Project success is often measured by how well the project meets the triple constraint and provides quality deliverables. The triple constraint comprises the project scope, schedule, and budget. Cost overruns are a frequent element contributing to unsatisfactory project performance measurements. As many as 85% of projects encounter cost overruns. This course describes important concepts in project cost management; in particular, you will learn a two-step planning approach involving estimating costs and determining the project budget. A third concept in project cost management involves controlling the project budget during project execution.
Some of the opportunities that project managers have to better manage costs include:
- Estimating time (schedule) and costs (budget) correctly,
- Investing in up-front planning,
- Ensuring good contracts are in place,
- Communicating well with clients and stakeholders,
- Understanding project risks and their potential impact on project costs,
- Following a rigorous change control procedure to prevent scope creep, and
- Continuously monitoring project costs to minimize problems.
The Triple Constraint
As indicated, the triple constraint provides boundaries of a project’s scope, schedule, and budget based upon the planning stages of the project. These factors are all interdependent and interrelated in that a change to any of the three constraints can dramatically impact the project. Moreover, a change in one of the three triple constraint elements almost always introduces changes in the other two elements.
Sometimes referred to as the “iron triangle,” the scope of work is shown on the bottom of the illustration, demonstrating that the scope is the foundation of the work. Time (schedule) and budget (cost) are naturally intertwined with the scope of work and support the idea that “time is money”.
How Changes Affect the Triple Constraint Variables
As indicated, a change in one of the triple constraint variables impacts the others. Project, product, and engineering managers need to be aware of these interactions when analyzing changes to a project. Some negative effects of changing the scope, schedule, or cost of a project follow.
- Scope of work increases: A client requests additional features be added to a new product under development. An increase in the scope of work normally triggers additional work by the project team, causing an increase in cost. In order to accommodate the added work, the schedule may be increased as well.
- Schedule is shortened: Many times a customer or market need may force a tightened project schedule so as to meet an accelerated delivery date or trade show event. Typically, responses to schedule compression include changing the planned work by conducting tasks and activities in parallel instead of in sequence (potential scope changes) and/or by adding resources (cost impact).
- Budget is cut: Customers may decide to cut the budget for a project once it is underway. Of course, with fewer funds, the scope of work will need to be scaled back. In some instances, an increase in schedule may accompany a budget cut as a way to save money by de-prioritizing the project work.
In some unusual circumstances, a positive outcome to the scope, schedule, or budget may be the result of project changes. For example, a schedule may be lengthened due to changes in the customer delivery requirements or additional resources may be made available to accomplish the project work faster. This situation would lead to a favorable change to the scope of the project by allowing team members additional opportunities to adequately address the problem being solved by the project work.
Importance of Cost Estimating
Even in the rare circumstance in which a project benefits from added budget, a project manager must always be aware of the boundaries presented in the project plan. The triple constraint limits the scope of work, the schedule or time to conduct the work, and the required cost to complete the work. Remembering that the cost of the project is impacted by and will impact both scope and schedule is an important challenge for the project manager throughout execution of the project. Proper cost estimating will help to ensure that the budget is adequately designed to deliver the desired scope of work within the required time frame.
This course will discuss a two-step approach to estimating costs and determining the project budget. A final element of proper project cost management includes controlling the costs and managing the triple constraint during project execution. A downloadable notes and tip sheet is included as well as a formula sheet for the earned value management technique.