138337741-PracticeStandard-ProjectEstimating

Project Management Institute

PRACTICE STANDARDFOR PROJECT ESTIMATING

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ISBN: 978-1-935589-12-9

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Library of Congress Cataloging-in-Publication Data

Practice standard for project estimating / Project Management Institute. p. cm. Includes bibliographical references and index. ISBN 978-1-935589-12-9 (alk. paper)1. Project management—Estimates. 2. Project management—Standards. 3. Cost control. I. Project Management Institute. HD69.P75P652 2010 658.15'54—dc22 2010045981

Cert no. SW-COC-001530


NOTICE

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v

TABLE OF CONTENTS

PREFACE ............................................................................................................................... xi

CHAPTER 1 - INTRODUCTION .................................................................................................1

1.1 Purpose of the Practice Standard for Project Estimating ....................................1

1.2 Defi nition of Project Estimating ............................................................................3

1.3 Project Estimating and the Project Management Practice ..................................4

1.4 Relationship Between This Standard and Other PMI Standards and Knowledge Areas ........................................................5

1.4.1 PMBOK® Guide—Fourth Edition ...............................................................5

1.4.2 Practice Standard for Earned Value Management ...................................7

1.4.3 Practice Standard for Work Breakdown Structures .................................7

1.4.4 Practice Standard for Scheduling .............................................................7

1.4.5 Practice Standard for Project Risk Management .....................................7

1.4.6 The Standard for Program Management ..................................................8

1.4.7 The Standard for Portfolio Management ..................................................8

1.5 Summary ................................................................................................................8

CHAPTER 2 - PRINCIPLES AND CONCEPTS............................................................................9

2.1 Introduction ...........................................................................................................9

2.2 Scope of Project Estimating ..................................................................................9

2.3 Estimating Roles ..................................................................................................10

2.4 Estimating Life Cycle Stages ...............................................................................10

2.5 Evolving Estimates ..............................................................................................12

2.6 Use of Metrics ......................................................................................................13

2.7 Causes of Estimating Variances .........................................................................13

2.8 Characteristics of a Good Estimate ....................................................................14

2.9 Industry Differences ............................................................................................15

2.10 Summary ..............................................................................................................15

CHAPTER 3 - PREPARE TO ESTIMATE ..................................................................................17

3.1 Introduction .........................................................................................................17

3.2 Inputs ...................................................................................................................17

3.2.1 Project Documents ..................................................................................17

3.2.2 Experts .....................................................................................................18

3.2.3 Estimating Techniques ............................................................................19

3.2.4 Constraints and Assumptions .................................................................19

3.2.5 Additional Infl uences ...............................................................................19

3.2.6 Historical Project Information .................................................................19


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TABLE OF CONTENTS

3.3 Activities ..............................................................................................................20

3.3.1 Create Project Estimating Approach .......................................................20

3.4 Outputs .................................................................................................................22

3.4.1 Project Estimating Approach ..................................................................22

3.4.2 Information and Resources to Create the Estimate ...............................22

3.5 Considerations .....................................................................................................22

3.5.1 Allocate Appropriate Time to Plan ..........................................................22

3.5.2 Proper Stakeholder Expectations Management .....................................22

3.5.3 False Perception of Level of Accuracy ....................................................23

3.6 Summary ..............................................................................................................23

CHAPTER 4 - CREATE ESTIMATES .......................................................................................25

4.1 Introduction .........................................................................................................25

4.2 Inputs ...................................................................................................................25


4.2.2 Estimating Information ............................................................................26

4.2.3 Estimators ................................................................................................26

4.2.4 Enterprise Environmental Factors and Organizational Process Assets Infl uences ......................................................................27

4.3 Activities ..............................................................................................................27

4.3.1 Use of Analogous Techniques .................................................................28

4.3.2 Use of Parametric Techniques .................................................................30

4.3.3 Use of Bottom-Up Techniques .................................................................31

4.4 Outputs .................................................................................................................32

4.4.1 Completed Estimates ...............................................................................32

4.4.2 Basis of Estimates ...................................................................................32

4.5 Considerations .....................................................................................................32

4.5.1 Optimism in Estimates ............................................................................32

4.5.2 Progressive Elaboration of Estimates .....................................................33

4.5.3 Cost-Schedule Interrelationship .............................................................33

4.5.4 Normalization of Historical Data .............................................................33

4.5.5 Accounting for Time ................................................................................33

4.5.6 Expert Judgment .....................................................................................34

4.6 Summary ..............................................................................................................34

CHAPTER 5 - MANAGE ESTIMATES ......................................................................................35

5.1 Introduction .........................................................................................................35

5.2 Inputs ...................................................................................................................36


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TABLE OF CONTENTS

5.2.1 Baseline Estimates ..................................................................................36

5.2.2 Approved Changes to Baseline ...............................................................37

5.2.3 Resource Plan ..........................................................................................37

5.2.4 Work Performance Information ...............................................................38

5.2.5 Organizational Process Assets ................................................................38


5.3 Activities ..............................................................................................................39

5.3.1 Manage Estimates: A Living Plan Cycle ..................................................40

5.3.2 Use of Tools and Techniques ...................................................................42

5.4 Outputs .................................................................................................................43

5.4.1 Updated Estimates ...................................................................................43

5.4.2 Updated Forecast for Remainder of Project ...........................................43

5.4.3 Updated Change Request Log .................................................................44

5.4.4 Reporting and Communication ...............................................................44

5.5 Considerations .....................................................................................................44

5.5.1 Actuals .....................................................................................................44

5.5.2 Variance Analysis ....................................................................................44

5.5.3 Change Control ........................................................................................44

5.5.4 Quality of Estimates .................................................................................44

5.5.5 Organizational Culture .............................................................................45

5.6 Summary ..............................................................................................................45

CHAPTER 6 - IMPROVE ESTIMATING PROCESS ...................................................................47

6.1 Introduction .........................................................................................................47

6.2 Inputs ...................................................................................................................47

6.2.1 Project Information ..................................................................................48


6.2.3 Historical Project Information .................................................................49

6.2.4 Baseline Estimates ..................................................................................49

6.2.5 Updated Estimates/Forecasts .................................................................49

6.2.6 Change Log ..............................................................................................49

6.2.7 Actual Versus Estimate Data ...................................................................49

6.2.8 Stakeholder Feedback .............................................................................50

6.2.9 Organizational Process Assets ................................................................50

6.3 Activities ..............................................................................................................50

6.3.1 Gather Estimating Information ................................................................50

6.3.2 Assess Estimating Process .....................................................................50

6.3.3 Determine Root Causes and Lessons Learned .......................................50


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TABLE OF CONTENTS

6.3.4 Develop Action Plan for Changes ............................................................50

6.3.5 Implement Changes and Share Lessons Learned ..................................50

6.4 Outputs .................................................................................................................52

6.4.1 Updated Tools and Techniques ................................................................52

6.4.2 Updated Organizational Process Assets .................................................52

6.5 Considerations .....................................................................................................52

6.5.1 Spend the Appropriate Time ....................................................................52

6.5.2 Consider the Skill Set ..............................................................................52

6.6 Summary ..............................................................................................................52

REFERENCES ........................................................................................................................53

APPENDIX A - GUIDELINES FOR A PMI PRACTICE STANDARD ............................................55

A.1 Introduction .........................................................................................................55

APPENDIX B - EVOLUTION OF PMI’S PRACTICE STANDARD

FOR PROJECT ESTIMATING ..........................................................................57

B.1 Pre-Project ...........................................................................................................57

B.2 Development Work ..............................................................................................58

B.3 Exposure and Consensus ....................................................................................59

APPENDIX C - CONTRIBUTORS AND REVIEWERS OF THE

PRACTICE STANDARD FOR PROJECT ESTIMATING ......................................61

C.1 Practice Standard for Project Estimating Core Committee (Development Phase) ...............................................................61

C.2 Signifi cant Contributors ......................................................................................61

C.3 Practice Standard for Project Estimating Reviewers .........................................62

C.4 Practice Standard for Project Estimating SME Reviewers .................................62

C.5 Practice Standard for Project Estimating Core Committee (Research Phase) .....................................................................62

C.6 Practice Standard for Project Estimating Committee Members (Research Phase) .............................................................63

C.7 Final Exposure Draft Reviewers and Contributors .............................................64

C.8 PMI Standards Member Advisory Group (MAG) .................................................65

C.9 Staff Contributors ................................................................................................65

APPENDIX D - ESTIMATING MODELS ...................................................................................67

GLOSSARY ............................................................................................................................69

INDEX ..................................................................................................................................75


ix

LIST OF FIGURES AND TABLES

Figure 1-1. Hierarchy of PMI Project Estimating Resources ..............................................................2

Table 2-1. Key Roles in Project Estimating .....................................................................................11

Figure 2-1. Relationship of the Estimating Life Cycle Stages to Project Life Cycle Phases ...........12

Figure 2-2. Evolution of Scope and Project Estimating Ranges ......................................................13

Table 2-2. Basic Characteristics of a Good Estimate .....................................................................14

Figure 3-1. Prepare to Estimate ........................................................................................................18

Figure 4-1. Create Estimates .............................................................................................................26

Figure 4-2. Types of Estimating Techniques in the Context of Decomposing a WBS .....................28

Figure 5-1. Manage Estimates ..........................................................................................................36

Figure 5-2. Estimate Management Cycle ..........................................................................................39

Figure 6-1. Improve Estimating Process ..........................................................................................48

Figure 6-2. Checklist for Assessing the Estimating Process ...........................................................51

Table D-1. Major Estimating Models—Industry Reference Table ..................................................68



xi

PREFACE

This Project Management Institute (PMI®) Practice Standard for Project Estimating adds to PMI’s continuing commitment to support the project management profession with a defi ned body of knowledge and standards.

PMI®’s A Guide to the Project Management Body of Knowledge ( PMBOK ® Guide ) [1] 1 documents some of the overall project management body of knowledge. The PMBOK ® Guide is approved as an American National Standard by the American National Standards Institute 2 , and is the leading international standard for project management. This practice standard is an extension and elaboration of the sections of the PMBOK ® Guide that defi ne the processes, techniques, and tools used in project estimating.

This practice standard provides guidance for applying a sound estimating discipline for the life of a project and specifi cally treats estimating as a living process within projects. Effective project management requires consistent and repeatable processes and methodologies to manage the constraints of scope, time, cost and quality to ensure project success. This standard is a guide and reference for the project manager, project team, and other stakeholders, for understanding the project estimating discipline and applying it appropriately in a project.

