PM FPX 5333 Assessment 1 Project Turnaround Budget and Cost Analysis

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Capella University

PM-FPX5333 Project Budgeting, Procurement, and Quality

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Part 1: Budget Analysis Report (Current State)

Effective cost management of a sound project is the foundation of successful execution of IT projects within the limits set. Project failures result in the loss of project revenue for the organization, as well as other organizational losses (Schmidt, 2022). The project, nearlyfree.com NEO (New Employee Orientation), was not deployed to production, but cost a total of $431,800. This analysis uses industry-standard cost-estimating techniques to identify the root causes of this failure and to serve as a basis for creating a turnaround plan.

Analysis of the Failed Project Budget

• Cost Estimating Techniques Applied

Initially, the original NEO project used mainly “analogous estimating” of cost estimates (utilizing a prior LMS deployment), which is an appropriate method of estimating only when you need rough-order-of-magnitude estimates (with +/- 25% – 50% accuracy), also known as ROA-ME width of range (Madauss, 2024). As such, this method was from the outset used incorrectly as a baseline budget, and did not take the technological complexity into account, leading to structural inaccuracies as the financial basis on which to include unexpected costs in the NEO budget.

If the three-point PERT analysis had been combined with a bottom-up estimation method, the estimation of high-risk work packages would have been more accurate. The bottom-up estimate is an estimate that is derived by decomposing the project scope into a series of individual tasks and then estimating the cost of each of these tasks separately and summing the work package costs to get the total project cost. Research shows that bottom-up estimating gives much more accurate cost estimates of IT projects compared to analogous estimating (Patey & Soong, 2022). One of the reasons that the NEO project ended up with budget overruns was the precision difference between the various estimation methods.

• Original Budget Variance Analysis

An approved baseline budget for $361,000 was created for eight different types of work items by this project. The real project costs before termination amounted to $431,800, which was $70,800 (19.6%) over budget. In total, the two work items—both LMS configuration and HRIS integration—of this project represent $80,700 in the total amount of work over budget, and 2,100 USD in surplus funds that should be available at project completion. The findings from this analysis align with those of research studies which show that those IT projects that involve a lot of interconnections or are “integration-heavy” are likely to experience almost double the number of cost overruns when compared with those IT projects that are developed independently (Flyvbjerg et al., 2025).

• Table 1

Original Budget Versus Actual Cost by Work Breakdown Structure Element

Failure Point Identification

• Scope Creep Without Change Control

Custom branding, role-based access, and third-party video integration were added to the scope of the LMS configuration project informally. The scope creep phenomenon, in which projects evolve beyond their original scope, has been mentioned on countless occasions as one of the primary reasons why an IT project goes over budget (Bhadauria, 2026). Because of these other projects, and before a formal review, they will have spent the following amount of money in uncontrolled costs: $35,000 – $42,000. There would not have been any costs incurred in this way if a change control board was established.

• Under-Resourced Technical Tasks

It was estimated that $60,000 would be needed for the HRIS integration work package (this cost was based on a previous project that was much, much simpler than this one), but no schema audit was done before the estimate was created. This resulted in a legacy HRIS system that had not been documented before its development, and in the process of developing the HRIS, the agency was compelled to rewrite their code and build a new API. The reworked API ended up costing $98,200, which is a 64% cost overrun for a single package. Several factors have been cited in the literature that can lead to lost or wasted value for IT projects, including inadequate technical vision before embarking on an IT project (Dong et al., 2025).

• Unrealistic Task Durations

The project manager estimated the duration for this project based on other projects; the plans were found to be 30-45% shorter than the actual project complexity, leading the project team to trade off project quality by reducing the testing and training phases. According to Sassano. In this sense, this is an example of a planning fallacy – the systematic overestimation of the duration and cost of complex ventures. (2025) In this case, the activities that were eliminated were those that were critical to the end-user adoption of the new system.

• Absence of a Contingency Reserve

However, there was no contingency reserve established at the beginning of the NEO project, although many technical risk factors were identified when the project was initiated. If complexity risk factors have been identified, it is recommended to include a contingency reserve of the project cost baseline (Marco et al., 2023). If there was no contingency reserve, the project team would have to cut the project costs/scope in order to accommodate the project budget. The lack of contingency reserve put the project team in a position to develop manageable cost variances to project failure.

Part 2: Cost Estimating Forecast Report (Turnaround)

To develop an accurate turnaround cost forecast, there needs to be a structured re-estimation process which draws upon lessons learnt from the unsuccessful project. In the process of turnaround planning in IT project management, the cost estimates must be adjusted, and the project delivery method must be redesigned so as to overcome the lessons learnt from past project failures (Chen et al., 2025). The purpose of this section of the paper is to present the revised base budget, a revised schedule, justification of ROI, and contingency reserve methodology for the NearlyFree.com NEO system recovery project. This analysis will serve as the financial and time-based justification for alignment of stakeholders and resubmission of the project for approval.

