Project Estimation and Project
Cost
Pankaj Sharma
Agenda
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What is a project?
What are project costs?
What is an estimate?
Why do we need to estimate?
How do we estimate?
When do we estimate?
Improving Estimates through a process
What is a project?
• A Project is a temporary undertaking to create a
unique product or service with a defined start and
end point and specific objectives that, when
attained, signify completion
• Example:
– Banner Implementation was a Project
– Banner maintenance effort is not a Project but an
operational undertaking
What are project costs?
Costs
Onetime Costs
Recurring Costs
– Costs can be broken down into Onetime costs and Recurring costs
– Recurring costs are incurred on a periodic basis (quarterly, biannually
or annually) and may be time bound or perpetual in nature.
– Onetime costs are for a definite duration and are incurred only once.
What are project costs?
Typical IT Cost Components
Labor/Time
Material
•Typically includes labor
•Typically includes
costs directly related to
hardware, software and
the work or task
licensing costs
•Examples are costs
incurred due to the
involvement of
Software/System/Network
Engineers, DBAs,
Production Support et al.
Overhead
•These costs are not
directly related to the work
at hand but are an
important component in
the accomplishment of
tasks
•Infrastructure costs such
as electricity
•Management and
Administration of the
tasks
What are project costs?
IT Costs Tree
Onetime Costs
Labor/Time
Recurring Costs
Labor/Time
Material
Material
Overhead
Overhead
What are project costs?
IT Costs Tree
Project Costs
Labor/Time
Operational Costs
Labor/Time
Project Costs are
typically Onetime
costs
Material
Overhead
Material
Overhead
What are project costs?
Project Costs
Operational Costs
Time
Cost
Cost Comparison
Operational Costs tend to be
higher over the product’s or
service’s lifetime since they are
incurred for multiple years
Project Start
Project End
Maintenance Start
Product or Service Lifetime
Maintenance End
What is an estimate?
• According to Webster,
– “the act of appraising or valuing”
– “a statement of the cost of work to be done”
• PMO defines an estimate as,
– a rough calculation of the costs and the amount
of work prior to the commencement of work
What is an estimate?
• When estimating for a project cost we can
also estimate ongoing costs
• Outputs of an estimation exercise are:
– Project Costs Estimate
– Ongoing Costs Estimate
Why do we need to estimate?
• To get an idea of the costs of a project
• To get an idea of the time needed to
complete the project
– Very important from a scheduling and project
planning standpoint
• To identify resource needs
• To identify ongoing costs and resource
needs
How do we estimate?
• Three step process
– Identify the high level tasks
– Identify the various groups that need to be
involved with each task
– Estimate time for each task
• Consult a knowledge expert for an estimate. Do not
put an estimate for someone else.
How do we estimate?
Identify groups involved
• Typical groups involved in an IT project
Training
Networking
Enterprise
Application
Services
UPC
DBA’s
Reporting
Systems
Unix/Windo
ws
Helpdesk
How do we estimate?
Estimation techniques
• Single Point Estimate
– We take a single estimate per task
• Three point Estimate
– We take three estimates per task
• Optimistic Estimate – Best Case Scenario
• Pessimistic Estimate – Worst Case Scenario
• Most Likely Estimate
– Average the three estimates to get a three point
estimate
How do we estimate?
Estimation techniques
• Three point Estimate
Example:
– Optimistic = 6 hours
– Pessimistic = 10 hours
– Most Likely = 8 hours
• The three point estimate is
(6+10+8)/3 = 8 hours
How do we estimate?
Estimation techniques
• Six point Estimation (PERT)
– We take three estimates per task
• Optimistic Estimate – Best Case Scenario
• Pessimistic Estimate – Worst Case Scenario
• Most Likely Estimate
– Multiply the Most Likely estimate by 4, add to the
Optimistic and Pessimistic estimates and divide
by 6
How do we estimate?
Estimation techniques
• Six point Estimate
Example:
– Optimistic = 6 hours
– Pessimistic = 10 hours
– Most Likely = 8 hours
• The three point estimate is
(6+10+6x8)/6 = 10.66 hours
How do we estimate?
Estimation techniques
PMO currently uses a single point estimate
How do we estimate?
Estimation techniques
• Examples:
– DARS Project
• Estimation done after requirements were
completed
– OFS Enterprise Facilities Project
• Estimation done during initiation
When do we estimate?
•An estimate can be calculated during initiation
•An estimate can also be calculated during planning but
before a schedule or project plan is created
•The later the estimate is done the more accurate it is
Initiation
Planning
Execution
Closure
•Main body of
work is performed
here
•Coding, Testing,
Installation et al.
•We say Goodbye
and Goodluck
•Formally change
product or service
state to “in
production” and
“in maintenance”
mode
•Lessons learnt
Project Lifecycle
•Start of a project
•Very Little
information is
available
•Requirements
are defined
•Tasks are defined
•Project Schedule
and plan is
created
•A lot more
information is
available
Improving Estimates through a process
Project Initiation or Planning
Execution
Feedback and Improve Estimation
Project
Estimate
Request
Project Budget
Measure Actual
Request
Ongoing
Budget
Measure Actual
Estimation Process
Ongoing
Maintenance
Estimate
Feedback and Improve Estimation
Improving Estimates through a process
• Estimations are guesses
• No two projects are alike and context
plays a big part in estimates
• Always find a Knowledge Expert for a task
and obtain their estimate
• With a process our guesses can improve
by measuring Actual for every project
Improving Estimates through a process
• Estimation template is available at
http://pmo.nmsu.edu/documents/estimate
s_templatev1.0.xls