{"id":920,"date":"2015-01-18T19:33:50","date_gmt":"2015-01-19T02:33:50","guid":{"rendered":"http:\/\/www.larrylawhead.com\/articles\/?p=920"},"modified":"2017-10-24T16:57:54","modified_gmt":"2017-10-24T23:57:54","slug":"project-cost-example","status":"publish","type":"post","link":"https:\/\/www.larrylawhead.com\/articles\/2015\/01\/project-cost-example\/","title":{"rendered":"Project Cost Example"},"content":{"rendered":"<h2>Important<\/h2>\n<p>Please read the <a title=\"Read, Calculating Project Costs Using Story Points.\" href=\"https:\/\/www.larrylawhead.com\/articles\/2015\/01\/calculating-project-costs-using-story-points\/\" target=\"_blank\">previous post<\/a> explaining this model, before reviewing the\u00a0example below.<\/p>\n<p>This example uses the following steps.<\/p>\n<ol>\n<li>Adds\u00a0employee salary, benefits and contractor fees as cost variables.<\/li>\n<li>Calculates how much these variables cost each week.<\/li>\n<li>Sets\u00a0highest number of\u00a0story points burned down during a sprint as benchmark.<\/li>\n<li>Multiplies the weekly cost of the sprint by the length of the sprint.<\/li>\n<li>Divides that sum by the number of story points, revealing the cost per sprint based on actual throughput.<\/li>\n<li>Based on\u00a0throughput of past sprints, creates data to calculate the cost of future sprints.<\/li>\n<\/ol>\n<h2>Step One:<\/h2>\n<ul>\n<li>Sum up cost variables<\/li>\n<li>Calculate how much variables cost per week.<\/li>\n<\/ul>\n\n<table id=\"tablepress-11\" class=\"tablepress tablepress-id-11\" aria-describedby=\"tablepress-11-description\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\">Category<\/th><th class=\"column-2\">Yearly Salary<\/th><th class=\"column-3\">Yearly Benefits<\/th><th class=\"column-4\">Headcount<\/th><th class=\"column-5\">Total Compensation<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">Average Employees Developers<\/td><td class=\"column-2\">$97,000<\/td><td class=\"column-3\">$30,361.00<\/td><td class=\"column-4\">5<\/td><td class=\"column-5\">$636,805.00<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">Average Employees QA<\/td><td class=\"column-2\">$97,000<\/td><td class=\"column-3\">$30,361.00<\/td><td class=\"column-4\">0<\/td><td class=\"column-5\">$0.00<\/td>\n<\/tr>\n<tr class=\"row-4\">\n\t<td class=\"column-1\">Average Contractor Developers<\/td><td class=\"column-2\">$97,000<\/td><td class=\"column-3\"><\/td><td class=\"column-4\">3<\/td><td class=\"column-5\">$291,000.00<\/td>\n<\/tr>\n<tr class=\"row-5\">\n\t<td class=\"column-1\">Average Contractor QA<\/td><td class=\"column-2\">$83,000<\/td><td class=\"column-3\"><\/td><td class=\"column-4\">4<\/td><td class=\"column-5\">$332,000.00<\/td>\n<\/tr>\n<tr class=\"row-6\">\n\t<td class=\"column-1\">Average Contractor PM<\/td><td class=\"column-2\">$98,000<\/td><td class=\"column-3\"><\/td><td class=\"column-4\">1<\/td><td class=\"column-5\">$98,000.00<\/td>\n<\/tr>\n<tr class=\"row-7\">\n\t<td class=\"column-1\">Employee Benefits*<\/td><td class=\"column-2\">31.3%<\/td><td class=\"column-3\"><\/td><td class=\"column-4\"><\/td><td class=\"column-5\"><\/td>\n<\/tr>\n<tr class=\"row-8\">\n\t<td class=\"column-1\">Salary Weeks**<\/td><td class=\"column-2\">50<\/td><td class=\"column-3\"><\/td><td class=\"column-4\"><\/td><td class=\"column-5\"><\/td>\n<\/tr>\n<tr class=\"row-9\">\n\t<td