Estimating time and costs
Chapter 3
5–1
Estimating Projects
• Estimating
–The process of forecasting or approximating the time
and cost of completing project deliverables.
–The task of balancing expectations of stakeholders
and need for control while the project is implemented.
• Types of Estimates
–Top-down (macro) estimates: analogy, group
consensus, or mathematical relationships
–Bottom-up (micro) estimates: estimates of elements
of the work breakdown structure
5–2
Why Estimating Time and Cost Are Important
3points
• To support good decisions.
• To schedule work.
• To determine how long the project should take
and its cost.
• To determine whether the project is worth doing.
• To develop cash flow needs.
• To determine how well the project is progressing.
• To develop time-phased budgets and establish the
project baseline.
EXHIBIT 5.1
5–3
Factors Influencing the Quality of Estimates
4points
Planning Horizon
Other
(Nonproject)
Factors
Organization
Culture
Padding
Estimates
Project
Duration
Quality of
Estimates
People
Project Structure
and Organization
5–4
Factors affecting the estimate
•
•
•
•
•
•
‫محذوفة‬
Task Definition: The completeness of your project
definition will determine if all tasks have been taken into
account.
People Productivity: People do not focus on a task with
100% efficiency. The difference between “calendar time”
and effort must be considered.
Project Structure: A dedicated project team will be able
to focus its effort on completing the project effectively.
Padding: People may increase estimates to take into
account unknown risks and this may force an unnecessary
trade-off.
Culture: What is deemed acceptable behavior by the
organization (e.g. padding vs. accuracy) will affect
estimates.
Estimating Costs
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Downtime: Equipment repairs, holidays, vacations, LSU
exam
Estimating Guidelines for Times,
Costs, and Resources ‫محذوفة‬
1. Have people familiar with the tasks make the estimate.
2. Use several people to make estimates.
3. Base estimates on normal conditions, efficient methods,
and a normal level of resources.
4. Use consistent time units in estimating task times.
5. Treat each task as independent, don’t aggregate.
6. Don’t make allowances for contingencies.
7. Adding a risk assessment helps avoid surprises
to stakeholders.
5–6
Top-Down versus Bottom-Up Estimating
• Top-Down Estimates
–Are usually derived from someone who uses
experience and/or information to determine the project
duration and total cost.
–Are made by top managers who have little knowledge
of the processes used to complete the project.
• Bottom-Up Approach
–Can serve as a check on cost elements in the WBS
by rolling up the work packages and associated cost
accounts to major deliverables at the work package
level.
5–7
Top-Down versus Bottom-Up Estimating
Conditions for Preferring Top-Down or Bottom-up
Time and Cost Estimates
Condition
Strategic decision making
Macro Estimates
Micro Estimates
X
Cost and time important
X
High uncertainty
X
Internal, small project
X
Fixed-price contract
X
Customer wants details
X
Unstable scope
X
TABLE 5.1
5–8
Estimating Projects: Preferred Approach
‫محذوفة‬
• Make rough top-down estimates.
• Develop the WBS/OBS.
• Make bottom-up estimates.
• Develop schedules and budgets.
• Reconcile differences between top-down
and bottom-up estimates
5–9
Top-Down Approaches for Estimating
Project Times and Costs
• Consensus methods
• Ratio methods
• Apportion method
• Function point methods for
software and system projects
Project Estimate
Times
Costs
• Learning curves
5–10
Macro Estimates ‫محذوفة‬
• Scaling: Given a cost for a previous project then an
estimate for a new project can be scaled from the known
cost. E.g NASA, at times, uses spacecraft weight to
estimate total cost.
• Apportion: Given a similar previous project, costs for
major subunits of the new project would be proportional to
similar subunits in the previous project.
• Weighted Variables: Certain types of projects can be
characterized by specific parameters (e.g. number of
inputs, number of detector channels). Historical costs &
times for single units of these parameters are weighted by
the numbers required for the new project.
• Learning Curve: If the same task is repeated a number of
times there will be a cost / time savings relative to the first
Estimating Costs
time the task is done.
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Ratios methods
Phase
Ratio
Initiation
5%
Planning
20%
Analysis
10%
Design
10%
Construction
20%
Testing
20%
Implementation
10%
Closure
5%
5–12
Apportion methods
5–13
Learning curves
5–14
Bottom-Up Approaches for Estimating
Project Times and Costs
• Template methods
• Parametric procedures
applied to specific tasks
• Range estimates for
the WBS work packages
‫محذوفة‬
• Phase estimating: A hybrid
5–15
Micro Estimates ‫محذوفة‬
• Template: Uses historical data to establish detailed costs
and schedules for project subunits. A new project
composed of some combination of these subunits can
then be quickly estimated.
• Ratio: Similar to the Macro ratio method but applied to
specific tasks associated with project subunits. For
example, if it takes 1 day to build & test a particular sensor
unit, then an instrument with 10 sensors would take 2
technicians, 5 days to complete.
• WBS Roll-up: Times and costs associated with the lowest
level WBS work packages are estimated and then these
are added or rolled-up to yield the costs for higher level
units. This method provides the most accurate estimates
at the expense of time devoted to developing the estimate.
Estimating Costs
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Hybrid estimates
5–17
Level of Detail disadvantages
• Level of detail is different for
different levels of management.
• Level of detail in the WBS varies
with the complexity of the project.
• Excessive detail is costly.
–Fosters a focus on departmental outcomes
–Creates unproductive paperwork
• Insufficient detail is costly.
–Lack of focus on goals
–Wasted effort on nonessential activities
5–18
• Direct Costs
Types of Costs
‫محذوفة‬
–Costs that are clearly chargeable
to a specific work package.
• Labor, materials, equipment, and other
• Direct (Project) Overhead Costs
–Costs incurred that are directly tied to an identifiable
project deliverable or work package.
• Salary, rents, supplies, specialized machinery
• General and Administrative Overhead Costs
–Organization costs indirectly linked to a specific
package that are apportioned to the project
5–19
Refining Estimates
‫محذوفة‬
• Reasons for Adjusting Estimates
–Interaction costs are hidden in estimates.
–Normal conditions do not apply.
–Things go wrong on projects.
–Changes in project scope and plans.
• Adjusting Estimates
–Time and cost estimates of specific activities are
adjusted as the risks, resources, and situation
particulars become more clearly defined.
5–20
Key Terms
Apportionment methods
Bottom-up estimates
Contingency funds
Delphi method
Direct costs
Function points
Learning curves
Overhead costs
Padding estimates
Phase estimating
Range estimating
Ratio methods
Template method
Time and cost databases
5–21