.50 $32 $4,800.00
Total Labor
Cost
360 $15,545.00

8. Once you have calculated the total labor cost, then you can add
other costs that are associated with each
activity to get the TBC. Then, once you have the TBC, you can
spread the cost over the life of the project to
get a time-phased budget. For example, if your organization
requires a weekly breakdown, then you would
add up all of the costs of activities performed during each week.
The advantage of this method is that you can
also determine how much of the budget should have been spent
in a given week and compare to actual
costs.
Also, you can calculate the cumulative budgeted cost (CBC) or
planned value (PV) if you add up all of the
budgeted costs up to a specific point in time. The CBC or the
PV will be used to analyze the cost performance
of the project. Essentially, this just means that you are
comparing actual to budget. Earned value (EV) is
similar to PV, but you are calculating the cost of actual work
rather than budgeted work. Doing this type of
calculation can help you to determine if your project is on track
or not. Are you ahead of budget or behind
budget?
Below are some other values to know.
The cumulative earned value (CEV) is the value of work up to a
certain point in time.
The cumulative actual cost (CAC) is the actual cost of work
performed.
If you divide the CEV by the CAC, you get a cost performance
index (CPI), which is a ratio and the measure
of cost efficiency.

9. CPI = CEV/CAC
For example, consider that our CEV is $10,000 and our CAC is
$12,000.
CPI = 10,000/12,000
CPI = .8333
This ratio means that for every $1 spent, there is only $.83 of
earned value. Oops. We are behind budget. If
the ratio were 1.12, then we could say we are ahead of budget.
MGT 3302, Introduction to Project Management 4
UNIT x STUDY GUIDE
Title
Now that we know we are behind budget, what can we do?
Perhaps we can reduce costs by getting a better
deal on our materials or equipment? Perhaps we can change one
of our resources to someone who can work
faster? This might be an option in an IT project. If we use
someone who has more expertise in a specific
technology, then we might get that task completed sooner. On
the other hand, that expert may need to be
paid more per hour. In each instance, the measures taken will
need to be reviewed thoroughly for a cost-
benefit analysis.

10. In our next unit, we will learn about the risks associated with
project management.
Reference
Gido, J., Clements, J. P., & Baker, R. (2018). Successful project
management (7th ed.). Boston, MA:
Cengage Learning.
Suggested Unit Resources
In order to access the following resources, click the links
below.
The following video walks you through how to create a project
budget.
Project Management Videos. (2017, January 16). How to create
a project budget – Project management
training [Video file]. Retrieved from
https://www.youtube.com/watch?v=LwnLNMTOQFk
Transcript for How to Create a Project Budget – Project
Management Training video
The following video explains the fundamentals of cost
management.
Project Management Videos. (2018, February 19). The basics of

11. project cost management – Project
management training [Video file]. Retrieved from
https://www.youtube.com/watch?v=EyPFi0YO32M
Transcript for The Basics of Project Cost Management – Project
Management Training video
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in
their course of study. You do not have to submit
them. If you have questions, contact your instructor for further
guidance and information.
In each chapter, there are questions to “Reinforce Your
Learning” found in the left margin on some of the
pages. For example, in Chapter 7, questions are found on pp.
245, 246, 247, 248, 249, 253, 255, 256, 257,
258, 259, 260, 261 and 262. Answer the questions to check your
knowledge. The answers may be found
starting on page 487.
https://www.youtube.com/watch?v=LwnLNMTOQFk
https://www.youtube.com/watch?v=LwnLNMTOQFk
https://online.columbiasouthern.edu/bbcswebdav/xid-
117786451_1
https://online.columbiasouthern.edu/bbcswebdav/xid-
117786451_1
https://www.youtube.com/watch?v=EyPFi0YO32M
https://www.youtube.com/watch?v=EyPFi0YO32M
https://online.columbiasouthern.edu/bbcswebdav/xid-
117786480_1

12. https://online.columbiasouthern.edu/bbcswebdav/xid-
117786480_1
MGT 3302, Introduction to Project Management 1
Course Learning Outcomes for Unit VII
Upon completion of this unit, students should be able to:
6. Summarize project management techniques.
6.1 Outline risk assessment strategies as a part of a simple
project plan.
Course/Unit
Learning Outcomes
Learning Activity
6.1
Unit Lesson
Chapter 8, pp. 288–299
Unit VII Course Project
Required Unit Resources
Chapter 8: Managing Risk, pp. 288–299

