Opening the book…
In this section we will look at special considerations in a few areas:
- Project schedule.
- Project budget.
- Procurement. There is a separate subsection dealing with the RFP/RFQ process as well as the general process for filing Purchase Requisitions (PRs) that will be transformed into Purchase Orders (POs) that are sent to outside vendors.
- Team Management. Since the project involves a fair number of people over a lengthy period of time, this separate subsection provides some background on motivation theory and leadership.
Project Schedule considerations
Number of prototype revisions
When preparing the project schedule, the project manager needs to make some assumptions about the following:
- number of prototype printed circuit board revisions,
- number of prototype ASIC revisions, and
- number of prototype chassis revisions.
Based on a number of factors, including technology risk and past track record of the hardware team, one might conclude that there will be two PCB revisions. Testing of revision 1 (Rev 1) prototypes might reveal issues that need to be corrected in a second revision.
As mentioned earlier, the networking ASICs can be merchant silicon or produced as custom ASICs by the network switch company's ASIC team. In either case, one needs to assess how many revisions of each ASIC will likely be needed. The ASIC development schedules are important as they will gate when the PCBs that use them can be assembled. When using a merchant silicon provider, new ASICs of any revision are often on allocation. This means that they are initially scarce, and limited quantities are provided to network switch companies. If insufficient numbers of ASICs are available, the PCB assemblies may need to be split, with the second build starting when the balance of the needed ASICs are delivered.
Number of prototype switches needed
As the project manager, you will need to determine how many prototype switches of each revision level need to be built. Typically this can be done in the project core team meetings.
When the switches are assembled, they need to be delivered to their intended recipients.
Project Budget management
Capex and Opex
There are two major categories of expenses:
- Operating expenses
- Capital expenses.
| Term | Abbreviation | Definition |
|---|---|---|
|
Operating expense |
OpEx |
An expense that a business incurs through its normal business operations. Operating expenses include categories such as: rent, equipment, inventory costs, marketing, payroll, insurance, and funds allocated for research and development |
|
Capital expense |
CapEx |
Capital expenses are financial outlays by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. |
As the project manager, you will assemble the project budget which is a tally of all project Opex expenses over the duration of the project. The budget is time-based, showing in which month or quarter the project expects to incur the various project expenses, shown by financial accounting categories.
This project budget is approved as the project baseline budget when the project is approved.
The following is a list of typical financial budget accounting categories that a technology project might use.
| Accounting Category | Description |
|---|---|
|
Prototype materials |
Costs associated with building prototypes |
|
NRE |
Non-Recurring Engineering Expenses |
|
Outside Services |
Costs associated with services provided by parties outside of the organization |
|
Depreciation expense |
Expense associated with the depreciation of capital equipment over a period of time (useful life of asset) |
|
Design costs |
Expenses for external design activities |
|
Project equipment rental |
Rental charges for equipment (e.g., traffic generators) |
|
Software licensing |
License charges for software tools |
|
Tooling |
Tooling charges for test fixtures |
|
Regulatory testing |
Expenses for EMI, EMC, FCC, VDE, NEBS regulatory testing |
|
Travel |
Expenses associated with business travel (airfare, hotel) |
Capital Equipment/Depreciation
When a piece of capital equipment is purchased, you will need to work with your finance representative to ensure that it is handled properly.
In the network switch project, examples of capital purchases would be buying network traffic generators. The network traffic generator company would be paid the total amount of the purchase. This is a "capital expense."
However, internal to the network switch company, the total purchase price of the capital tangible asset is put on the accounting books for the total amount of the purchase. The asset is "depreciated" over a set period of time depending on the type of asset.
The term “amortization” is used for loans and for intangible assets (e.g., patents).
Assuming the asset is depreciated using "straight-line depreciation" over three years (12 quarters), one twelfth (1/12) of the asset's initial value is treated as a depreciation expense in the current quarter, and that same amount is deducted from the value of the asset on the accounting books. This is assuming that "straight line depreciation" is being used rather than other depreciation methods that might tilt the amount of depreciation to the beginning periods. This continues for the remaining eleven (11) quarters.
At the end of twelve (12) quarters, the asset's value on the accounting books would be zero, or zero residual value.
From a budget management perspective, these quarterly depreciation expenses are included in the project's Opex budget.
In the example, the original cost of the equipment is $360,000. Since it is being depreciated over 12 quarters, 1/12 of $360,000 or $30,000 is treated as a depreciation expense each quarter. At the end of the first quarter, the $360,000 asset value originally on the books is reduced by $30,000, so that the asset is now on the books for $330,000. This is repeated for the remaining 11 quarters.
Expense Accruals
“An accrual, or accrued expense, is a means of recording an expense that was incurred in one accounting period but not paid until a future accounting period. Accruals differ from Accounts Payable transactions in that an invoice is usually not yet received and entered into the system.”[1]
Here are a few important things to consider with accruals:
- “Any accrued expense a company incurs but hasn’t paid is known as an accrual liability. Also called expense accruals, these transactions are recorded on the balance sheet as accounts payable liabilities and on the company’s income statement as an expense.”[2]
- “At the end of each accounting period, all accrued liabilities are adjusted on the balance sheet to provide documentation for goods delivered and services performed that have not yet been billed.”[2]
Operationally, accruals typically appear on a project manager's radar toward the end of a financial quarter. The organization's financial representative will typically schedule a meeting looking for any specific accruals that need to be made on behalf of your project, based on goods delivered and services performed that have not yet been billed. It is in the project manager's interest to take care of this accurately. When the bill or invoice is received, the accrual can be "unwound", tapping into the funds that were set aside in the accounting system for this purpose.
Timing of Expenses
Another interaction with your financial partner might include the timing of your project expenses.
Suppose the financial outlook for the company is looking a bit bleak one quarter due to any number of potential factors, such as slow sales if the overall economic outlook is poor and the company's customers are slowing their expenditures. The company's Chief Financial Officer (CFO) may issue a directive to slow spending during the quarter, including project spending.
The reverse can occur where the economy is booming and the sales team is projecting much higher revenue for the current quarter. Project managers might be asked if there are any expenses that could be accelerated into the current quarter.
References
4.6: Project Management Considerations is shared under a CC BY 4.0 license and was authored, remixed, and/or curated by LibreTexts.
The book could not be loaded just now.