The Practice Standard for Project Estimating is organized into the following focus areas:

• Introduction

• Principles and Concepts: outlines the foundational principles and concepts of project estimating.

• Prepare to Estimate: covers the Prepare to Estimate stage of the estimating life cycle and focuses on the creation of a project estimating approach .

• Create Estimates: covers the Create Estimates stage. The objective of Create Estimates is to take the planning documents and other inputs and then use estimating techniques to create the project estimate for activity resources, activity durations, and costs.

• Manage Estimates covers the ongoing maintenance and management of activity duration estimates, activity resource estimates, and cost estimates.

• Improve Estimating Process covers the fi nal stage of the estimating life cycle. The objective of the Improve Estimating Process stage is to take actual data and lessons learned and complete the cycle by incorporating them back into the estimating processes and tools.

• Glossary: provides clarifi cation of key terms in the project management profession that are related to project estimating, including those that have subtle or variable meanings depending on the organization and industry.

A global team of PMI members and volunteers developed this practice standard. Their dedication, diversity, and expertise are evident in the results of this practice standard and are a signifi cant contribution to the project management profession.

1 The boldface numbers in brackets refer to the list of references at the end of this standard.2 The American National Standards Institute is a non-profi t organization that provides accreditation for voluntary standards development in the United States.



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1

CHAPTER 1

INTRODUCTION

In alignment with other PMI practice standards, the Practice Standard for Project Estimating provides information on the activity of project estimating. In particular, this practice standard focuses on managing the estimating process.

The audience for this practice standard includes, but is not limited to:

• Project/program/portfolio managers,

• Project team members,

• Functional managers/ operational managers,

• Members of a project/program management offi ce,

• Project sponsors and stakeholders,

• Educators and trainers of project management,

• Consultants,

• Senior management,

• Decision makers responsible for approving the estimate, and

• Individuals interested in project management.

This chapter provides an overview of this practice standard and includes the following sections:

1.1 Purpose of the Practice Standard for Project Estimating

1.2 Defi nition of Project Estimating

1.3 Estimating and the Project Management Practice

1.4 Relationship Between this Standard and Other PMI Standards and Knowledge Areas

1.5 Summary

1.1 Purpose of the Practice Standard for Project Estimating

The purpose of this practice standard is to:

• Provide a standard for the project management profession and other stakeholders that defi nes the aspects of project estimating recognized as good practices on most projects most of the time; and

• Provide a standard that is widely recognized and consistently applied.


2

CHAPTER 1 – INTRODUCTION1

This practice standard has a descriptive purpose rather than one used for training or educational purposes.

The Practice Standard for Project Estimating covers project estimating as it is applied to single projects. These concepts may be applicable to the estimating of programs or portfolios as well.

Chapters 6 and 7 of the PMBOK ® Guide— Fourth Edition (Project Time Management and Project Cost Management) are the basis for the Practice Standard for Project Estimating . This practice standard is consistent with those chapters, emphasizing the concepts and principles relating to project estimating. It is also aligned with other PMI practice standards as described in Section 1.4.

Figure 1-1 compares the purposes of this practice standard to those of the PMBOK ® Guide —Fourth Edition and textbooks, handbooks, and courses. It is recommended that the PMBOK ® Guide —Fourth Edition be used in conjunction with this practice standard because there are many references to sections in the PMBOK ® Guide —Fourth Edition.

PracticeStandard

A Guide to the ProjectManagement Body

of Knowledge(PMBOK® Guide – Fourth Edition)

Handbooks Textbooks Courses

Principles of the Specialization

Processes

Theory Tools/Techniques

Purpose

Figure 1-1. Hierarchy of PMI Project Estimating Resources

This practice standard is organized in four main sections:

• Introductory material, including the purpose, principles, context of, and elaboration of project estimating processes as defi ned in the PMBOK ® Guide— Fourth Edition.

• Principles underlying the life cycle stages of project estimating:

○ Prepare to Estimate,

○ Create Estimates,


3

CHAPTER 1 – INTRODUCTION 1

○ Manage Estimates, and

○ Improving Estimating Process.

Each of these four stages is described in separate chapters that address the following topics: (a) inputs, (b) activities, (c) outputs, (d) key considerations, and (e) generally accepted good practices.

• Glossary of terms.

• Appendices containing references, contributors and reviewers, relationship to other PMI standards, and examples of estimating models used in different industries.

This practice standard emphasizes those principles that are fundamental to effective, comprehensive, and successful project estimating. These principles are stated at a general level for several reasons:

• While tools and techniques are constantly evolving, the principles have more stability and persistence.

• Different projects, organizations, industries, and situations will require different approaches to project estimating. In particular, project estimating is an appropriate process to apply to projects of different sizes. In practical applications, estimating is tailored to be appropriate for the project at hand. There are many specifi c ways of practicing project estimating that are in compliance with the principles as presented in this practice standard.

• The principles are applicable to projects carried out in a global context, refl ecting the many business and organizational arrangements between participants. For example, joint ventures between commercial and national companies, government, and non-government organizations, and the cross-cultural environment often found on these project teams.

These principles can be used as a check for an organization’s processes. Practitioners can establish procedures specifi c to their particular situation, project, or organization and then compare them with these principles, to validate them against good project estimating practice.

1.2 Defi nition of Project Estimating

The defi nition of an estimate, as defi ned in the PMBOK ® Guide —Fourth Edition, is as follows:

Estimate— A quantitative assessment of the likely amount or outcome.

This defi nition is usually applied to project costs, resources, effort, and durations and is usually preceded by a modifi er (i.e., preliminary, conceptual, feasibility, order-of-magnitude, defi nitive).

Project Estimating —The act of creating a quantitative assessment of the likely amount or outcome. It is usually applied to project costs, resources, effort, and durations.

Project estimating as described in the PMBOK ® Guide, is comprised of three processes that will be elaborated within this practice standard:

• Estimate Activity Resources —The process of estimating the type and quantities of material, people, equipment, or supplies required to perform the activity.


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• Estimate Activity Durations —The process of approximating the number of work periods needed to complete individual activities with estimated resources.

• Estimate Costs —The process of developing an approximation of the monetary resources needed to complete project activities.

Baseline —An approved plan for a project, plus or minus approved changes. It is compared to the actual performance to determine if performance is within acceptable variance thresholds. Generally refers to the current baseline, but may refer to the original or some other baseline. Usually used with a modifi er (e.g., cost performance baseline, schedule baseline, performance measurement baseline, technical baseline).

1.3 Project Estimating and the Project Management Practice

Project estimating is vital to successful project execution as it is an integral part of project management practices. Project estimating activities are a relatively small part of the overall project plan and are performed early in the project life cycle. However, effective project estimating is a key contributor to the successful planning and delivery of project objectives. A project uses the cost, resource, and duration estimates along with the expected benefi ts to build the business case for the project.

There are many notable examples of where fi nal costs or schedules were signifi cantly different than the original estimate. These variances were caused by many reasons, but all are related to the project estimating life cycle:

• In 1988, the Boston Big Dig was estimated to be US$2.2 billion and it was delivered fi ve years late at a cost of US$14 billion, more than six times the estimate.

• In 1996, the Bellagio Hotel was planned to be US$1.2 billion and its fi nal cost was US$1.6 billion.

• The Denver International Airport was 16 months late and an estimated US$2.7 billion over budget.

• The Mars Science Laboratory Rover was planned to cost US$1.6 billion and the fi nal cost, when completed, is expected to be more than US$2 billion.

• In 1914, the Panama Canal ran US$23 million under budget compared with 1907 plans.

• The Sydney Opera House was originally estimated at US$7 million and the fi nal costs came in at US$102 million.

Even though estimates are developed initially at the onset of a project, it is important to think of estimating as a continuous activity throughout the project life cycle. The initial estimates are used to baseline the project resources, schedule, and cost. These estimates are then compared to the project benefi t stream in order to determine an early view of the feasibility of the project. As the project progresses and more information is known, the estimates are continually refi ned and subsequently become more accurate. This is consistent with the project concept of progressive elaboration According to the PMBOK ® Guide —Fourth Edition:

Progressive Elaboration —Continuously improving and detailing a plan as more detailed and specifi c information and more accurate estimates become available through successive iterations of the planning process as the project progresses.


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Progressive elaboration allows a project management team to manage to a greater level of detail as the project evolves.

Additionally, the change control process is used to manage against the baseline cost and activity duration estimates. This continual process of reforecasting, based on new information and change controls, is why estimating is not a one-time event.

With the collection of data during the project control phase, the project team will have enough information to refi ne the initial estimates and establish more accurate forecasts, creating more effective action plans and allowing to better understand the project trends.

1.4 Relationship Between This Standard and Other PMI Standards and Knowledge Areas

Estimating has connections to many other disciplines within project management because it is an iterative process that occurs throughout the project life cycle. Therefore, this practice standard has relationships to many other existing PMI standards, for example:

1.4.1 PMBOK ® Guide —Fourth Edition

• Chapter 4 Project Integration Management —Estimating is a critical aspect of creating the project management plan and performing integrated change control.

○ Section 4.5 Perform Integrated Change Control —The process of reviewing all change requests, approving changes, and managing changes to the deliverables, organizational process assets, project documents, and the project management plan. All changes are managed against the baselines created during the planning process. Changes also require estimating of impact or revised cost, and schedule and resource estimates, which leverage the same principles of project estimating.

• Chapter 5 Project Scope Management —The project defi nes the activities and the size of those activities, which are estimated for resources, durations, and cost.

○ Section 5.3 Create WBS —The process of subdividing project deliverables and project work into smaller, more manageable components.

• Chapter 6 Project Time Management —Develop Schedule is a process in the Project Time Management Knowledge Area that takes place in the Planning Process Group. Schedule management is a continuous process that requires reforecasting and refi nement of the activity resource and activity duration estimates throughout the project.

○ Section 6.1 Define Activities —The process of identifying the specific actions to be performed to produce the project deliverables.

○ Section 6.3 Estimate Activity Resources —The process of estimating the type and quantities of material, people, equipment, or supplies required to perform each activity.


6


○ Section 6.4 Estimate Activity Durations —The process of approximating the number of work periods needed to complete individual activities with the estimated resources.

○ Section 6.5 Develop Schedule —The process of decomposing deliverables into project schedule activities that are sequenced and estimated for required resource and activity durations.

• Chapter 7 Project Cost Management —Determine Budget is a process in the Project Cost Management Knowledge Area that takes place in the Planning Process Group. Project Cost Management is a continuous activity which requires reforecasting and refi nement of the cost estimates throughout the project.

