In geek’dom – a moderately successful 1994 Star Trek movie that saw one 700 year old guy named Soran (wonder if they’d been reading Tolkien) not only take on Picard and Kirk but actually dispatch Kirk to eternity when thousands of Klingons, Romulans and strange alien women could not.

The word Nexus came to my mind this week in the course of creating a customized course for a client that blends business analysis, lean-six sigma, project management and procurement management  From 2005 until present I have shared several presentations and occasional keynotes on the topic of the Project Management Nexus. The term seems apropos for the business climate today: driving revenue, controlling cost and thriving or surviving requires mastering several allied disciplines.

bad nexus - Star Trek VI

It’s not enough to merely juggle a project management office and establish ground rules for delivering projects – ensuring those projects meet customer expectations (strengths of business analysis, lean and six sigma) is essential. It’s not enough to eliminate variation (six sigma) if the execution of follow-on projects fumbles (project management). It’s no longer a savvy career move to be master of one or a jack of all trades – survival requires proficiency across the board.

Over the course of the next several weeks and blog posts, we’ll pick up the concept of “management nexus” and weave in concepts that touch multiple disciplines. As we do hopefully the value of proficiency across disciplines will become apparent. As we do please do share your own experience in managing your nexus!

While developing the budget, having some information available on relevant past costs is called Historical Relationships, and taking advantage of someone’s expertise in the area is called Expert Judgment.

The major outputs of Determine Budget are the Cost Performance Baseline and Project Funding Requirements. The Cost Performance Baseline is usually a graph illustrating the budget over the length of time of the project. It does not include reserves which are funds set aside in case they are needed. Please see the earlier posting of Reserve Analysis.  Project Funding Requirements, however, includes the cost baseline in addition to any reserves.

The Human Resource Plan (from the Develop Human Resource Plan process) is used as a reference to help estimate costs associated with paying the people who are working on the project. The Scope Baseline (from the Create WBS process) contains information on the budget constraints in addition to the project activities and their inter-relationships. Like the Scope Baseline, the Project Schedule (from the Develop Schedule process) contains a large amount of information related to the needed resources and activity durations. Mitigation costs should also be calculated using the Risk Register (from the Identify Risks process) as a guide.

As mentioned, there are many tools that can be employed when estimating costs. When vendors are involved, there may need to be an overall analysis of what the project should cost. The costs of quality should also be considered. To read more about the tools of this process, please see earlier postings on TAPUniversity’s blog: PMP Exam – Cost Estimating Tools and Techniques (posted February 4, 2009), PMP Exam – PERT Formula (posted February 6, 2009) which is a weighted three-point estimating formula; and Reserve Analysis (posted February 11, 2009).

The major outputs of Estimate Costs are Activity Cost Estimates and Basis of Estimates. The Activity Cost Estimates are the actual estimates of expenses, and the Basis of Estimates is the supporting detail, such as the assumptions used for a particular estimate.

This results from Risk Identification by determining the “known, unknown” risks.  Contingency reserves are different from management reserves – which address “unknown, unknowns” and are set aside in a general management budget.

Although we may know how long our project activities should take, we also know that it is likely that there will be at least some minor setbacks—a key person is sick, weather delays a shipment, etc. Similarly, although we may know how much things should cost, we can easily find ourselves dealing with unexpected costs. By planning upfront for a little extra time and/or funds, we have a safety net when things do not go as hoped. Adding these buffers is one of the principles of the Critical Chain Method.

There is not a set way to determine how much of a buffer to add—some may simply add a couple days to each activity or systematically add a certain percentage to the budget. The nature of the project relates to how large of a safety net to spread. A routine project should not need as much of a buffer as will a critical project in uncharted waters. Do you perform reserve analysis? If so, how do you choose how much time or funds to add?

Here are some example of these techniques. The Estemitte family is planning their annual vacation. Mr. Estemitte says that last year’s vacation cost $2,300, so this one should cost about the same. This is an example of Analogous Estimating. Notice that this was a very quick way to obtain a cost estimate and that it may not be highly accurate. If Mrs. Estemitte replies that the cost of travel has increased substantially since last year, and they would obtain a more accurate estimate if they used the vacation expenses of someone who has travelled recently, she is calling into question her husband’s Expert Judgment. Expert Judgment (for example, knowing what vacation or other project to use as a comparison) is critical in order to obtain a cost estimate that has the degree of accuracy needed to be useful.

Mrs. Estemitte breaks down the vacation expenses and obtains costs for lodging, car rental, meals, entertainment, souvenirs, and the pet sitter. She totals all these costs at $3,500. This is called bottom-up estimating. Notice that the more detail she uses to break down the vacation activities, the more accurate her estimate is likely to be. Also, it is likely to be more accurate than Analogous Estimating.

The Estemitte family has decided to go to a local all-inclusive resort, which charges $500 (taxes included)/day per family. Travel and other expenses will be minuscule. They want to have 5 days of vacation, so they calculate that the resort will cost about $2,500. This is an example of Parametric Estimating. The cost per unit is multiplied by the quantity of work. Other examples of units of work could be line of code in programming and miles of highway in construction.