PM FPX 5333 Assessment 1

Introduction

The analysis starts by looking at the budget of the project, more specifically the cash flow management for the Nearly Free project. Analysis of cash flows is crucial in understanding how the payments are received, managed, and distributed since it is imperative to have a consistent cash flow each month in order to make the project sustainable. Basically, cash flow analysis is a gauge of the financial health of a business, which is crucial for making the leap from mere business commencement to actual business operation (Tally, 2022).

The Nearly Free project is now in progress. Although the project has thus far bee n kept within budget, it has passed the halfway point and is facing issues that are casting doubt on its sustainability. Hence, the project team asked for assistance with project management services. Upon careful analysis, our focus was shifted towards rectifying the requirements of the project and analyzing its financial status. This helped us generate a cost estimation report that could resynchronize the project. The analysis comprises essential elements such as the Work Breakdown Structure (WBS), Total Cost of Ownership (TCO), and Return on Investment (ROI). Moreover, the report will apply cost estimation methods against the prevailing financial situation and contingency plans to cater to anticipated failure of projects.

PM FPX 5333 Assessment 1:Current Financial State

The original budget for the Nearly Free New Employee Orientation project was established at $25,000. Nevertheless, an analysis of the cash position indicates that the budget would most likely be surpassed. To start with, there was a base spend of $23,300, but the project spending in total now stands at $30,380, and that is a budget overrun of $8,080. Such numbers are very concerning since the project is not even halfway through yet and is already over budget, meaning there have to be instant extra funds so that the project schedule is fulfilled.

Project leadership was based on a similar estimating process that proved unsuitable for the initial budgetary estimate. Analogous estimating is a quick but incomplete and inaccurate process. A preferable method in the future is the 3-point estimation method, which is based on estimators’ skills to provide a more accurate estimate by taking into consideration negative and positive points. The 3-point estimating method has three key points:

• Most Likely (M) or Best Guess (BG): This represents the average effort that will be put into performing a task if it is done again by a team member.
• Pessimistic (P) estimate: This is the work that would be required if something went wrong.
• Optimistic (O) estimate: This is the level of effort needed if positive risks come to fruition (Indeed, 2023).

Cost Estimate

There is a need to understand the Work Breakdown Structure (WBS) to analyze project cost estimates and raise the team’s sensitivity towards the cost of every task (Organ, 2023). WBS has a hierarchical structure with a priority-based list of tasks.

In order to effectively create the WBS, the following four steps are needed (Organ, 2023):

• Create a high-level requirement or scope deliverables list.
• Place each high-level requirement under a major deliverable category.
• Decompose these categories into quantifiable activities.
• Validate the work packages for completeness.

The use of the WBS for first projects greatly enhances the chances of accurate estimation, planning, and implementation, making global project teams capable of avoiding risk and other problems associated with change control, creep, and project delay.

In the Nearly Free project, the WBS was developed through these step-by-step procedures. The budget issues reflect that the scope of the project was not well addressed, and that might render the deliverables impossible.

Failure Points

A well-documented report by Nearlyfree.com points out two important reasons for the failure of the project. First, there is a vast discrepancy between the estimated cost and the actual cost. Second, important deliverables were omitted during the planning phase that led to the overall failure of the project.

Delays have also been against it, and they have absorbed a lion’s share of the budget. Effective planning and scheduling would have reduced the delays to accommodate better resource utilization. Delays that were planned for could have been utilized instead to support other parts of the project.

Turnaround Recommendations

We recommend using the following estimation methods to change the course of the project:

• Total Cost of Ownership (TCO): Compute the total project cost, including direct as well as indirect costs. Properly understanding all related costs provides a more accurate idea of the project’s financial impact.
• Return on Investment (ROI): Measure potential returns and gains realized through the project in order to decide whether the hoped-for gains are justifiable against the related costs.
• Contingency Reserves: Form reserves to cater to unforeseen risks and uncertainties in order to make plans for unexpected hurdles without losing the momentum of the project.
• 3-point Cost Estimation: Apply this technique to estimate the cost of a project by considering optimistic, pessimistic, and most likely scenarios, thereby giving a good and realistic cost estimate.

Through these methodologies, we expect to rejuvenate the project and increase its success potential by getting a holistic sense of costs, returns, and potential risks.

Total Cost of Ownership

The inclusion of Total Cost of Ownership (TCO) in project deliberations is vital in reversing a project. TCO helps investors evaluate a company alongside its peers so that they can make an informed investment choice. TCO covers the purchase price of assets and the cost of operating, giving the project a comprehensive understanding of the long-term worth of the project (Twin, 2023).

In forecasting a new budgeting plan, the inclusion of the TCO is vital. The inclusion considers not only the initial cost of the system but also the immediate costs, including software cost, installation, and training of employees, providing a better picture than a blanket overall cost. Estimating a TCO of $27,133.33 necessitates a detailed breakdown of the allocated funds.

Return on Investment

Measuring ROI is also a project recovery approach. Although TCO remains more vital than ever, ROI measures the return on an investment in capital, which is the percentage of the total capital expense, and estimates investment growth and return in the future (Fernando, 2023).

To determine ROI, both the outbound and inbound cash flows from the investment need to be looked at. Correct ROI calculations entail a close scrutiny of all costs (Fernando, 2023). For this project, it is hard to determine long-term cost savings in labor or resources. Subtracting the estimated cost of $27,133.33 from the baseline cost of $30,380, the project saving is $3,246.67.

Contingency Reserves

Contingency reserves are another project turnaround method to consider. Contingency reserves are provisions in the cost basis or schedule to cover known risks and put response strategies into place (Harrin, 2022). A contingency plan is necessary in managing uncertainties and risks in every project. The calculation of contingency reserves is done through the use of the Expected Monetary Value (EMV) approach, where the chance of occurrence is multiplied by the possible loss for known and unknown risks. Total contingency comes from the aggregation of various risks (Harrin, 2022).

On approval through the budget, it is 90% likely that HR labor costs will be above budget, there is a 50% chance that project manager costs will be over allocated, and there is a 75% chance that training costs will be under. With an estimated $5,000 contingency reserve, the calculation is as follows:

• 90% of $2,777 is $2,500.
• 50% of $2,500 is $1,250.
• 75% of $3,750 is $2,812.50.

3-point Cost Estimation

The third way of rejuvenating the project is to use the 3-point estimation method. This method uses optimistic and pessimistic values to determine the best value for every task (Indeed, 2023). The formula used in estimation is (E = \frac{(a + m + b)}{3}), where (E) is the value being estimated, and (a), (m), and (b) are the most likely, pessimistic, and optimistic values, respectively. This is also known as the triangular distribution formula.

When we reviewed the project reports, we found that some activities have overruled the original cost. The biggest overage was for planning, which went over the baseline budget by $6,000. The labor costs of three of the team members also went over the expected level. To counteract future underestimation in the future, we will use the 3-point cost estimation method and apportion the contingency reserves based on it.

The new baseline budget, including the $5,000 contingency fund, places the project cost at $32,133.33.