Contributions of Information Technology Tools to Project's Accounting and Financing

Contributions of Information Technology Tools to Project's Accounting and Financing

R. Gelbard (Bar-Ilan University, Israel), J. Kantor (University of Windsor, Canada) and L. Edelist (Bar-Ilan University, Israel)
DOI: 10.4018/978-1-60566-026-4.ch126
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Abstract

“According to the Standish Group CHAOS Report 2003, each year in the USA there are approximately 175,000 projects in IT application development that spends $250 Billion. Among these, 31.1% of projects will be cancelled, 52.7% of projects will cost 189% of their original estimates, only 52% of required features and functions make it to the released product, and time overruns occur in 82% of the cases. In financial terms $55 billion dollars is wasted in these projects.” (Madpat, 2005). This chapter suggests an innovative platform to analyze software projects in order to overcome the difficulties that are shown through the statistics. The first layer of the platform is based on costing theories in order to handle the cost overruns. At the second layer are the project management tools, and on the third layer is the software engineering. The last two layers give the needed information on the project scope and the development efforts. Connecting those three layers gives a better perspective on the projects, which is the best platform for decision making. Cost management of a project is defined by the PMBOK (project management body of knowledge) (PMI, 2004) as one of the nine core activities of projects management. This activity is defined as an assembly of processes that include planning, estimating, budgeting, and controlling of project costs so that the process will be executed within the budget framework that has been designated for it. However, although it defines costing as a core activity, it does not provide the methodologies for the application mode of the costing (Kinsella, 2002). The challenge in project management is described as “the effective allocation of resources within the framework of time, cost and delineation constraints that are balanced against the quality demands and nature of relations with the customer” (Kerzner, 2003. p.5). Hence, cost management should be viewed as part of the project management challenge. Software projects can be analyzed through software engineering tools, CASE (computer-aided software engineering tools), that assist in the analysis and characterization of the software project and in the evaluation and measurement of the work productivity in the project. Cooper and Kaplan (1998) analyze the integration between costing systems and operational systems. The integration that Cooper and Kaplan introduce, like the classic costing methods, does not provide a response to the project structure and the features of a software project (such as estimation difficulties, risk management, and lifecycle). This chapter recommends integrating costing systems and operational systems of software projects; the projects management tools and the software engineering tools.
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Introduction

“According to the Standish Group CHAOS Report 2003, each year in the USA there are approximately 175,000 projects in IT application development that spends $250 Billion. Among these, 31.1% of projects will be cancelled, 52.7% of projects will cost 189% of their original estimates, only 52% of required features and functions make it to the released product, and time overruns occur in 82% of the cases. In financial terms $55 billion dollars is wasted in these projects.” (Madpat, 2005).

This chapter suggests an innovative platform to analyze software projects in order to overcome the difficulties that are shown through the statistics. The first layer of the platform is based on costing theories in order to handle the cost overruns. At the second layer are the project management tools, and on the third layer is the software engineering. The last two layers give the needed information on the project scope and the development efforts. Connecting those three layers gives a better perspective on the projects, which is the best platform for decision making.

Cost management of a project is defined by the PMBOK (project management body of knowledge) (PMI, 2004) as one of the nine core activities of projects management. This activity is defined as an assembly of processes that include planning, estimating, budgeting, and controlling of project costs so that the process will be executed within the budget framework that has been designated for it. However, although it defines costing as a core activity, it does not provide the methodologies for the application mode of the costing (Kinsella, 2002).

The challenge in project management is described as “the effective allocation of resources within the framework of time, cost and delineation constraints that are balanced against the quality demands and nature of relations with the customer” (Kerzner, 2003. p.5). Hence, cost management should be viewed as part of the project management challenge.

Software projects can be analyzed through software engineering tools, CASE (computer-aided software engineering tools), that assist in the analysis and characterization of the software project and in the evaluation and measurement of the work productivity in the project.

Cooper and Kaplan (1998) analyze the integration between costing systems and operational systems. The integration that Cooper and Kaplan introduce, like the classic costing methods, does not provide a response to the project structure and the features of a software project (such as estimation difficulties, risk management, and lifecycle). This chapter recommends integrating costing systems and operational systems of software projects; the projects management tools and the software engineering tools.

The data presented highlights the significance of costing and the difficulties in costing and estimating software projects. These difficulties derive both from the implementation’s limitations of a costing solution in an intricate and changing technological environment (Wouters & Davila, 2004) and from the unique features of projects in general and software projects in particular. The characteristics that obstruct the solving of the costing problem include the project lifecycle that leads to changing work capacities over time (Kerzner, 2003), uncertainty levels and exposure to risk (Rajkumar & Rush, 2000), and a difficulty in defining an evaluation of the project scope.

Given all this, the conclusion that becomes clear is that there is an objective difficulty in establishing an accurate cost framework for the software project, especially prior to its detailed planning. Such planning is executed through software engineering tools. Those tools assist the analysis of the software project and the estimation and measurement of the project’s work productivity (Liong & Maciaszek, 2005).

Key Terms in this Chapter

Cost Object: Anything for which cost data are desired. A cost object may be a product or a service. Cost object for projects can include a module, milestone, or a specific task. We recommend defining a cost object for a project as a WBS item.

Gantt Chart: A popular type of bar chart that illustrates a project schedule. Gantt charts illustrate the start and finish dates (ES, EF, LS, LF) of entire project elements. Project elements comprise the work breakdown structure (WBS) of the project. Gantt charts also show the dependency (i.e., precedence network) relationships between activities. Gantt charts can be used to show current schedule status using percentage completion shadings and a vertical “today” line.

Project Cost Management: Defined by the PMBOK (project management body of knowledge) as one of nine core activities of project management. This activity is described as the collection of processes including planning, estimating, and budgeting cost control, so that the project will carry out within the intended budgeting framework

Work Breakdown Structure (WBS): A technique for defining and organizing projects’ tasks using a hierarchical tree structure. The first level contains one project outcome, and each level describes outcomes in details. Each level must include 100% of the total work (the sum of the work at the “child” level must equal 100% of the work represented by the “parent,” and the WBS should not include any work that falls outside the actual scope of the project).

Activity Based Costing (ABC): A cost prediction model that has greatly improved the ability to predict a proper allocation of indirect costs among several activities and thereafter, between many products. Before using this model, one has to appreciate and understand the overall business (including its production and marketing). The model is not always applicable: a cost-benefit analysis is necessary before a final decision is made.

CASE/AMD Tools: Software tools (computer aided software engineering), also named AMD tools (analysis modeling and design), to assist the entire system life cycle (SLC). This includes the analysis phase, design phase, testing phase, and even maintenance phase. CASE /AMD tools support the functional analysis phase using visual modeling notations, which can automatically be converted into code.

Project Management: A wide discipline that includes the knowledge base and techniques for planning, controlling, and implementing projects. The PMI (Project Management Institute) defines it as follows: “Project management is the application of knowledge, skills, tools and techniques to project activities to meet project requirements.”

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