class=\"column-1\">Yearly Total<\/td><td class=\"column-2\">$472,000.00<\/td><td class=\"column-3\">$60,722.00<\/td><td class=\"column-4\">13<\/td><td class=\"column-5\">$1,357,805.00<\/td>\n<\/tr>\n<\/tbody>\n<tfoot>\n<tr class=\"row-10\">\n\t<th class=\"column-1\">Weekly Total<\/th><th class=\"column-2\">$9,440.00<\/th><th class=\"column-3\">$1,214.44<\/th><th class=\"column-4\">13<\/th><th class=\"column-5\">$27,156.10<\/th>\n<\/tr>\n<\/tfoot>\n<\/table>\n<span id=\"tablepress-11-description\" class=\"tablepress-table-description tablepress-table-description-id-11\">This table includes employee salary, benefits and consultant fees only. All known costs should be included. Bottom line: It costs $27,156.10 per week to run projects with our team of 13 members.<\/span>\n<!-- #tablepress-11 from cache -->\n<h2>\u00a0Step Two:<\/h2>\n<ul>\n<li>Multiply the weekly cost of the sprint by the length of the sprint.<\/li>\n<li>Divide that sum by the number of story points, revealing the cost per sprint based on actual throughput.<\/li>\n<li>Based on\u00a0throughput of past sprints, the model creates data used to\u00a0calculate the cost of future sprints.<\/li>\n<\/ul>\n\n<table id=\"tablepress-12\" class=\"tablepress tablepress-id-12\">\n<thead>\n<tr class=\"row-1\">\n\t<th class=\"column-1\">Sprint ID<\/th><th class=\"column-2\">Total Weeks<\/th><th class=\"column-3\">Total Story Points<\/th><th class=\"column-4\">Total Operating Expenses for Sprint<\/th><th class=\"column-5\">Expense Per Story Point<\/th><th class=\"column-6\">Total PBI\u2019s<\/th><th class=\"column-7\">Expense Per PBI<\/th><th class=\"column-8\">Throughput Reduction<\/th>\n<\/tr>\n<\/thead>\n<tbody class=\"row-striping row-hover\">\n<tr class=\"row-2\">\n\t<td class=\"column-1\">11<\/td><td class=\"column-2\">3<\/td><td class=\"column-3\">168<\/td><td class=\"column-4\">$81,468.30<\/td><td class=\"column-5\">$484.93<\/td><td class=\"column-6\">62<\/td><td class=\"column-7\">$1,314.00<\/td><td class=\"column-8\">-31.43%<\/td>\n<\/tr>\n<tr class=\"row-3\">\n\t<td class=\"column-1\">12<\/td><td class=\"column-2\">3<\/td><td class=\"column-3\">245<\/td><td class=\"column-4\">$81,468.30<\/td><td class=\"column-5\">$332.52<\/td><td class=\"column-6\">68<\/td><td class=\"column-7\">$1,198.06<\/td><td class=\"column-8\">0.00%<\/td>\n<\/tr>\n<tr class=\"row-4\">\n\t<td class=\"column-1\">13<\/td><td class=\"column-2\">2<\/td><td class=\"column-3\">55<\/td><td class=\"column-4\">$54,312.20<\/td><td class=\"column-5\">$987.49<\/td><td class=\"column-6\">49<\/td><td class=\"column-7\">$1,108.41<\/td><td class=\"column-8\">-77.55%<\/td>\n<\/tr>\n<tr class=\"row-5\">\n\t<td class=\"column-1\">14<\/td><td class=\"column-2\">3<\/td><td class=\"column-3\">153<\/td><td class=\"column-4\">$81,468.30<\/td><td class=\"column-5\">$532.47<\/td><td class=\"column-6\">30<\/td><td class=\"column-7\">$2,715.61<\/td><td class=\"column-8\">-37.55%<\/td>\n<\/tr>\n<tr class=\"row-6\">\n\t<td class=\"column-1\">15<\/td><td class=\"column-2\">3<\/td><td class=\"column-3\">97<\/td><td class=\"column-4\">$81,468.30<\/td><td class=\"column-5\">$839.88<\/td><td class=\"column-6\">31<\/td><td class=\"column-7\">$2,628.01<\/td><td class=\"column-8\">-60.41%<\/td>\n<\/tr>\n<tr class=\"row-7\">\n\t<td class=\"column-1\">16<\/td><td class=\"column-2\">3<\/td><td