○ Section 7.1 Estimate Costs —The process of developing an approximation of the monetary resources needed to complete project activities.

○ Section 7.2 Determine Budget —The process of aggregating the estimated cost of individual activities or work packages to establish an authorized cost baseline.

• Chapter 8 Project Quality Management —Quality is embedded across the estimating life cycle including the incorporation of quality requirements, the continual monitoring of estimates, and taking lessons learned back into the estimating model.

• Chapter 9 Project Human Resource Management —Estimated activity durations may change as a result of the competency level of the project team members and availability of, or competition for, scarce project human resources. Cost estimates should also include possible human resource reward and recognition bonuses.

• Chapter 10 Project Communications Management —Because there are many assumptions in creating an estimate, differing levels of information and confi dence, as well as ever-changing forecasts, communications management is a critical component of managing estimates and expectations.

○ Section 10.4 Manage Stakeholders Expectations —The process of communicating and working with stakeholders to meet their needs and addressing issues as they occur.

This applies to assumptions of estimates and stakeholder management around expec-tations based on the stage of the project.

• Chapter 11 Project Risk Management —Estimates are created based on an incomplete set of information, so there is always inherent risk involved that requires management. The impact and likelihood of each anticipated event are estimated in the risk registry.

○ Section 11.1 Plan Risk Management —The process of defining how to conduct risk management activities for a project. Specifically for estimating, the confidence levels required for a specific project need to be included in this planning information.

○ Section 11.2 Identify Risks —The process of determining which risks may affect the project and documenting their characteristics.

Cost estimates and activity duration estimates are inputs into the risk register, based upon assumptions made, amount of information available when the estimates were created, and the degree of confidence in the estimate projections. This process also


7


includes determining the risk tolerance of the project stakeholders, such as the sponsor and customers.

○ Section 11.4 Perform Quantitative Risk Analysis —The process of numerically analyzing the effect of identified risks on overall project objectives.

○ Section 11.5 Plan Risk Responses —The size of the contingency buffers (e.g., time and cost needed) to be estimated and included in the plans.

Cost and activity duration estimates are inputs into the quantification of the risk impacts on the project objectives. Risk mitigation often results in additional work and additional cost to be included as part of the estimate.

• Chapter 12 Project Procurement Management— Procurement management includes acquisition of services or products that include resource, duration, cost, and quality implications.

○ Section 12.1 Plan Procurements —The process of documenting project purchasing decisions, specifying the approach, and identifying potential sellers.

Cost estimates and activity resource requirements are inputs to the procurement approach and are used to evaluate the reasonableness of bids. The project estimate becomes the project budget after the contract negotiations.

1.4.2 Practice Standard for Earned Value Management [2]

Managing earned value starts with creating estimates for specifi c increments of work. Earned value is also a diligent way of monitoring and verifying the project actuals and forecast and to compare to the project estimates.

1.4.3 Practice Standard for Work Breakdown Structures [3]

The WBS is used to identify project scope elements (deliverables within phases). These are in turn (starting with work packages—the lowest level of WBS decomposition) used (decomposed) to create activities and milestones that are intended for the project schedule as part of the schedule development process. The WBS also establishes essential relationships between key assumptions for scope, scale, and performance requirements at all levels that can be used to support the various estimating methods (as demonstrated in Section 4.3).

1.4.4 Practice Standard for Scheduling [4]

The schedule is created based on an activity list derived from the work packages in the work breakdown structure.

1.4.5 Practice Standard for Project Risk Management [5]

Estimates are based on assumptions that have risks embedded in them and which need to be managed.


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1.4.6 The Standard for Program Management [6]

Sections 3.4 and 3.6 highlight program management processes related to program estimating. Risk mitigation often results in additional work and additional cost, which needs to be included as part of the estimate.

1.4.7 The Standard for Portfolio Management [7]

Section 3 highlights portfolio management processes related to project estimating.

1.5 Summary

The Practice Standard for Project Estimating provides a standard for project management practitioners and other stakeholders that covers the aspects of project estimating which are recognized as good practice on most projects most of the time. This practice standard focuses on estimating activity resources, activity durations, and cost. Project estimating is important because of the many direct linkages to the other aspects of project management.

The principles for the management of project estimating described in this practice standard should be applied based on the specifi cs of a project. Experience indicates that project success may be directly related to the appropriate application of project estimating principles throughout the project life cycle.


9

2

CHAPTER 2

PRINCIPLES AND CONCEPTS

Chapter 2 outlines the foundational principles and concepts of project estimating. This includes key principles such as defi ning the scope, roles, and stages of project estimating. The chapter will also highlight important considerations such as the causes of estimating variances, characteristics of a good estimate, and industry differences around project estimating.

This chapter includes the following sections:

2.1 Introduction

2.2 Scope of Project Estimating

2.3 Estimating Roles

2.4 Estimating Life Cycle Stages

2.5 Evolving Estimates

2.6 Use of Metrics

2.7 Causes of Estimating Variances

2.8 Characteristics of a Good Estimate

2.9 Industry Differences

2.10 Summary

2.1 Introduction

This chapter introduces the key concepts required to understand and apply project estimating for projects using the approach described in Chapters 6 and 7 of the PMBOK ® Guide —Fourth Edition. These principles and concepts are generally consistent with other commonly used approaches to project estimating, although the terminology may differ in some details.

The execution of the project estimating life cycle is explained in Section 2.4 of this practice standard and is therefore not discussed here.

2.2 Scope of Project Estimating

The concepts of project estimating are consistent both in technique and across industries regardless of the type of project being managed. According to the PMBOK ® Guide —Fourth Edition, project estimating includes the estimating of activity resources, activity durations, and costs required to complete a project.


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CHAPTER 2 – PRINCIPLES AND CONCEPTS2

At times, this practice standard will use the term project estimating to refer to all three components. This practice standard is intended to review project estimating at a high level, therefore, this practice standard will discuss effort, time, and cost estimating as similar processes (although there are nuances among these processes).

There are other related activities that should not be confused with project estimating:

• Contingency Reserve —The amount of funds, or time needed above the estimate to reduce the risk of overruns of project objectives to a level acceptable to the organization.

In project estimating, the estimate should focus on the project scope, and then contingency should be added to those estimates based on risk analysis and available information at the time the estimate is created.

• Organizational Budgeting and Allocation —Planning for organizational budgets generally includes project funding as well as project revenues. These are usually based on project estimates, however organization-specifi c criteria for overheads are applied (e.g., corporate overhead, management, real estate, taxes).

• Vendor Bid and Analysis —This applies to the price that the vendor is proposing to charge the customer for a particular project. Therefore, a cost-based bid will contain all of the elements of the vendor’s estimate plus an amount that would represent the vendor’s profi t or return on investment.

2.3 Estimating Roles

Several key roles involved in project estimating are described in Table 2-1. It is important that each individual fulfi lling a project role is aware of his or her responsibilities in project estimating.

2.4 Estimating Life Cycle Stages

There are four key stages to the project estimating life cycle:

• Prepare to Estimate —This stage of the life cycle is the creation of the estimating approach, which includes the identifi cation of activities, determining the techniques to be used for estimating, identifying the estimating team, preparing estimating inputs, and documenting any constraints to the estimate (e.g., funding limits, resource constraints, or required dates).

• Create Estimates —This is the stage when estimating activity resources, activity durations, and costs are performed for a project. There are several models and techniques for determining the estimates, which are explained in Chapter 4.

• Manage Estimates —When the original estimate is completed and has been validated with the project team members and the project work has started, this stage of project estimating includes many activities that are used to manage the estimate, including change controls, calibrating the forecast, and comparing actuals to the baseline estimate.


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CHAPTER 2 – PRINCIPLES AND CONCEPTS 2

• Improve Estimating Process —As projects progress, lessons learned are applied to the estimating life cycle, including calibrating the models based on actual values and maintaining checklists of components to include in future estimates. Improvements can be applied at both project and organizational levels.

The stages of project estimating can be seen in the context of the project life cycle structure as noted in Section 2.1.1 of the PMBOK ® Guide —Fourth Edition. Figure 2-1 shows that there is some overlap of project estimating stages within the project life cycle. For example, a project estimate can be created in the starting the project phase as an early rough order of magnitude estimate to determine if a project makes sense to continue with or to perform a cost-benefit analysis. An estimate can also be created in the organizing and preparing phase with increasing levels of detail as the scope is elaborated.

Table 2-1. Key Roles in Project Estimating

Role Description Responsibilities

The person accountable for the estimate, but not necessarily the one responsible to do the estimating

Aggregation of estimates across the projects within the program

Individual or team responsible for estimating a specific piece of the project; estimators can be team members from the project, people identified as experts in the area being estimated, or other stakeholders

Individual or team who reviews and approves the project estimate

Individual or team who provides the scope to be estimated and who accepts the estimates

• Document the estimating approach and plan

• Coordinate the team of estimators

• Review the estimate and initiate revisions if necessary

• Aggregate the estimates from the estimators

• Identify and document risks and assumptions

• Work with appropriate finance resources to create cost estimates and contingency (if appropriate)

• Work with management to set expectations for stakeholders around estimates, assumptions, and risks

• Aggregate the project estimates from the project managers

• Work with management to set expectations for stakeholders around estimates, assumptions, and risks

• Create the activity resource and activity duration estimates

• Document assumptions and risks

• Review and approve the project estimate

• Provide initial scope to be estimated

• Review and accept the project estimate

Project manager

Program manager

Estimators

Senior management/ project sponsor

Customers of estimates


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Starting theProject

Organizing andPreparing

Carrying Outthe Work

Closing theProject

Improve Estimating Process

Manage Estimates

Create Estimates

Prepare to Estimate

Figure 2-1. Relationship of the Estimating Life Cycle Stages to Project Life Cycle Phases

2.5 Evolving Estimates

All project estimates involve assumptions, uncertainty, and risk perceptions. Therefore, the confi dence level of estimates is directly related to the activity defi nition and available information. Project estimates should be refi ned as information becomes available, making project estimating an iterative and evolving process, aligned with the concepts of progressive elaboration. Figure 2-2 shows that projects early in the life cycle have a limited defi nition of scope and a limited amount of available information, resulting in reduced confi dence and reduced accuracy of the estimate, thereby requiring a larger confi dence range. As the project planning evolves, the WBS is created, and as more information becomes available about the business case, requirements, and the desired deliverables, the estimate can be fi ne-tuned to a higher level of precision and confi dence.