13. Unit Lesson
In our past unit lessons, we have discussed the concept of
project constraints. Of course, the three main
constraints are time, budget, and scope. We could also add
quality, schedule, and customer satisfaction. It is
because of these constraints that we face potential risk in our
project. These constraints represent points of
failure, which means that if we do not achieve them, our project
may suffer or even fail. As a project manager
(PM), there are many uncertainties, and risk is all about
uncertainty. Also, as a PM, we have to be able to
identify risk and manage it as well. Managing risk means that
we need to develop methods of mitigation for
our risks. We cannot anticipate all potential risks, but we can do
our best to plan for those risks that are most
likely to happen.
As Gido, Clements, and Baker (2018) note, “risk management
involves identification, assessment, monitoring,
and response to project risks to minimize the likelihood of
occurrence and/or potential impact of adverse
events on the accomplishment of the project objective” (p. 290).
That one sentence sums risk up pretty well,
does it not?
A part of managing risk means that you have to be proactive.
The PM has to take action. Waiting and hoping
that something adverse does not happen is not a smart way to
manage risk. In other words, the PM has to
plan for risk.
Planning for Risk

14. A part of planning for risk means that the PM has to have an
open and meaningful discussion with team
members and leaders to identify potential risks. What are the
issues that may occur? The PM has to have an
understanding of how likely the issues are to occur as well.
With the team discussion, risks are identified as
UNIT VII STUDY GUIDE
Project Risk Management
Identify
Risks
Assess
Risks
Risk
Response
Risk
Monitoring
MGT 3302, Introduction to Project Management 2
UNIT x STUDY GUIDE
Title

15. well as the potential impact. For example, the customer or
project sponsor may very well be able to discuss
the impact of not meeting the project goals on time or exceeding
the budget. What is the risk and impact if the
customer is not satisfied with the quality of the product?
There are also different potential categories of risk, which are
discussed below.
not available? What happens if we do
not gather the user’s requirements accurately?
s into
consideration when we develop our
schedule?
expected?
What if our materials are delayed?
What if there is an issue with getting permits?
Thus, we risk delaying our schedule if the vendor cannot deliver
equipment or materials as promised. We risk
running over budget if the material quantities exceed
expectations. From a technological standpoint, there are
many kinds of risks. What if we do not meet the technical specs
developed via user requirements gathering?
What if technology advances faster than we can get our project

16. completed? What if we cannot meet
compliance for some reason?
There are also external factors. For example, what if we cannot
get the permits we need? What if we have
bad weather? What if we were halfway through our project and
government regulations changed? What are
some internal factors? We risk delays to our schedule if we have
staffing issues. For example, what if we lost
one of our important employee resources? How long does it take
to hire somebody new and bring him or her
up to speed? Even when acquiring a consultant, there can still
be a time delay.
Can you think of any more potential risks?
Let’s look at our fair project. During a team meeting, the PM
would assign a task to an employee. James
agreed to research activities and carnival games. James said it
would likely take him 4 or 5 days. The next
question from the PM should be something such as, “Do you
foresee any risks with that timeframe?” James
might indicate that his son and daughter-in-law are expecting
their first child anytime, which means he would
need to take a couple of days off when she goes into labor. The
risk has been identified. Now, we need to
assess the likelihood of that happening, what the response is
should it happen, and then monitor from there.
Assessing Risks
When assessing risks, the PM will evaluate the list of potential
risks and determine the likelihood that the
event will occur. What is the likelihood that getting permits will
be delayed? What is the likelihood that we will
not have enough employee resources? What is the likelihood

17. that the vendor will not be able to deliver the
equipment or materials by the promised date?
The PM will then evaluate the degree of impact. For example,
what will be the effect if the vendor is not able
to deliver the equipment or materials on time? Will the whole
project be set back? Is there built-in slack time
to accommodate the delay? Once we know this information,
then the risk can be prioritized. Risks with a high
likelihood of occurring that would have a high degree of impact
should get a higher priority. Conversely, those
risks with a low likelihood of occurring that have a low level of
impact would get a lower priority. Similarly,
those risks with a high priority will be monitored more closely.
We have already mentioned slack time, so this is another
consideration. Is there slack time for those
resources associated with the risk? Or perhaps these activities
are on the critical path. If there is a delay to
activities on the critical path, this means that our end date is
pushed further out unless we can make
adjustments.
MGT 3302, Introduction to Project Management 3
UNIT x STUDY GUIDE
Title