class=\"column-3\">63<\/td><td class=\"column-4\">$81,468.30<\/td><td class=\"column-5\">$1,293.15<\/td><td class=\"column-6\">21<\/td><td class=\"column-7\">$3,879.44<\/td><td class=\"column-8\">-74.29%<\/td>\n<\/tr>\n<tr class=\"row-8\">\n\t<td class=\"column-1\">17<\/td><td class=\"column-2\">3<\/td><td class=\"column-3\">167<\/td><td class=\"column-4\">$81,468.30<\/td><td class=\"column-5\">$487.83<\/td><td class=\"column-6\">49<\/td><td class=\"column-7\">$1,662.62<\/td><td class=\"column-8\">-31.84%<\/td>\n<\/tr>\n<tr class=\"row-9\">\n\t<td class=\"column-1\">Total Weekly Cost<\/td><td class=\"column-2\">$27,156.10<\/td><td class=\"column-3\"><\/td><td class=\"column-4\"><\/td><td class=\"column-5\"><\/td><td class=\"column-6\"><\/td><td class=\"column-7\"><\/td><td class=\"column-8\"><\/td>\n<\/tr>\n<\/tbody>\n<tfoot>\n<tr class=\"row-10\">\n\t<th class=\"column-1\">Maximum Throughput<\/th><th class=\"column-2\">245<\/th><td class=\"column-3\"><\/td><td class=\"column-4\"><\/td><td class=\"column-5\"><\/td><td class=\"column-6\"><\/td><td class=\"column-7\"><\/td><td class=\"column-8\"><\/td>\n<\/tr>\n<\/tfoot>\n<\/table>\n<!-- #tablepress-12 from cache -->\n<p>The example above shows total backlog items closed during the sprint and their costs. Story points are\u00a0used as a measure of\u00a0throughput\u00a0because they represent the lowest common denominator.<\/p>\n<h2>Inventory &#8211; another\u00a0critical number<\/h2>\n<p>This example focuses on the cost of production as it responds\u00a0to gains in throughput. Understanding the cost of inventory and how to manage this inventory is likewise important.\u00a0If for example, a requirement or design is never built because consumers don\u2019t want it, the value of that inventory is zero. The entire cost of that effort\u00a0is\u00a0lost.<\/p>\n<p>Critical numbers, readily available using the Scrum Framework, should give you a clear\u00a0financial overview of your project.<\/p>\n<ul>\n<li>Throughput (Story Points or, if\u00a0it is more helpful, PBI\u2019s)<\/li>\n<li>Operating expenses (salaries, equipment, etc.)<\/li>\n<li>Inventory a.k.a Intellectual Inventory (Backlog items or prototypes, requirements, design documents, etc. not in backlog. Making sure\u00a0all items are in the backlog, ensures costs for effort\u00a0do not remain unreported and the Scrum principle of transparency is maintained.)<\/li>\n<\/ul>\n<h2>Don&#8217;t Forget Cost of Quality<\/h2>\n<p>Throughput improvements should come by implementing goals during the retrospective, not by becoming more sloppy. Subtract the effort each new bug takes from the total points for the\u00a0sprint;\u00a0rightly increases the cost. This may be an interesting way to introduce greater quality awareness.<\/p>\n<h2>Final Tip From Lean<\/h2>\n<p>If you discover your retrospectives are not having the desired effect on efficiency, \u00a0do a quick review using these\u00a0five points of Lean. These\u00a0may help.<\/p>\n<ol>\n<li>Identify the system\u2019s bottle neck(s)<\/li>\n<li>Decide how to exploit the bottlenecks.<\/li>\n<li>Subordinate everything to the above decision (Make everything march to the \u201ctune\u201d of the bottleneck.)<\/li>\n<li>Elevate the system\u2019s bottlenecks. (Improve capacity at the bottleneck.)<\/li>\n<li>If in a previous step a bottleneck is broken, go back to step one. (If the system begins to breakdown, reevaluate these five steps.)