As an example, a project in the initiation phase could have a rough order of magnitude (ROM) estimate in the range of �50%. Later in the project, as more information is known, estimates could narrow to a range of �10%. In some organizations, there are guidelines for when such refi nements can be made and the degree of accuracy that is expected. Contingency reserves are applied to estimates based upon available information and identifi ed risks. Therefore, as Figure 2-2 shows, as the project gains more information and the estimating range decreases, the need for contingency reserves associated with uncertainties in estimation should decrease also. As with cost ranges, some organizations also have guidelines for the amount of contingency reserves to be used in the plan.

An important part of managing evolving estimates is communication and stakeholder expectations management. Project managers should help customers and stakeholders to understand the concepts of evolving estimates and the associated risks, assumptions, and ranges.


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2.6 Use of Metrics

It is important to note that metrics play an important role across the different stages of the estimating life cycle. In preparing to estimate, metrics from previous projects such as actual cost and schedule can be gathered as an input. When managing the estimate, it is important to collect metrics to monitor the progress of the project against the estimated variables (e.g., earned value). When improving the estimating process, metrics can also be used to calibrate estimating models.

2.7 Causes of Estimating Variances

The baseline used for tracking a project is approved early in the project life cycle, when the estimate is approved. Variances between estimated and actual costs, resources, and durations are normal on a project and may occur for several reasons. Experience shows that there are four common causes of variance to baseline project estimates. It is important to note that while the four examples listed below are common causes, the references are exemplary—not all inclusive.

• Evolution of Requirements —Baseline project estimates are developed using a high-level view of scope and existing information, with many related assumptions made. As the project progresses in the life cycle (progressive elaboration), the detailed scope gets defi ned. This elaboration may validate or invalidate prior assumptions. In cases where the scope is easier or more diffi cult to deliver than originally assumed (under or over estimated complexity or productivity), there is usually an impact to a project schedule, resources, or cost.

• Approved Change Requests —As the project progresses, changes to the original scope and schedule may be introduced by customers and other stakeholders, and be approved by the change control board. These may add cost and schedule beyond the original baseline estimates, so while they are approved variances, they are still considered variances.

Scope Definition/Information

EstimatedValue

low high

ExecutingInitiating Closing the Project

Figure 2-2. Evolution of Scope and Project Estimating Ranges


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• Operational Problems —In creating the baseline estimate, assumptions are made about the activity resources, cost units, and durations. These can change as the project progresses. For example, a resource is assumed at one rate but the actual resource used on the project is more or less expensive. This will have an impact on the project cost. Another example could be a change in the source of materials.

• Faulty Estimating —Due to the complexity and inherent uncertainty of projects, there are always occasions when a faulty estimate is produced. Examples of this include neglecting to estimate a key component or area of work, mathematical errors, inaccurate data from an unreliable source, lack of knowledge by the team regarding the scope being estimated, and not having enough time to estimate.

Each of these causes of variance should be understood and managed throughout the life cycle of the project. The techniques include tracking the progress against the current baseline, re-baselining upon change management approvals, and managing the risk registry and risk management plan as risk events occur and others are realized.

2.8 Characteristics of a Good Estimate

There are several common characteristics of a good estimate, as documented in the United States General Accounting Offi ce report The Theory and Practice of Cost Estimating for Major Acquisitions [8] . These are highlighted in Table 2-2 as follows:

Table 2-2. Basic Characteristics of a Good Estimate

Characteristic Description

Estimator must be provided with the description, ground rules and assumptions, and technical and performance characteristics. Estimated constraints and conditions must be clearly identified to ensure the preparation of a well-documented estimate.

All stakeholders should be involved in deciding mission needs and requirements and in defining parameters and other characteristics. Data should be independently verified for accuracy, completeness, and reliability.

Numerous sources of suitable, relevant, and available data should be used. Relevant, historical data from similar projects should be leveraged to project new costs.

A standard work breakdown structure, including all available detail should be used and refined as the cost estimate matures and the scope becomes more defined. The work breakdown structure ensures that no portion of the estimate is omitted, resulting in easier comparisons to similar projects.

Uncertainties should be identified and contingencies planned to cover the cost effect of known costs included and unknown costs planned.

The estimator should ensure that economic changes, such as inflation, are properly and realistically reflected in the life cycle estimate.

All costs associated with the solution should be included; any excluded costs should be disclosed and given a rationale.

Conducting an independent review of an estimate is crucial to establishing confidence in the estimate; the independent reviewer should verify, modify, and correct an estimate to ensure realism, completeness, and consistency.

Estimates should be updated to reflect changes in a solution’s design requirements. Large changes that affect costs can significantly influence project decisions.

Clear identification of task

Broad participation in preparing estimates

Availability of valid data

Standardized structure for the estimate

Provision for program uncertainties

Recognition of inflation

Recognition of excluded costs

Independent review of estimates

Revision of estimates for significant project changes


15


2.9 Industry Differences

While the estimating life cycle stages are the same for all types of projects, there are some differences in estimation metrics and models that are employed across industries. These variations are primarily related to the nature of the project’s product. A few examples of different industries are noted below:

• Software Development —In software development projects, estimates can be based on metrics, such as source lines of code (SLOC) or scientifi c-based estimation techniques, such as function point estimation, use case estimation, and feature-based estimation. Algorithmic models such as COCOMO (COnstructive COst MOdel) have been developed to use these metrics in conjunction with historical project data and other project information in order to develop cost and time estimates.

• Construction —Different types of construction (electric, plumbing, residential) have standard reference documents, which provide general estimates for specifi c deliverables. Metrics used are primarily a combination of man-hours and material costs. Parametric cost models have been developed for use within construction, using metrics such as square footage, location, and quality of materials to develop an estimate.

• Petroleum Refi ning —Metrics used in estimation may include plant capacity, size of storage facilities, man-hours, and materials costs.

2.10 Summary

There are several key concepts for project estimating that need to be understood. Project estimating relates specifi cally to activity durations, activity resources, and cost. Project estimates require specifi c roles and follow a life cycle that relates to the project life cycle and also evolve over the course of the project. As a result of this evolution, there is a confi dence range and contingency reserve that can be applied. After a project estimate is baselined and the project progresses, there are several reasons why variances may arise. Therefore a project manager should pay attention to the characteristics of a good estimate. It should also be noted that there are differences in project estimating techniques across different industries.



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3

CHAPTER 3

PREPARE TO ESTIMATE

This chapter covers the Prepare to Estimate stage of the estimating life cycle and focuses on the creation of a project estimating approach. The objective of Prepare to Estimate is to outline the fundamental inputs, activities, and outputs with regard to the appropriate planning for estimates.


3.1 Introduction

3.2 Inputs

3.3 Activities

3.4 Outputs

3.5 Considerations

3.6 Summary

3.1 Introduction

Before a project estimate can be created, it is critical to document the project estimating approach. Documenting the approach helps the project manager to consider the many factors involved in the project estimating process. Documenting an estimating approach also helps to identify the resources required and techniques used to estimate the project.

Figure 3-1 shows the inputs and outputs for the Prepare to Estimate stage which is described in this chapter.

Spending the appropriate time planning for an estimate will help to mitigate some of the causes of variance identifi ed in Section 2.6, specifi cally the evolution of requirements and faulty estimating.

3.2 Inputs

In order to begin the Prepare to Estimate stage, the project manager needs to gather the relevant information.

3.2.1 Project Documents

The fi rst step is for a project manager to obtain all relevant project information to understand what is being estimated, as the information becomes available.

• Requirements Documentation— Describes how individual requirements meet the business need of the project.


18

CHAPTER 3 – PREPARE TO ESTIMATE3

• Scope Baseline —An approved specifi c version of the detailed scope statement, work breakdown structure (WBS) and its associated WBS dictionary.

• Activity List, Attributes, and Schedule —If the project has an existing activity list and schedule, this should be used in conjunction with the high-level scope as inputs to the Prepare to Estimate stage. Activity lists may also include activity attributes of associated data items, which can be helpful in estimating, such as relationships, predecessors, and resource requirements.

• Risk Register —Identifi cation of project risks assists the project manager in determining the areas that may require more project resources, time, or costs. For example, a technology that is new to an organization presents a risk, in that team members may not know how to use it effectively for the project, and therefore it may require more time to plan, design, and test.

• Resource Calendar —Any inventory of available resources is useful for estimating. Estimated activity duration is related to the availability and allocation of resources.

3.2.2 Experts

Once the high-level scope of the project has been documented, the project manager should identify the resources that can be used to estimate the various parts of the project. Several of the techniques described in Chapter 4 utilize the knowledge and experience of key resources. Note that these experts do not have to be dedicated members of the project team, although the use of project resources increases buy-in of the estimates and generates a stronger commitment to meet the realization of those estimates.

Activities OutputsInputs

3.2.1Project

Documents

3.2.2Experts

3.2.3EstimatingTechniques

3.4.1Estimating Approach

3.4.2EstimatingInformation

3.2.4Constraints and

Assumptions

3.2.5AdditionalInfluences

3.2.6Historical Project

Information

3.3.1Create Project Estimating

Approach

Figure 3-1. Prepare to Estimate


19

CHAPTER 3 – PREPARE TO ESTIMATE 3

3.2.3 Estimating Techniques

The project manager should have an understanding of the available estimating techniques. These may be included in the organizational process assets that are gathered. By understanding the estimating techniques, a project manager will have the appropriate inputs available when it is time to prepare the estimate. For example, an analogous estimate requires historical information for projects, while a bottom-up estimate requires a detailed WBS and activity list. These techniques will be described in more detail in Chapter 4.

3.2.4 Constraints and Assumptions

An important input for the Prepare to Estimate stage is to recognize the identifi ed project constraints and assumptions. Some projects have fi xed scope, fi xed costs, or fi xed schedules, which will constrain the estimates. Identifying these constraints and assumptions allows the project manager to develop an understanding of the fl exibility of various options when estimating (e.g., scope, duration, or cost), and which requirements cannot be changed. It is also important to note any early assumptions made about the project.

3.2.5 Additional Infl uences

There are two primary infl uences of a project that are external to the specifi c project requirements: organizational process assets and enterprise environmental factors. Both infl uences need to be considered when estimating projects because they directly impact the activities, activity durations, and cost.

• Organizational Process Assets. Most organizations have standard processes, tools, and project management deliverables for managing projects. These assets should be understood so that they can be planned for during the project estimating stage and included in the estimates. Examples include:

○ Deliverables and processes included in the WBS that need to be estimated;

○ Estimating processes and standards required to be followed, which may include an approach for levels of confidence ranges, and contingency reserve; and

○ Checklists of areas included in a project that need to be estimated.

