ISIBP01-Project Management
Ch5
Estimating Project Times and Costs
Why estimating time and cost are important?
Estimates are needed:
1) To support good decisions.
2) To schedule work.
3) To determine how long the project should take
and its cost.
4) To determine whether the project is worth doing.
5) To develop cash flow needs.
6) To determine how well the project is progressing.
7) To develop time- phased budgets and establish
the project baseline.
Factors influencing the quality of time and
cost estimates
1) Planning horizon: estimate of current events is reduced for more distant events.
2) Project duration: long –duration projects increase the uncertainty in estimates.
3) People: depends on skills of the people making the estimates that a close match of
skills will enhance productivity.
4) Project structure and organization: dedicated project team is gaining high speed of
decision making. Also operating projects in a matrix environment may reduce costs
by more efficiently sharing personnel but may take longer time to complete.
5) Padding estimates: through adding a little padding to increase the probability and
reduce the risk of being late.
6) Organization culture: it shapes every dimension of project management so at some
of organization estimating takes too much time and at the other, believe that the
estimates are the bedrock of effective project management.
7) Other factors as National holidays, vacations, legal limits, equipment down time.
Estimating Guidelines
• Estimating Guidelines followed by a manager for times, costs, and
resources to develop useful work package estimates:
1. Responsibility: At the work package level, estimates should be made by
the persons most familiar with the task based on their expertise for
getting job done on schedule and within budget by seeing the estimates
materializes when implementing the work package and to build
communication channels early. Those people are normally first-line
supervisors or technicians.
2. Use several people to estimate: that has a better chance of being
reasonable and realistic when people have relevant experience and /or
knowledge of the task is used that will eliminate extreme errors.
3. Normal conditions: time will be estimated based on normal working
hours per day as the normal workday is eight hours, the time estimate
should be based on eight-hour day even if two-shift workday. Moreover,
time and cost estimate will be based on the normal levels of resources
which available as people or equipment.
Estimating Guidelines
4.
Time units: should be selected early in the development phase of the project
network. Estimates of time must consider whether normal time is represented
by calendar days, workdays, workweeks, person days, single shift, hours, and
minutes.
5.
Independence: Estimators should treat each task as independent of other tasks
that might be integrated by the WBS.
6.
Contingencies: The estimates should assume normal or average conditions. So
top management needs to create an extra fund that can be used to cover
unforeseen events.
7.
Adding risk assessment to the estimate helps to avoid surprises to
stakeholders: Some tasks such as a new technology carry more time and cost
risks than a proven process so identifying the degree of risk let stakeholders
consider the alternative methods and alternative process decisions.
Top-down versus bottom-up estimating
Top-down estimates:
1. usually are derived from someone who uses experience and /or
information to determine the project duration and total cost.
2. These are sometimes made by top managers who have very little
knowledge of the processes used to complete the project.
3. Top-down methods can be useful if experience and judgment have
been accurate in the past.
4. The top-down estimates are not realistic because top
management “wants the project”
5. It used for these conditions strategic decision making, high
uncertainty, internal and small projects and unstable scope.
6. Its disadvantage that the time and cost for a specific task are not
considered.
Top-down versus bottom-up estimating
Bottom-Up estimates:
1. It derived from the people who have most knowledge about the
estimate needed.
2. The use of several people with relevant experience with the task
can improve the time and cost estimate through roll-up the work
packages and associated cost accounts to major deliverables.
3. It provides the customer with an opportunity to compare the lowcost efficient method such as if completion period requires 2years
and bottom-up analysis tells you the project will take 2.5 years so
the client can consider the trade-off of the low-cost method
versus compressing the project to 2 years.
4. It used for these conditions cost and time important, fixed price
contract and customer wants details.
Methods for estimating project times and costs:
Top-down approaches for estimating project times and costs:
1. Consensus methods: it uses the pooled experience of
senior and/ or middle managers to estimate the total
project duration and cost.
2. Ratio methods: it used in concept or phase of a project to
get an initial duration and cost estimate for the project
such as we have a house of $2700 square feet might cost
$160 per square foot so the estimated cost for a total land
will be multiplying of them. Other examples: a new plant
estimated by capacity size, a software product estimated by
features and complexity.
Methods for estimating project times and costs:
3. Apportion method (Apportionment): This method is an extension to the
ratio method. It used when project is closely follow past projects in
features and cost. Estimates can be done quickly with little effort and
reasonable accuracy. It is very common in projects but its weaknesses that
it have some small variation or customization
Methods for estimating project times and costs:
4. Function point methods (Complexity Weighting): it is use of
complexity weighted macro variables such as number of inputs,
number of outputs, number of data files and number of interfaces.
These weighted variables are adjusted for a complexity factor and
added. The total adjust account provides the basis for estimating
the labor effort and cost for a project. It could be done based on
the historical data then using regression formula.
5. Learning (improvement)(experience)( industrial progress) curves:
Some projects require that the same task, group of tasks or
product to be repeated several times so a perform a task improves
with repetition. Each time the output quantity doubles, the unit
labor hours are reduced at a constant rate. Micro estimated
method is more accurate than Macro methods.
Methods for estimating project times and costs:
Bottom-up approaches for estimating project times and costs:
1.
2.
3.
Template method: If the project is similar to the past projects, the
costs from past projects can be a starting point for the new
project. Differences from the appropriate standardized project are
noted (for times, costs and resources) and changes are made. This
allows developing a potential schedule, estimating costs and
developing budget in a very short time span.
Parametric procedures: Just as a parameter techniques such as
cost per square foot can be applied to specific task.
Detailed estimates for the WBS work packages: The most reliable
method for estimating time and cost is to use WBS and ask people
for responsible for work package to make the estimated especially
from their experience.
Level of detail
• It is different from levels of management.
• At detail level, should be no more than is
necessary.
• Its purpose in the WBS is to match
management needs for effective
implementation.
• Excessive detail means more unproductive
paperwork.
Types of Costs found in a project:
1.
Direct costs: represent real cash outflows and must be paid as the
project progresses. Lower-level project rollups only direct costs. It
is separated from overhead costs.
2.
Direct overhead costs: It more closely to resources of the
organization is being used in the project. It can be tied to project
deliverables or work packages such as the salary of the project
manager and temporary rental space for the project team. It is not
an immediate run out of pocket expense, it is real and must be
covered in the long run if the firm is to remain viable.
3.
General and administrative overhead costs: It is not directly
linked to a specific project. It is carried for the duration of the
project. Examples such as advertising, accounting, and senior
management above all project level.
Refining estimates
• Since there is inherent uncertainty of predicting the future we
have many reasons as the following:
1. Interaction costs are hidden in estimates: because of disconnect
between tasks.
2. Normal conditions don’t apply: because availability of resources,
as people, equipment or materials may include shortage than
normal condition that can extend original estimates.
3. Things go wrong on projects: Design flaws are revealed after the
fact, extreme weather conditions occur, accidents happen and so
forth.
4. Changes in project scope and plans: As one gets further and
further into the project, a manager obtains a better understanding
of what needs to be done to accomplish the project. Changes
have to be made at midstream to respond to new demands by the
customers or competition.
Creating a Database for Estimating:
• The best way to improve estimates is to collect
and archive data on past project estimates
and actual.
• Saving historical data provides knowledge
base for improving project time and cost
estimating.
Problems Solving
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