Budget and Scheduling
Factors Influencing the Quality of Estimates
Acquired experience is the best guide in predicting costs.
Common Factors to Consider:
Project Structure and Organization
Which project structure is chosen to manage the project
will influence time and cost estimates.
• The advantages of a dedicated project team is the
speed gained from concentrated focus and localized
project decisions.
• Projects operating in a matrix environment may reduce
costs by efficiently sharing personnel across projects,
but may take longer to complete since attention is
divided and coordination demands are higher.
Common Factors to Consider:
The Planning Horizon
Early stages of the planning process generate multiple hypotheticals
and questions, but as the process is refined and project
implementation draws near, nearly all issues should be resolved.
• Estimates of current events are close to 100
percent accurate but are reduced for more distant
events.
• Accuracy of time and cost estimates should
improve as you move from the conceptual to the
point where individual work packages are defined.
Common Factors to Consider:
Project Duration
Time to implement new technology has a habit of expanding
in an increasing, nonlinear fashion.
• Poorly written scope specifications for new
technology result in errors in estimating times and
costs.
• Long-duration projects increase the uncertainty in
estimates.
Common Factors to Consider:
People
Accuracy depends on the skills of the people making the estimates
• A close match of people skills to the task will
influence productivity and learning time.
• Team members who have worked together before
will influence the time it takes to form an effective
team.
• Increasing new people to a project increases time
spent communicating.
Common Factors to Consider:
Padding Estimates
Most of us are inclined to add a little padding to increase the
probability of success and reduce the risk of being over budget.
• If everyone at all levels of a project adds a little padding
to reduce risk, the project duration and cost are seriously
overstated.
• In a competitive environment cost padding is
counterproductive to gaining project acceptance.
However…
• As a project manager, it is prudent to calculate an
overall safety margin of 10% to account for unexpected
variations in project execution.
Common Factors to Consider:
Organizational Culture
Organizational culture can significantly influence project
estimates.
• In some organizations padding estimates is
tolerated and even privately encouraged.
• Other organizations place a premium on
accuracy and strongly discourage estimating
gamesmanship.
Common Factors to Consider:
Other Factors
Non-project factors can impact time and cost estimates.
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•
•
•
•
•
Equipment downtime
Local and national holidays
Vacations and sick leave
Legal work limits
Municipal and utility delays
Contractual interruptions
Estimating Project Time an Cost
Detailed Estimates for the WBS Work Packages
Probably the most reliable method for estimating time and cost
is to use the WBS and to ask the people responsible for the
work package to make the estimates.
Estimate accuracy improves with more detailed planning. The
extent of this improvement varies by type of project.
As the project progresses through its life cycle and more
information is available, the reliability of the estimates should
improve.
Detailed Planning—The Arguments
• Arguments for:
– Detailed estimates result in better low-cost efficient
methods that can be utilized down the road.
– We were burned once. We need a detailed estimate of
every task by the people responsible.
• Arguments against:
– Rough order of magnitude is good enough. Detailed
estimates wastes time and money.
– The project is internal. We don’t need to worry about
cost.
– The uncertainty is so great, spending time and money
on estimates is a waste.
The more you know the more you can anticipate.
Time-Phased Budgeting
Cost estimates are not a budget
For most sizable projects, money is dispensed as the project is
implemented. A time-phased budget determines when the money
must be available. Three elements must be known in order to
establish a realistic budget:
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•
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Project duration
Completion of a work breakdown structure
Identification of individual work packages
Work packages usually consist of:
•
•
•
Direct costs: labor, materials, equipment, etc.
Project overhead costs: Salaries, space, storage, etc.
General and administrative overhead costs:
Advertising, accounting, and senior management
Estimating Guidelines
Poor estimates are a major contributor to projects that have failed.
1. Identify who is responsible
The individual responsible for a work package should
generate the estimate for that work package.
2. Use several people to estimate
Find other people with similar experiences to generate
comparative estimates.
3. Define your “normal” conditions
Consider the prevalent work culture, availability of
resources, seasonal considerations, etc.
4. Be consistent with time units
All task time units need to be the same.
Estimating Guidelines
(continued)
5.
6.
7.
Treat each project independent of other projects
Although experience is a major influence, pay attention
to the potential differences present in individual projects.
Account for interaction costs
Identify task dependencies and the time and coordination
required for a smooth project execution.
Add a risk assessment
Identify the degree of risk so that stakeholders can
consider alternative process decisions.
Common Culprits of Project Difficulty
• Conditions turn out to be not so “normal.”
Availability of resources are often the first to go when conditions change.
Having to bring in outside contractors/help introduces uncertainty.
• Things just go wrong on the project.
Design flaws, accidents, theft, personality conflicts, etc.
• Abrupt change in project scope or plans.
Unstable project scopes are a major source of cost overruns. The farther
into a project, the more costly the change.
• Inaccurate assumptions
Avoid making assumptions regarding cost and scheduling. Document your
assumptions during the planning phase.
• Once work gets behind, it tends to stay behind.
If times represent average time, we should expect that 50 percent will be less
than the estimate and 50 percent will exceed the estimate.
Quality time and cost estimates are the bedrock of project control. Past
experience is the best starting point for these estimates.
Elements of a Budget
• Time
Plays an important role in determining the
need for funds availability.
• Direct Costs
Determines the costs for the “nuts and bolts”
of a specific project.
• Indirect Costs
Determined by the business environment,
working conditions, etc.
Defining Direct and Indirect Costs
Direct Costs: Those costs (labor, material, equipment, etc.)
that can be consistently related to work performed on a
particular project. Direct costs are best contrasted with
indirect costs that cannot be identified to a specific project.
Examples: Labor, equipment, materials, etc.
Indirect Costs: Expenses that have been incurred by the
operation in general, but which cannot be identified and
charged directly to a specific project without an inordinate
amount of tracking and accounting. Often referred to as
overhead.
Examples: Electricity, water, sewer, bookkeeping, etc.
Direct Costs
Count
Position
Hours
Hourly Rate
Amount
1
Vice-President of Instruction
12
48
576.00
1
Director of Assessment
49
39
1,911.00
1
Project Manager
202
32
6,464.00
1
DB Administrator
180
32
5,760.00
1
Programmer
358
27
9,666.00
19
340
6,460.00
10
Department Chairs
Total:
820
30,837.00
Indirect Costs
Category
Amount
Administration and clerical salaries and fringe @ $21/hr Total hours:
812
17,052
General office supplies
1,980
Computer supplies and general-purpose software
1,200
Postage and delivery charges
200
Telephone charges
150
Printing production and photocopying
150
Total Indirect Costs $
20,732
Per hour indirect costs:
$25.53
Example Time-Phased Budget
• Time-Phased Budget
Establishes the specific allocation of resources,
time and cost throughout the duration of the
project.
Potter - WBS and Budget.xls
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