• Enterprise Environmental Factors. These include internal and external environmental factors that surround or infl uence a project’s success. Examples include, but are not limited to, organizational culture, industry or government standards, and marketplace conditions. A more comprehensive list can be found in Section 1.8 of the PMBOK ® Guide —Fourth Edition.

3.2.6 Historical Project Information

Once the high-level scope is known, a project manager is able to gather historical information on similar projects that have been completed. This can be the basis for a comparison or starting point, which can be used in the analogous estimating technique. It may also be used to understand how to utilize lessons learned


20


so that these are included in the project estimate. The following are examples of historical information that can be used:

• Project Effort —Documents the completed activities and their durations on other past or parallel projects, which may be used to develop the current estimates. The activity list is also used to ensure that critical activities are not missed in the estimate.

• Project Schedule —Documents the overall duration of the project which may be used to calibrate the new estimate.

• Project Cost —Documents the overall cost of the project which may be used to calibrate the new estimate. Detailed project cost information is compared to specifi c units of work to quantify what each unit costs. This is helpful in parametric estimating.

• Project Resources —Identifi es the resources used and their duration on the project, which may be used to calibrate the new estimate and ensure that the critical resources are included in the estimate.

• Project Documentation —Documents detailed requirements or testing conditions that help to gauge the size of the project when comparing to a new project. This may include lessons learned and risk reports.

3.3 Activities

Once the inputs have been gathered, the project manager should document the project estimating approach with regard to estimating cost, activity duration, and activity resources.

3.3.1 Create Project Estimating Approach

The following information provides the foundation for this approach and should be included in the project management plan:

.1 Scope of Estimate

The scope of the estimate should be clearly defi ned. During this activity all items included and excluded should be expressly identifi ed and documented, along with a detailed list of assumptions. This should not be confused with the project scope statement or scope baseline.

.2 Organizational Process Assets

Companies that have standard organizational process assets may also have a list of mandatory deliverables for projects. These should be noted so that estimates are obtained for these deliverables within the project.

.3 Project Work Information

Document the evolving estimates as an output of progressive elaboration and show ranges and levels of confi dence during the project evolution. These may exist in the organizational process assets.


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.4 Estimating Assumptions

Explicitly state any assumptions with regard to what is in the scope of the estimate as well as what is known and not known at the time of the estimate. These can include assumptions around the business case, the skill and availability of the team, and the project environment.

.5 Constraints

Constraints may include specifi c data or costs for the project which cannot be altered. If there are specifi c constraints identifi ed by the customer, these need to be identifi ed and documented.

.6 Estimation Technique(s)

The project manager determines the best estimation technique(s) based on available information and identifi ed risks. Note that it is a good practice to use more than one technique to calibrate and compare them. Chapter 4 outlines the scenarios in which each technique is best applied.

.7 Resources Needed to Estimate

Include the resources and skills needed to create the estimate based on the identifi ed technique(s).

.8 Estimate Confi dence

Identify what is needed to have a high level of confi dence for the project estimate.

.9 Contingency Reserve Planning

State the approach for using contingency reserve, including how it will be created, how it will be managed, and how it may change as the project progresses.

.10 Risk Assessment

Assess the existing project risk register for risks that can impact the project estimate and how they are being managed.

.11 Management and Monitoring Processes

Document the plan for managing estimates, the timing and approach for reforecasting estimates, and the approach for monitoring the estimates and actuals. This should include the approach for metrics collection and reporting and the use of earned value analysis, if being applied .

.12 Improvement Processes

Document the approach for capturing and utilizing lessons learned plus actual costs and effort to improve the project estimating process.

Once the project estimating approach is documented, it is a good practice to share it with team members and subject matter experts, and obtain signoff from key project stakeholders. This helps to set expectations as to what is being estimated, what the evolving estimates mean, and how the estimating process will evolve.


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3.4 Outputs

Upon completion of the Prepare to Estimate stage, there are two key outputs:

3.4.1 Project Estimating Approach

Documented approach for estimating costs, activity durations, and activity resources. This includes a description of the project being estimated, the estimation techniques used, resource needs, assumptions, constraints, and timing of estimates.

3.4.2 Information and Resources to Create the Estimate

While preparing the estimate, relevant information is gathered that is used during the Create Estimates stage (see Chapter 4). This includes project information, such as scope documents, as well as historical information from similar projects.

3.5 Considerations

There are a few considerations for the Prepare to Estimate stage that should be taken into account by the project manager.

3.5.1 Allocate Appropriate Time to Plan

The project estimating process does take time to plan and execute properly. Since projects are often held to commitments from early project estimates, it is important to spend an appropriate amount of time on planning the estimate.

3.5.2 Proper Stakeholder Expectations Management

The project estimating stage is an evolving one. As described in Section 2.5, the known information and the subsequent confi dence levels and ranges for estimates change over the course of the project. Therefore, it is important for the project manager to set expectations with stakeholders and sponsors early in the project and to manage expectations over the course of the project.

Early on in a project, there are many unknowns; therefore, project estimates can offer a wide confi dence range (See Figure 2-2) with many assumptions. It is important to explain this to stakeholders and to provide them with an idea as to when information will become available and when higher confi dence levels for estimates can be made.

Failing to manage expectations around early project estimates can result in stakeholders having a different understanding of the commitments for a project.


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3.5.3 False Perception of Level of Accuracy

Early estimates usually involve many broad assumptions, however sometimes project estimating techniques result in very specifi c numbers. This may give the impression of a higher accuracy or level of confi dence during the project estimating stage than was actually performed. Project managers should consider rounding numbers to the next higher increments and providing ranges for early project estimates.

3.6 Summary

Prepare to Estimate is an important stage in the project estimating life cycle. It occurs when the project estimating approach is identifi ed, which outlines the key parameters for the project estimate. This stage includes considering how the project will be estimated using techniques, organizational process assets, and experts. It also documents any constraints and assumptions that need to be factored in and provides a level of confi dence to management. Also during this stage, key project and historical information are gathered, which will be used as inputs into the Create Estimates stage.



25

4

CHAPTER 4

CREATE ESTIMATES

This chapter covers the Create Estimates stage. The objective of Create Estimates is to take the planning documents and other inputs and then use estimating techniques to create the project estimate for activity resources, activity durations, and costs. Note that this chapter will focus on the different types of estimating techniques and not on industry-specifi c tools or models.


4.1 Introduction

4.2 Inputs

4.3 Activities

4.4 Outputs

4.5 Considerations

4.6 Summary

4.1 Introduction

With the project estimating approach now determined and documented, estimates of resources, duration, and costs can be determined. As shown in Figure 4-1, the project estimating approach, along with other inputs, is used to create a completed estimate and supporting detail regarding the basis of estimates. There are several different types of techniques that can be used to create estimates.

4.2 Inputs

In order to execute the Create Estimates stage, it is important to have the proper inputs available. Estimates, by their nature, are approximations. Therefore, the confi dence levels of the estimates are determined by the quality and detail of available information and the stakeholder expectations.


The project estimating approach document, created in the Prepare to Estimate stage, outlines the overall approach, techniques used, project information assumptions, constraints, and other important information needed to create the estimates.


26

CHAPTER 4 – CREATE ESTIMATES4

4.2.2 Estimating Information

Estimating techniques require information about the current project and historical data from past projects and industry benchmarks. Document analysis, planned versus actual, risk registers, and lessons learned from other completed projects are invaluable for providing insight that can be applied to the Create Estimates stage.

Current project documents provide critical information for the Create Estimates stage, such as: activity list, activity attributes, scope baseline, project schedule, human resource plan, resource calendar, risk register, enterprise environmental factors, and organizational process assets.

4.2.3 Estimators

During the Prepare to Estimate stage, the people needed to create the estimates were identifi ed. Estimates are best produced by the people performing the work, as they will be the most likely to produce the most accurate estimates for their work and they are motivated to achieve what they have proposed.

It is often the case that two experienced people may have different levels of personal productivity and, therefore, provide different estimates of the time they would need, to complete identical activities. For example, Frederick Brooks in The Mythical Man-Month quoted studies of programmers by Sackman, Erikson, and Grant that found: “. . .ratios between best and worst performances averaged about 10:1 on productivity measures. . .” [9] . This example leads to the conclusion that individuals should produce their own project estimates. In the absence of the actual human resource assigned to the activity, someone who is very


4.2.1Project Estimating

Approach

4.2.2EstimatingInformation

4.2.3Estimators

4.4.1Completed Estimates

4.4.2Basis of Estimates

4.2.4Enterprise

Environmental Factors

4.2.5OrganizationalProcess Assets

4.3.1Use of Analogous Techniques

4.3.2Use of Parametric Techniques

4.3.3Use of Bottom Up Techniques

Create Estimates

Figure 4-1. Create Estimates


27

CHAPTER 4 – CREATE ESTIMATES 4

familiar with the work being performed should provide the needed estimate. This estimate can be adjusted by the project manager to allow for resource differences.

4.2.4 Enterprise Environmental Factors and Organizational Process

Assets Infl uences

Enterprise environmental factors that can impact the project should be considered in the Create Estimates stage. In addition, any existing organizational process assets, such as estimating tools, techniques, procedures, or models should be identifi ed and used. Estimating databases, productivity metrics, and/or published commercial information may be available which could infl uence or assist in the Create Estimates stage.

4.3 Activities

The PMBOK ® Guide —Fourth Edition offers many tools and techniques for those processes that produce estimates. This standard is primarily concerned with techniques that are considered to be good practice on most projects, most of the time. Tools are often industry, organization, or project-type specifi c and are not covered in this standard. Estimating techniques can be divided into three major categories: analogous, parametric, and bottom-up as described in Sections 4.3.1 through 4.3.3.

Most of these techniques for creating an estimate for activity duration, activity resources, and costs are relatively simple and require very few details about the project, if the model is best suited for making quick and rough estimates for the project during the very early stages. Techniques that produce more accurate estimates require more detailed and more voluminous information regarding the project and take more time to develop.

Figure 4-2 highlights each technique in relation to the known project information using the WBS as the base of reference.

• Analogous techniques, also known as top-down estimating, are used when very little information is available about the project, or the new project is very similar to a previous project or the estimators have great experience with what is going to be estimated. This category of technique results in a total project estimate and is the technique of choice for early estimates where detailed information is not available.

• Parametric techniques are useful as additional information becomes available, and the details of level one and level two of the project WBS can be estimated. Additionally, analogous and parametric models are also used to make an estimate of the total duration of the project, as well as an estimate of the cost and resource utilization.

