Project Management
Estimating Project Times and Costs
Haeryip Sihombing
BMFP 4542
Universiti Teknikal Malaysia Melaka (UTeM)
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Why Estimating Time and Cost Are Important
Estimating Projects
• Estimating
• To support good decisions.
–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.
• To schedule work.
• To determine how long the project should take
and its cost.
• To determine whether the project is worth doing.
doing
• Types of Estimates
• To develop cash flow needs.
–Top-down (macro) estimates: analogy, group
consensus, or mathematical relationships
–Bottom-up (micro) estimates: estimates of elements
of the work breakdown structure
• To determine how well the project is progressing.
• To develop time-phased budgets and establish the
project baseline.
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Factors Influencing the Quality of Estimates
Estimating Guidelines for Times,
Costs, and Resources
Planning
Horizon
Other (Nonproject)
Factors
Organization
Culture
1. Have people familiar with the tasks make the estimate.
2. Use several people to make estimates.
Project
Duration
Quality of
Estimates
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3. Base estimates on normal conditions, efficient methods,
and
d a normall llevell off resources.
4. Use consistent time units in estimating task times.
People
5. Treat each task as independent, don’t aggregate.
6. Don’t make allowances for contingencies.
Padding
Estimates
Project Structure
and Organization
7. Adding a risk assessment helps avoid surprises
to stakeholders.
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Top--Down versus Bottom
Top
Bottom--Up Estimating
Top--Down versus Bottom
Top
Bottom--Up Estimating
• Top-Down Estimates
Conditions for Preferring Top-Down or Bottom-up
Time and Cost Estimates
–Are usually are derived from someone who uses
experience and/or information to determine the project
duration and total cost.
Condition
Macro Estimates
Strategic decision making
–Are made by top managers who have little knowledge
of the processes used to complete the project.
Cost and time important
• 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.
Micro Estimates
X
X
High uncertainty
X
Internal, small project
X
Fixed-price contract
X
Customer wants details
X
Unstable scope
X
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Estimating Projects: Preferred Approach
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Top--Down Approaches for Estimating
Top
Project Times and Costs
• Make rough top-down estimates.
• Consensus methods
• Develop the WBS/OBS.
• Ratio methods
• Make bottom-up estimates.
• Apportion method
• Develop schedules and budgets.
• Function point methods for
software and system projects
• Reconcile differences between top-down
and bottom-up estimates
Project Estimate
Times
Costs
• Learning curves
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Apportion Method of Allocating Project Costs
Using the Work Breakdown Structure
Simplified Basic Function Point Count Process
for a Prospective Project or Deliverable
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Example: Function Point Count Method
Bottom-Up Approaches for Estimating
BottomProject Times and Costs
• Template methods
• Parametric procedures
applied to specific tasks
• Range estimates for
the WBS work packages
• Phase estimating: A hybrid
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Support Cost Estimate Worksheet (Example 1)
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Support Cost Estimate Worksheet (Example 2)
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Top--Down and BottomTop
Bottom-Up Estimates
Phase Estimating over Product Life Cycle
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Level of Detail
Types of Costs
• Direct Costs
• Level of detail is different for different levels of
management.
• Level of detail in the WBS varies with the
complexity of the project.
–Costs that are clearly chargeable
to a specific work package.
• Labor, materials, equipment, and other
• Direct (Project) Overhead Costs
• Excessive detail is costly
costly.
–Costs incurred that are directly tied to an identifiable
project deliverable or work package.
–Fosters a focus on departmental outcomes
–Creates unproductive paperwork
• Salary, rents, supplies, specialized machinery
• General and Administrative Overhead Costs
• Insufficient detail is costly.
–Organization costs indirectly linked to a specific
package that are apportioned to the project
–Lack of focus on goals
–Wasted effort on nonessential activities
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Contract Bid Summary Costs
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Developing Budgets
• Time-Phased Budgets
Direct costs
Direct overhead
Total direct costs
G&A overhead (20%)
Total costs
Profit (20%)
Total bid
$80,000
$20,000
$100,000
$20,000
$120,000
$24,000
$144,000
–A cost estimate is not a budget unless it is timephased.
• Time phasing begins with the time estimate for a project.
• Time-phased budgets mirror how the project’s cash needs
(costs) will occur or when cash flows from the project can be
expected.
• Budget variances occur when actual and forecast events do
not coincide.
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Work Package Estimates
Three Views of Cost
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Refining Estimates
Refining Estimates (cont’d)
• Reasons for Adjusting Estimates
• Contingency Funds and Time Buffers
–Are created independently to offset uncertainty.
–Reduce the likelihood of cost and completion time
overruns for a project.
–Can be added to the overall project or to specific
activities or work packages.
–Can be determined from previous similar projects.
–Interaction costs are hidden in estimates.
–Normal conditions do not apply.
–Things go wrong on projects.
–Changes
Changes in project scope and plans.
plans
• Adjusting Estimates
–Time and cost estimates of specific activities are
adjusted as the risks, resources, and situation
particulars become more clearly defined.
• Changing Baseline Schedule and Budget
–Unforeseen events may dictate a reformulation of the
budget and schedule.
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Creating a Database for Estimating
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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
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WBS Figure
Learning Curves Unit Values
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Learning Curves Cumulative Values
THE END
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