18. Risk Response
Now that we have identified the risks and have assessed them
for their likelihood of occurring and degree of
impact, we have to have a plan for responding to potential risk.
As Gido et al. (2018) note, “a risk response
plan may be used to avoid the risk, mitigate the risk, or accept
the risk” (p. 293). In a best-case scenario, we
would have actions to eliminate the risk, but more likely, we
will reduce the likelihood of occurrence or reduce
the impact.
Risk Avoidance, Mitigation, or Avoidance
Avoiding risk basically involves eliminating risk. What other
course of action could we take to eliminate the
risk? For our fair project, to avoid the risk of bad weather, we
could decide to have our fair indoors. Mitigating
the risk means that we do something to reduce the risk. For our
fair project, to avoid the risk of not having
enough chairs and tables, we could rent extra just in case.
Accepting the risk means that we will just deal with
the risk if and when it happens. As you can see, we are more
likely to accept the risk if there is a low
likelihood of it occurring or a low degree of impact. If there is a
high degree of impact or a high likelihood of a
risk occurring, then we will likely do what we can to avoid the
risk.
Risk Assessment Matrix
Some organizations will use a risk assessment matrix to help
manage potential risks. In a small project, the
PM likely may not need a risk assessment matrix because it
would not be hard to keep up with a small
number of risks.

19. A risk assessment matrix might include the following elements
in a table for each potential risk:
The likelihood of occurrence and degree of impact could be
indicated in different ways. The PM could use
low, medium, or high. The organization could use a numerical
rating system. In some cases, the organization
could use a more quantitative risk assessment system, which
would assign a probability of occurrence,
determine the cost of impact, and then calculate the expected
value if the risk event actually occurs. The
highest expected value would hold the highest priority.
An event that triggers action would be a check that signals the
need for some sort of mitigating action. For
example, if the PM does not receive a promised confirmation e-
mail regarding the delivery of materials, then
he or she may need to make a phone call to determine what the
delay is and why.

20. Risk Monitoring
Risk monitoring involves the PM consistently reviewing the risk
assessment matrix during the lifetime of the
project. The PM will need to regularly evaluate to make sure
there are no changes to the likelihood of an
event occurring or to the impact of the risk. One good method
of helping to monitor risk is to regularly check in
with team members to see how far they progressed with their
work, to ask them if anything has changed, or to
ask them if they foresee any changes to their original list of
risks. It is helpful at different points during the
project to make sure there are no new risks as well.
Finally, the PM should track the risks and document any
changes for future reference. It is helpful for any PM
to be able to go back and review project documentation to help
with planning future projects.
MGT 3302, Introduction to Project Management 4
UNIT x STUDY GUIDE
Title
Reference
Gido, J., Clements, J. P., & Baker, R. (2018). Successful project

21. management (7th ed.). Boston, MA:
Cengage Learning.
Suggested Unit Resources
In order to access the following resources, click the links
below.
The following video provides an overview of the components of
risk management.
Project Management Videos. (2014, December 1). What is risk
management in projects? [Video file].
Retrieved from https://youtu.be/x7A9idByPA4
Transcript for What Is Risk Management in Projects? video
The following video provides insight into risk analysis.
Project Management Videos. (2018, July 2). Risk analysis how
to analyze risks on your project - Project
management training [Video file]. Retrieved from
https://youtu.be/r5ZrPeQW8HQ
Transcript for Risk Analysis How to Analyze Risks on Your
Project - Project Management Training video
Learning Activities (Nongraded)

22. Nongraded Learning Activities are provided to aid students in
their course of study. You do not have to submit
them. If you have questions, contact your instructor for further
guidance and information.
In each chapter, there are questions to “Reinforce Your
Learning” found in the left margin on some of the
pages. For example, in Chapter 8, questions are found on pp.
290, 292, 293, and 294. Answer the questions
to check your knowledge. The answers may be found starting on
page 487.
https://youtu.be/x7A9idByPA4
https://online.columbiasouthern.edu/bbcswebdav/xid-
117323007_1
https://youtu.be/r5ZrPeQW8HQ
https://youtu.be/r5ZrPeQW8HQ
https://online.columbiasouthern.edu/bbcswebdav/xid-
117787202_1
https://online.columbiasouthern.edu/bbcswebdav/xid-
117787202_1