• Bottom-up techniques are applied as the estimating tool of choice when the detailed project data becomes available. Using this technique, the expenditure of every resource of every component of the project is estimated as a prelude to rolling up these estimates to the intermediate levels and to the total project. This technique will result in a transparent and structured estimate for the project, which can be tracked and managed.


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Phase 1

Project

Deliverable 3 Subproject 4 Subproject n

Work Package2.2.1.1

Phase 2

Deliverable 4.1 Deliverable 4.mDeliverable 2.1 Deliverable 2.2 Deliverable 2.3

Deliverable 4.1.1 Deliverable 4.1.2 Deliverable 4.1.xDeliverable 2.2.1 Deliverable 2.2.2

Work Package2.2.1.2

Work Package2.2.1.3

Work Package4.1.2.1

Work Package4.1.2.2

Work Package4.1.2.3

Work Package3.1

Work Package3.2

Work Package3.3

Work Package3.4

Subproject2.2.2.2

Work Package2.2.2.2.1

Work Package2.2.2.2.2

Work Package2.2.2.1

Analogous

Parametric

Bottom-Up

Figure 4-2. Types of Estimating Techniques in the Context of Decomposing a WBS

4.3.1 Use of Analogous Techniques

Analogous techniques are the simplest form of estimating and are appropriate when, in the opinion of the project manager and the project management team, there is significant similarity between the proposed project and those projects that are contained in the historical database. Sometimes known as top-down estimating, analogous estimates are the least complex, and are less precise than other models.

Analogous techniques are usually used to develop early and rough estimates of the projects. Rough estimates are commonly known as order of magnitude, conceptual, or preliminary estimates. In a way, analogous models are always used in estimating, with the distinction that during the early stages, they estimate the total cost of the project, whereas when used in conjunction with the bottom-up estimate, they determine the resource utilization of individual elements.

An example of an analogous technique is a facility that is in the planning stages, which is identical to an existing senior care facility that was built with a final cost of US$4.5 million. For the purposes of the initial planning, a total project cost was determined to be between US$4 million and US$5 million. In this scenario, the buildings were considered to be identical. However, if the first facility had 344 rooms and the new facility was planned for 455 rooms, the analogous technique could be used to derive cost or duration using extrapolation. Assuming there is a direct correlation between the number of rooms and the cost, an average cost per room would be US$13,081 (US$4.5 million/344). Using this cost per room, for a 455-room facility would result in a preliminary estimate of US$5.95 million ($13,081 � 455).


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Generally, analogous techniques are customized to industry sectors, using industry-specifi c historical data. For example, ratio estimating for a power plant might use a 30% ratio factor and construction might use a 50% ratio factor. Using historical data from the industry and the organization, the accuracy and reliability of the results will be substantially higher.

The most notable analogous techniques are ratio estimating, power-series estimating, range estimating, and three-point estimating.

.1 Ratio Estimating

This technique is interchangeably called equipment ratio or capacity factor. The premise of this technique is that there is a linear relationship between the cost of a project with one or more of the basic features of its deliverable. The basic deliverable features that will need to be quantifi ed and used with this model are either physical attributes or performance characteristics. The ratios or factors may be derived from general industry data or from personal experience and enterprise-specifi c data.

An example of using generic data is a construction project, where the total cost of the project is estimated to be two times the cost of the material and embedded equipment.

Another example is when the cost for a high-level design of a system development project constitutes 30% of the total cost for the project. Secondly, the cost of human resources may constitute 50% of the cost for a construction project and 75% of the cost for a system and software development project.

.2 Power-Series Estimating

Ratio estimating presumes that there is a linear relationship between the capacity and cost, in that the ratio of two capacities is the same as the ratio of the cost of those capacities. The power series is an enhancement of the ratio estimating technique in that it presumes that the ratio of the cost of two projects is related to a value that is derived by raising the ratio of the capacities to a certain power. Likewise, the second part of this technique presumes that the ratio of the duration of the two projects is related to a value that is derived by raising the ratio of the costs to a certain power.

The graphical analogy of these two techniques is that ratio estimating can be depicted on a straight line on a linear scale, whereas power-series estimating can be depicted by a straight line on a semi-logarithm scale. In ratio estimating, the actual ratio or slope of the line varies depending upon the industry, enterprise, or project type. Likewise, in power-series estimating, the slope of its line (which is the power quotient) varies depending upon the project type.

An example of this technique is when a project manager has already built one experimental car at a cost of US$2.3 million over the course of an 18-month project. In the opinion of the project manager, the determining factor for the complexity of a car is its top speed, and the top speed of the recently built car is 214 mph. If the project manager is asked to build a car whose top speed is 250 mph, the estimate of the cost and duration for construction of the proposed car would be:

(1) Three quarter rule for the cost : C p � C e (S p /S e ) 0.75

C p � 2.3 (250/214) 0.75 � 2.3 � 1.123 � US$2.6 million


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(2) Square root rule for the duration : T p � T e (C p /C e ) 0.5 T p � 18 (2.58/2.3) 0.5 � 18 � 1.06 � 19.1 Where: T � duration, C � Cost, S � Size (Capacity), and Subscripts e and p � existing and planned, respectively.

.3 Range Estimating

In order to increase the reliability and usability of the early estimates, the estimator should provide not just the most likely value but rather the full range of all possible values for the fi nal cost of the project. One subtle feature of this technique is that the accuracy of the estimate is embedded in the estimate.

For example: the project team offers the following range for the cost of a new graphic interface software enhancement: 3 to 8 worker months and US$150 thousand to US$320 thousand.

.4 Three-Point Estimating

This technique is a more sophisticated form of the range-estimating technique, in which three separate values for the cost (or duration) of the project or the cost of individual elements of the project are provided: optimistic, pessimistic, and most likely. With three values for the estimate of the cost of the project or of the individual elements, a certain degree of clarity is added to the estimate. This technique can also serve to normalize somewhat subjective data and potentially regulate overly optimistic estimator input. In order to temper the estimates, which may be overly optimistic, an adjustment routine using historical data can be used.

Program evaluation and review technique (PERT) analysis uses a statistical probability outcome to calculate an expected proposed value based on a weighted average of the three values. It weights the most likely data by four times its value to reinforce its signifi cance.

PERT formula: E � (O � 4ML � P)/6 Where: E � effort, O � optimistic, ML � Most Likely, and P � pessimistic, respectively.

The premise is that all estimates are forecasts with some uncertainty. A weighted average of the expected range of durations, work, or costs is a better predictor than a single most likely estimate. Project estimators tend to be overly optimistic. Using the PERT formula, the calculation may provide a result that is statistically more accurate. An example of this technique is when the project manager offers a most likely estimate of US$100 thousand for developing a new medical testing device. To put the estimate in perspective, the project manager will highlight that, depending upon the materialization of identifi ed project risks, the fi nal cost could be anywhere between US$66 thousand and US$210 thousand.

Using the PERT formula, where O � 66, P � 210, and ML � 100, the project manager could propose a PERT value of US$113 thousand. The wider the range between the pessimistic and optimistic values, the greater the value is in using this technique.

4.3.2 Use of Parametric Techniques

Parametric techniques use statistical relationships between historical data and other variables (e.g., square meters in construction) to calculate an estimate for an activity cost, duration, or resource.


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Activity durations or costs can be quantitatively determined by multiplying the quantity of work to be performed by the historical duration or cost of that work. For example, a laborer may take 4 hours to dig a 3-ft deep ditch that is 10 ft long. Using that same resource, it will take 8 hours to dig a 20-ft long ditch of the same depth. To apply that to cost estimates, if the labor rate for that resource is US$30 per hour, the labor cost for the 20-ft ditch is US$240.00.

The data that forms the basis for calculations, the formula that is used on those calculations, and the manner in which the model gets updated is often proprietary to the organization. There may also be factors, such as environmental or technical complexity or project risk, which may be applied to the overall estimate.

Using the parametric estimate, the estimator enters the relevant inputs, which are different from model to model. Then the model will output values of cost, schedule, and resources for the project. The output is also different from model to model.

4.3.3 Use of Bottom-Up Techniques

The most accurate and most reliable estimate for a project can be developed with the use of a bottom-up estimating technique. Prerequisite to a bottom-up estimate is a detailed WBS, activity list, and a comprehensive directory of project resources. As defi ned in the PMBOK ® Guide— Fourth Edition, the WBS is a deliverable-oriented hierarchical decomposition of the work to be executed by the project team in order to accomplish the project objectives and create the required deliverables. It organizes and defi nes the total scope of the project.

The project estimate is derived from the summation of detailed estimates for all of the individual constituent components of the project. Using this technique, a detailed resource-by-resource estimate of the project can be performed. One of the many advantages of the resource-by-resource estimate is that it sets the foundation for an informed change management on occasions when the project is constrained by a shortage of resources, or conversely by a client request for a shorter project duration.

The process begins by determining what resources are required to implement a specifi c lowest-level element of the WBS, known as a work package. Although, in some industries, some of the resources are not explicitly mentioned as part of the resource allocation or as part of the estimate, the most logical approach would be to list all of the resources that are required regardless of the source of funds and mechanisms of payment. The list of resources can include all costs, labor, and other assets such as materials, embedded equipment, supplies, facilities, or implementation tools.

To summarize, there are many different types of resources that are required for a given project:

• People resources or labor;

• Tools, facilities, and equipment for the workers;

• Embedded materials and equipment; and

• Licenses, fees, bonds, and insurance, etc.

Using the list of resources, the estimator assigns the needed resources to each work package. For each resource, the estimator provides the optimum crew size for a particular function and the amount of time


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required by the optimum crew to craft that specifi c work package (intensity). For example, a work package could require three programmers (intensity) for fi ve days (duration) and seven electrical engineers for one day. Then the cost of the work package is calculated by summing the product of intensity, duration, and unit price of the resource.

Rolling up the resource estimates, duration of use, and cost of those resources to the intermediate levels of the WBS, and ultimately to the top of WBS, would provide a resource-by-resource utilization estimate and the cost of those resources for the entire project.

In bottom-up estimating, at both the activity and work package level, three-point estimating and/or PERT techniques can be effectively deployed in place of single-point estimates. Once the estimates are aggregated up to the project level, a more accurate and clear depiction of the total work, time, and cost required for the project can be determined. This allows for more detailed tracking and overall project control.

In summary, each of these techniques can be used alone or in combination and at any level of the WBS and activity.

4.4 Outputs

Two outputs at the end of the Create Estimates stage would be:

4.4.1 Completed Estimates

Estimates for activity duration, activity resources, and costs are the key outputs of the Create Estimates stage. The proposed values are a prediction of the project outcome and not defi nitive values. Therefore, it is considered to be a living document that is managed and controlled throughout the project life cycle.