<\/li>\n<\/ol>\n<h2>\u00a0Worksheets with formulas<\/h2>\n<p>Feel free to download, use and improve this model.<\/p>\n<ul>\n<li>Apple Numbers &#8211;\u00a0<a href=\"https:\/\/www.larrylawhead.com\/articles\/wp-content\/uploads\/2015\/01\/Adjusted-Price-Per-Story-Point.numbers.zip\">Price Per Story Point<\/a><\/li>\n<li>Microsoft\u00a0Excel &#8211;\u00a0<a href=\"https:\/\/www.larrylawhead.com\/articles\/wp-content\/uploads\/2015\/01\/Adjusted-Price-Per-Story-Point.xlsx\">Price Per Story Point<\/a><\/li>\n<\/ul>\n<p>Resources used to create this example:<\/p>\n<ul>\n<li>Agile Scrum: eliminate \u201c<a title=\"Interesting post on software inventory. \" href=\"https:\/\/pseudosavant.com\/blog\/2011\/01\/29\/agile-scrum-eliminate-intellectual-inventory-using-just-in-time-software-development\/\" target=\"_blank\">intellectual inventory<\/a>\u201d using Just-In-Time software development<\/li>\n<li>How to Manage the &#8220;<a title=\"An interesting post on managing Agile Software projects. \" href=\"https:\/\/www.scrumalliance.org\/community\/articles\/2013\/september\/how-to-manage-the-7-wastes\u201d-of-agile-software-deve\" target=\"_blank\">7 Wastes<\/a>&#8221; of Agile Software Development<\/li>\n<li>Additional <a title=\"Concepts I found helpful.\" href=\"http:\/\/www.scrumstudy.com\/search.asp\" target=\"_blank\">important terms and concepts<\/a><\/li>\n<li><a title=\"Get this book from Amazon.\" href=\"http:\/\/www.amazon.com\/Agile-Estimating-Planning-Mike-Cohn\/dp\/0131479415\" target=\"_blank\">Agile Estimating and Planning<\/a> by <a title=\"Mike Cohn's blog.\" href=\"http:\/\/www.mountaingoatsoftware.com\/blog\" target=\"_blank\">Mike Cohn<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Important Please read the previous post explaining this model, before reviewing the\u00a0example below. This example uses the following steps. Adds\u00a0employee salary, benefits and contractor fees as cost variables. Calculates how much these variables cost each week. Sets\u00a0highest number of\u00a0story points burned down during a sprint as benchmark. Multiplies the weekly cost of the sprint by<\/p>\n<p class=\"more-link\"><a href=\"https:\/\/www.larrylawhead.com\/articles\/2015\/01\/project-cost-example\/\" class=\"themebutton2\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[4,119],"tags":[92,100,63,19,15],"class_list":["post-920","post","type-post","status-publish","format-standard","hentry","category-product-owner","category-scrum-master","tag-agile-scrum","tag-budgets-schedules","tag-critical-numbers","tag-larry-lawhead","tag-project-management"],"_links":{"self":[{"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/posts\/920","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/comments?post=920"}],"version-history":[{"count":19,"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/posts\/920\/revisions"}],"predecessor-version":[{"id":963,"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/posts\/920\/revisions\/963"}],"wp:attachment":[{"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/media?parent=920"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/categories?post=920"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.larrylawhead.com\/articles\/wp-json\/wp\/v2\/tags?post=920"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}