• Revised Cost Forecast and Budget Baseline

The revised baseline was developed by breaking down each work package into individual tasks and estimating labor hours, labor rates, and material costs for each task using bottom-up estimating. This enabled us to compile all costs estimated by labor and material to arrive at the total cost of each work package. We also used a three-point PERT (Program Evaluation and Review Technique) analysis for the three most critical work packages (content development, HRIS integration, and user acceptance testing) in addition to breaking down the work packages into components during our bottom-up estimating process. The statistical calculation of the point estimates that we used in making the PERT calculation is as follows: Expected Cost = (Optimistic Estimate + 4 × Most Likely + Pessimistic Estimate) / 6 (Reshi, 2023).

• Revised Budget Baseline

The total project budget is now $398,020 with a 15 percent contingency in an approved project budget of $409,620. All work packages that were previously excluded, including user testing/training and change management, are fully funded back in place at the proper funding levels (excluding 15 percent contingency). LMS Configuration and Integration Work Packages will be subject to fixed-price contracts; therefore, capping known cost overruns associated with some tasks from the original project budget. Content Development & PM Services will only be arranged on a Time & Materials basis, and weekly monitoring of Burn Rates will be used as a compensatory control.

• Table 2

Revised Budget Baseline by Work Package

Redesigned Project Schedule

The new timeline will be considered for 18 weeks using a new quarterly schedule, which takes into account a different quarter, eliminating the original project’s disruption of operations during peak hiring periods in Q4. A four-week parallel run has been added to Phase 7 of the project, which will ensure that the legacy paper-based HR process and the new NEO HR system can be run side by side for four weeks before the full cutover. The use of formal go/no-go review gates also takes place at the end of Phase 5 (UAT) and Phase 7 (pilot run), ensuring quality standards are satisfied before further progress. The phasing delivery structure overcomes the schedule compression issues that emerged during the project’s post-mortem analyses (Appendix B).

Return on Investment and Total Cost of Ownership

For the purpose of investing in technology in the finance community, the Total Cost of Ownership (TCO) will be taken into account, which takes all costs associated with owning and operating the NEO system over 3 years into consideration. A TCO approach gives the financial decision-makers an overview of all financial commitments for implementing a technology (Romeral & Zancul, 2025). The estimated TCO of the new NEO system for the next three years is $579,120 and includes all costs involved in the implementation budget, ongoing SaaS license and content maintenance, system administration, and user support. Thus, this is the true foundation for assessing benefits that stem from these costs.

• Table 3

Three-Year Total Cost of Ownership

• Return on Investment Calculation

The estimated annual projected benefit realisation for the four quantifiable value streams is valued at $183,900: reduction in HR labour required for onboarding ($48,000), time-to-productivity for new employees ($62,400), compliance training failures reduced ($18,500), and attrition rate of new hires reduced ($55,000). These are estimates derived from conservative industry expectations for onboarding digital solutions in midsize companies having an average of 120 new employees per year. Based on implementation costs alone, the project-level ROI of implementing a digital onboarding solution over three years is 34.6% and its payback period is around 26.7 months. These estimates have been calculated conservatively – if a slight improvement occurs in new hire retention, then the return on investment will be less than 24 months.

• Table 4

Return on Investment Summary

Contingency Reserve Methodology

The percentage of estimate method and the Expected Monetary Value (EMV) analysis of the project risks identified are used as the basis for the new project plan, which includes a 15 percent contingency reserve of $52,020. The EMV analysis for four of the most critical risks- vendor delay, Integration rework, Content revision overrun, and UAT defects- resulted in a risk-weighted reserve requirement of $20,000; the 15 per cent reserve is double-cushioned and adequate. It is a formal reserve management process that must be followed, which means that any draw of >$5,000 requires the Change Control Board’s approval; plus, an emergency steering committee review is initiated if 50% of the reserve has been used before project Phase 5.

• Table 7

Expected Monetary Value Analysis for Contingency Reserve Sizing

Note. EMV = Expected Monetary Value. Calculated as Probability × Impact Estimate. Total EMV confirms the 15% contingency reserve is sufficient.

Assumptions and Forecasting Documentation

The updated cost estimate is based on seven principles of the framework for preserving the budget baseline. Scope of reconfiguration will be part of the LMS vendor contract renegotiation to a fixed-price model. The two-week period for re-initiation will be used to run the HRIS schema audit. SMEs will assume they will have to be available for at least four hours per week for content revisions, and the executive steering committee will keep the Q1 launch window safe. The number of new hires is not expected to change over the ROI period of 3 years, approximately 120 employees. Also, it is assumed that there would be no significant increase in LMS licensing costs. Willumsen et al. (2024) state that the project assumptions must also be documented explicitly to manage the project’s risk; Assumptions related to a project that are not tested are a type of risk that is not typically shown on a formal risk register.

Conclusion

The failure of the NEO project at NearlyFree.com is an example of how inadequately estimating the cost and not being prepared for contingencies is not just a matter of oversight, but a threat to the viability of the project as a whole. Disciplined cost management from the preparation of an accurate baseline, through to continual monitoring of earned value, is the key to project delivery. Regular stakeholder reviews will further reinforce accountability throughout each phase of implementation. Due to the issues encountered in the NEO project because of its poor estimating process, the quality assurance work has been reinstated, and a formally controlled 15% contingency reserve has been implemented, again in a bottom-up manner. If all stakeholders can agree, at the end of the 18-week project schedule, expected in Q1, the NEO system will have the chance to deliver measurable value over an amortization period of 27 months.

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