4.4.2 Basis of Estimates

The amount and type of supporting details for the estimate vary by application area. Whatever the level of detail, the supporting documentation provides a clear and complete understanding of how the estimate was derived. This can include assumptions made, factors or units used, or comparative information. Identifi cation of risks should also be included.

4.5 Considerations

When creating the estimate, there are a few considerations that should be made by the project manager, estimators, team, and stakeholders:

4.5.1 Optimism in Estimates

Estimates need to be tempered with reality when creating project estimates. For example, there is often rework, which can impact project commitments if not originally accounted for in the estimate. Evidence of this optimism in planning and estimating is proven by the number of projects that overrun their cost and


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time estimates against the number of projects that underrun their cost and time estimates. For project management purposes, success is often considered to be achieved when the project meets its budgetary and schedule estimates, while delivering the full scope. Project stakeholders, such as customers and sponsors, need to also think realistically.

4.5.2 Progressive Elaboration of Estimates

Estimates should be refi ned during the course of the project to refl ect additional details as they become available. The accuracy of a project estimate will increase as the project progresses through the project life cycle. Therefore, project estimating becomes an iterative process. The estimates serve as the basis for the project budget; therefore, the budget should have the ability to adjust and fi ne tune, such that the current budget is realistic and in sync with the revised estimates.

4.5.3 Cost-Schedule Interrelationship

Development of the baseline estimate of resources and costs is predicated on certain assumptions about the pace of the project. The cost of the project is often impacted by the duration of the project; therefore, the project manager should always be sensitive to the fact that virtually any change in project schedule and the amount of work completed in the project could trigger a change in costs for the project. For example, there could be an increase in costs for the project if a shortage of resources forces a longer duration for the project, or if the urgency of the deliverable forces a shorter duration for the project. Earned value is one method for monitoring this relationship.

4.5.4 Normalization of Historical Data

If the historical data that is available to the project managers cover projects that were completed for several years and in many different locations, then the data needs to be normalized for time and for location before it is used in the estimating model. The adjustment needs to be performed in the light of the differences between the proposed project and those projects that provided the basis for the model. The indices to be normalized are the time at which the project was completed and the location where the project was executed.

The adjustment of the input data for the models can be conducted by a simple ratio adjustment. The time-adjusted cost of a project is determined through a multiplication by the infl ation or escalation rate. Then, the time-adjusted cost is adjusted again by another multiplier in order to account for differences in project costs in the two locations. For example, labor rates, productivity, and work practices may vary by location. The time adjustment multiplier is almost always larger than one, although the location adjustment multiplier may be either larger or smaller than one.

4.5.5 Accounting for Time

If the project being estimated spans several years, the estimator or estimating models should consider factors such as infl ation in their models. This can include wages, resource costs, and materials. The project estimating team could consider infl ators; however, defl ators are also an element for consideration because “falling prices” could make a bid uncompetitive.


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4.5.6 Expert Judgment

Project estimators should consult with one or more experts in order to validate the calculated estimate against the experience and understanding of the experts. If a large number of experts are consulted in this manner, then statistical analysis and refi nement techniques can be employed to enhance the results.

Obtaining the opinion of an expert is similar to using a parametric technique for validating the estimate. In this case, the parameters of the parametric technique are intuition and experience.

A variation of expert judgment is known as the Delphi method, in which more than one expert is consulted, and the collective judgment of these experts undergoes several refi nement iterations by the same experts. These experts work anonymously with one another in order to eliminate bias.

Expert judgment is used to check the validity and reasonableness of an estimate. However, this method is most useful and most effective when applied during the early stages of project estimating.

4.6 Summary

The project estimating process develops a prediction of how many resources the project will use, how much the project will cost, and how long it will take to complete.

Various methods of estimating, using analogous (top-down), parametric, and bottom-up techniques were described along with their impacts on project management. The estimates can vary signifi cantly depending on the phase of project life cycle in which the estimate was made and the tools and techniques that were used in the process.

The estimation techniques used may differ based on the amount of time allocated for the estimating process, the amount of information available at the time of estimation, the industry, the application area, the complexity, and identifi ed risks. Whatever techniques are used to derive the estimates, it is important that the estimating should always be performed by the people who will be doing the work or the people most familiar with the work to be accomplished.


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5

CHAPTER 5

MANAGE ESTIMATES

This chapter covers the ongoing maintenance and management of activity duration estimates, activity resource estimates, and cost estimates. The objective of the Manage Estimates stage is to outline the fundamental inputs, activities, and outputs with regard to managing estimates appropriately.

This chapter also describes an approach to managing project estimates from initial estimates to completed projects, based on the consumption of actual time and cost, and the ability to reforecast remaining cost and time.


5.1 Introduction

5.2 Inputs

5.3 Activities

5.4 Outputs

5.5 Considerations

5.6 Summary

5.1 Introduction

In preparation for this chapter, some clarifi cation is needed. Since the project manager actually monitors and controls the schedule, costs, and resources for the project, and not the estimates, the Manage Estimates stage and the monitoring and controlling of the project could be considered to be one and the same. Although they are closely related, there are some subtle differences. The Monitoring and Controlling Process Group is a broader concept that includes other aspects aside from schedule and costs. Similarly, this stage should not be considered to be managing change control as discussed later in this section.

For the purposes of this practice standard, the Manage Estimates stage should be understood as applying actual consumption to the baseline, assessing the impacts, and then recalculating the estimates, if the consumption trend is not synchronized with the expectations.

Once the activity duration, activity resources, and costs have gone through the initial estimating process as defi ned by the organizational process assets and Create Estimates stage, the actual management of these estimates is undertaken by the project manager, with the support of the project team and key stakeholders. Figure 5-1 shows the inputs and outputs of the Manage Estimates stage, which is described in this chapter.


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CHAPTER 5 – MANAGE ESTIMATES5


5.4.2Updated Forecast

5.4.1Updated Estimates

5.4.4Reporting and

Communication

5.3.1Manage Estimates

5.3.2Use of Tools and Techniques

Manage Estimates

5.4.3Updated Change

Request Log

5.2.1Baseline Estimates

5.2.2Approved Changes

5.2.3Resource Plan

5.2.4Work Performance

Information



Approach

Figure 5-1. Manage Estimates

This chapter is intended to describe an approach to managing the estimates once the initial project estimates have been completed and the project is under way. This approach is one of a number of industry good practices for managing project estimates. The basic principles include the regular review of the estimate and budget; applying actual costs, time, and resource consumption in a timely manner; adjusting for approved changes; and re-estimating or reforecasting of the estimates.

5.2 Inputs

Inputs to Manage Estimates for activity duration, activity resources, and costs will vary from project to project and from organization to organization. There are six basic inputs that are required for effectively managing estimates:

5.2.1 Baseline Estimates

According to the PMBOK ® Guide— Fourth Edition, a baseline is an approved plan for the project. Usually it is the original plan, plus or minus approved changes, which is compared to the actual performance to determine whether performance is within acceptable variance limits.

For estimating purposes, there are three baselines for consideration:

• Project cost performance baseline estimates,

• Project schedule baseline estimates, and

• Project resource histogram estimates.


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CHAPTER 5 – MANAGE ESTIMATES 5

5.2.2 Approved Changes to Baseline

Estimates are affected by requests for changes made to expand or reduce the project scope, modify budget, revise schedules, or refl ect a change in the makeup of the project team. Since change control processes, inputs, tools and techniques, and outputs for time, cost, schedule, and resources are covered in the PMBOK ® Guide— Fourth Edition, this chapter will refer to those processes rather than reiterate them in this practice standard.

Usually, only change requests that have been processed through the Perform Integrated Change Control process and have been approved should be considered when re-estimating project costs or schedules.

A change in project resources, however, may not require a formal change control review and may need to be negotiated to acquire replacement team members or an adjustment made to the schedules to account for the remaining work to be completed by the project team in its altered state.

Approved changes are included as outputs from the Perform Integrated Change Control process and are covered in the PMBOK ® Guide— Fourth Edition.

5.2.3 Resource Plan

As defi ned in the PMBOK ® Guide— Fourth Edition, the human resource plan provides guidance on how project human resources should be defi ned, staffed, managed, controlled, and eventually released.

Through negotiation and team acquisition, appropriate human resources and associated competencies are assigned to the work activities.

When a critical resource skill is required and that skill is not part of the team, or the person with that particular skill leaves the project, a delay in completing tasks for that skill is likely to occur. This delay can impact the project schedule and the project costs until another individual with the required skill set is acquired.

If a resource is acquired with a competency less than planned for in the human resource plan, more time may be required to complete the tasks, resulting in a re-estimate of the project schedule and project costs. Resource competency is established in the roles and responsibilities section of the human resource plan.

The staffing management plan section of a project’s human resource plan also indicates which resource skills are needed and when to bring those resources in throughout the project life cycle. The timing for bringing on a resource and the utilization percentage assists in setting the resource profile to ensure an optimum amount of time is spent on the activities required to achieve project objectives.

Resources also include facilities, equipment, and materials other than human resources. Costs and scheduling for these resources should also be included in the initial project estimates. Consumption of these resources needs to be considered and tracked along with human resources.


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5.2.4 Work Performance Information

The actual amount of time and costs associated with achieving the project objectives are considered work performance information, also known as the actuals.

Resources are usually associated with costs in that there is an hourly rate which, as time is consumed, the rate translates into cost consumption. This applies to both contracted and internal positions.

• Contracted Positions . In contracted positions, there are two basic types of contracts: time and material (hourly) and fi xed cost (fi xed bid). For hourly contracts, the hourly rate is negotiated within the contract. The amount of time consumed is refl ected in the hours billed to the project and represented in an actual invoice that can be applied against the project when posted to an accounts payable system. The tracking of actual time from invoices is important as some nonbillable time may also be spent on the project. However, unless clearly specifi ed in the contract, nonbillable time should not be tracked against the project cost estimate.

On fi xed-cost contracts, the cost of the project is set at an agreed-upon price with milestone or phase-end billing points; the amount of time used is immaterial to the cost estimate, to a point. When schedules slip, a vendor may decide to put additional or different resources on a project, but the fi nal cost to the client remains the same. Approved changes may adjust the cost and therefore change the estimate, but the amount of total cost is consumed regardless of the amount of time consumed. Because of this, tracking of actual time from invoices is important ony in determining the work effort for better estimates on similar projects.

• Internal Positions . For internal employees, the rate may be combined into a blended rate rather than displaying the actual compensation of any employee team member.

Some organizations do not track the cost of employees for a project, preferring to consider their compensation as a cost of doing business. Although this is not uncommon, it tends to not accurately refl ect the total cost of investment and, therefore, the return on investment in achieving project objectives.

For both contracted and internal positions, a time entry system may be employed to track actual time spent on the project, or time can be tracked by a project coordinator on a project spreadsheet. From the time entry system, the project manager can apply consumption of time against the project schedule.

Some organizations do not require employees to enter time. However, in order to get a valid and accurate schedule, consumption of actual time spent on each activity by all project team members is highly recommended. This will provide for more realistic management of the schedule estimate.

5.2.5 Organizational Process Assets

An organization’s corporate knowledge base or process asset library may contain the organizationally approved methodologies, processes, procedures, and templates used for managing the scheduling, costs, and resource estimates. The Manage Estimates stage is dependent on the processes and practices that are defi ned within the process assets library. Well-defi ned processes and procedures for estimate management and reporting enable more consistency in managing estimates, as well as identifying, approving, and communicating changes for estimates to the project team and key stakeholders.


39


The processes describe the approach for using the prescribed templates, while the templates provide a level of consistency across projects and the organization. Samples of templates used could also be available as outputs from lessons learned activities from previous projects.


The project estimating approach, as created during the Prepare to Estimate stage, defi nes the approach for managing and monitoring the project estimates and forecasts. This, along with the organizational process assets, should outline the plan for managing the estimate.

5.3 Activities

This section covers the activities applied to the initial and revised estimates to properly manage and maintain the estimate through achievement of the project objectives.

The activities described in this section are good practices that can be applied to most projects, most of the time, rather than a single solution for managing every project estimate.

Figure 5-2 shows the process for the project estimate management cycle from the time the initial project estimates are generated as project baselines, through a series of iterations where actual costs, time and resource consumption, and approved changes are applied. The results are reviewed and a re-estimate for the project is created, if necessary.

EstimateManagement

Cycle

ImproveEstimating

Process

Project/Phase ReviewLessons Learned

PMIS / PPM ToolsEarned Value Management

Requested ChangesChange Management Process

Time (or Cost) VariancesApproved Changes

Estimating TechniquesCommunication Plan

Prepare toEstimate

End of Projector Phase

Time EntriesResource ExpendituresStaff Management Plan

Estimate Baselines

3. R

e-es

tim

ate

1. Apply Actuals 2. Review & Control

Figure 5-2. Estimate Management Cycle


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5.3.1 Manage Estimates: A Living Plan Cycle

.1 Step One: Apply Actuals

Once the initial project schedule, project cost, and project resource estimates are completed and baselined, the project manager or a selected project team member can begin to apply actual time, cost, and resource usage against the project plan.

a.) Project Schedule Estimate Management Where there is a formal time entry process and the scheduling application is interfaced with the time tracking system, the actual time consumed should be updated automatically in the project plan. If not interfaced, the time usage for each resource will need to be entered manually.

In the case where vendors are employed, the actual time billed on the associated invoice should be reconciled. If a validated discrepancy exists, the invoiced value should be used because it also refl ects charges to the cost of the project.

b.) Project Cost Estimate Management As time is entered against the project, the resulting calculation of time consumed against the resource rate generates the consumption of actual costs.

Special consideration should be made in recording non-resource costs to the project, such as software, equipment, training, and fees or taxes. If included in the original cost estimate, then consumption needs to be refl ected appropriately throughout the project life cycle.

c.) Project Resource Estimate Management Throughout the project life cycle, resources are added or released, based on the human resource plan as outlined in the PMBOK ® Guide —Fourth Edition. Consideration, in the form of an identifi ed risk, should be given for normal and sudden staff turnover during the course of the project. The resource roles and responsibilities are defi ned, and the staffi ng management plans are detailed in the human resource plan.

The staffi ng management plan includes the procedures for staff acquisition, resource calendars, staff release plan, and competencies and training needs. In the initial project resource estimate baseline, the known skill needs are documented and fi lled as close to the requirements as possible, and brought on and off the project in an optimal order. If the project runs according to plan, the resource estimate should refl ect the proper use of resources throughout the project life cycle.

This situation is not always the case. With the sudden turnover of a key resource, the project manager and project team may need to evaluate the availability of suitable candidates to fulfi ll the remaining workload. Should the replacement team member be less competent, then the impact to the project schedule could be signifi cant. On the other hand, if the replacement candidate possesses the skills of the previous team member, but the resource cost rate is signifi cantly higher, this could have an impact on the project cost estimate.

The availability of resources other than people, for example, equipment, facilities, etc., should also be tracked.


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.2 Step Two: Review and Control

Simultaneous with progressive elaboration, the project estimates should be scheduled for review on a regular basis to ensure proper controls are in place to identify variances. These variances can be caused by the complexity of the project, changes to requirements, or other project environmental variables that could impact the project estimate.

During the normal execution of a project, the project manager, project team, and stakeholders expect time and costs consumption to approximate what was stated in the project plan as derived from the baseline estimate. Actual time is applied with the rates factored in for each resource. Consumption of any resource costs other than human resources is factored into the project.

It is diffi cult to track the actual consumption to the average consumption per period as calculated by the project plan. Fluctuations between the actual consumption and the estimated average consumption per period are normal. For example, a resource may be calculated at 40 hours per 5 day work week, when in fact the team is working 4 ten-hour days. For the fi rst 4 days of the week, the consumption of time is greater than the plan. However, on the fi fth day it is equal when no hours are worked.

After applying actual time and costs or after assigning new team members, any costs and time variances should be compared to the project baseline for time and costs. If any variance is outside acceptable limits, then the project will need a more substantive re-estimate, including any provision for scope, cost, or schedule change control.

For resources other than human resources, such as materials, equipment, facilities, travel, and expenses, etc., tracking the use of or consumption of these resources is equally important because they are considered in the costs of the project.

Again, excluding approved changes, if at the weekly reviews the trend indicates signifi cant over or under consumption, corrective action should be requested, documented, and communicated to the relevant stakeholders using the appropriate project control procedures.

The formal authorization of a change includes: analysis and approval for changes in scope, cost estimates, schedule and duration timelines, and resource staffi ng or skill competencies, and the decision whether or not the new estimate should be re-baselined.

.3 Step Three: Re-estimate after Applying Actual Time, Cost or Change in Resources

When approved changes are introduced to the project, and at certain key milestones, such as with a major deliverable at the end of a phase or an event that is a precursor to additional funding, the project team conducts a formal review of the actuals consumed with respect to the baseline. Any substantial cost variance or schedule variance is addressed through standard project management practices and is covered in the PMBOK ® Guide —Fourth Edition.

The resulting variances also become variables for reforecasting the project or the next project phase. The project manager and project team create forecasts on the remaining amount of time, costs, and resources needed to deliver the project or phase objectives based on the current rate of consumption of time, cost, and resources.


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Forecasting cost differs from re-estimating the budget at completion. The cost forecast can be expressed as the estimate to complete, in other words dollar (currency used) amount needed to complete the requirements. It can also be defi ned as estimate at completion minus the actual cost to date. For more details on this, refer to the Practice Standard for Earned Value Management.

Schedule forecasts rely on actual time consumed to date, staffi ng management plans, and the remaining activity duration estimates.

5.3.2 Use of Tools and Techniques

The following key tools and techniques can be used to manage, forecast, and report on project estimates:

• Project Management Information Systems (PMIS) —These tools are software applications that provide the project manager and project team with the means to record actual time, cost, and resource utilization across the project. These tools enable the project manager to maintain ongoing information for managing the estimates. From the most simple to the most complex, they are classifi ed as follows:

○ Spreadsheets —Either as a template or specific to a project, spreadsheets enable the project manager to track costs against an initial estimate.

○ Advanced Scheduling Software —Scheduling tools allow the project manager to record the initial schedule estimate, set up resources with an associated cost structure, and apply time usage against the project. When the project and resources have been set up and time is accurately tracked against schedule tasks, the resulting estimate to complete can be fairly accurate. Much of this estimating is conducted in a manual fashion unless the scheduling software interfaces with a more complex project portfolio management application.

○ Project Portfolio Management Tools (PPM) —These tools are advanced and complex applications that can interface with financial systems and scheduling systems to more automatically track time and cost against baseline estimates.

• Earned Value Management (EVM) —Earned value management is a very important part of controlling the project in that it integrates scope, time, and cost. It is an early predictor, giving the project manager and the project team an opportunity to manage the estimates and proactively manage the project. Once forecasts have been developed, then other tools and techniques like schedule compression, what-if scenario analysis, adjusting leads and lags, performance reviews, and resource alternatives can be used or applied.

For more information on the EVM process, refer to the PMI Practice Standard for Earned Value Management.

• Templates —As maintained within the corporate knowledge base or process asset library, these templates are organizationally standardized formats and processes that enable consistency across the project life cycle and across projects.


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• Communications Management Plan —This plan usually provides, among other information, resources allocated for communication activities, including time and budget. A more complete list of items covered in the communications management plan are described in the PMBOK ® Guide —Fourth Edition.

• Integrated Change Control Process —As described in the PMBOK ® Guide— Fourth Edition, this is the process of reviewing all change requests, approving change requests, and managing changes to the deliverables, organizational process assets, and project documents.

• Variance Analysis —Defi ned in the PMBOK ® Guide —Fourth Edition, as a method for resolving the total variance in the set of scope, cost, and schedule variables into specifi c component variances associated with defi ned factors affecting the scope, cost, and schedule variables. Cost and schedule variance measurements are used to assess the magnitude of variation against the original baseline estimates. Determining the causes and degrees of variances relating to cost and schedule performance baselines are important aspects of project cost and project schedule control.

5.4 Outputs

Outputs to Manage Estimates for project time, project resources, and project cost will vary from project to project and from organization to organization. There are four basic outputs from this stage:

5.4.1 Updated Estimates

Updated estimates for project time, project cost, and project resources include:

• Project Time Estimates —Project time estimates assist in rescheduling the budgeted work to complete. As time increases, these impact the consumption of resources as well. Resources have a rate or cost associated with them, so the project costs are impacted.

• Project Resource Re-Estimates —Project resource re-estimates are created when the competency of skill levels of human resources, the quality of material, or facility resources change. Although such changes can result in a decrease in the rate for the resources, it may increase the duration for achieving the project objectives, and thus affect the schedule.

• Project Costs Estimates —Project costs are not usually increased without a corresponding change in time, scope, quality, or cost of resources. However, a decrease in costs can be the result of a management decision to reduce budgets across a department or organization.

All three estimates—project time, project cost, and project resources—are interrelated and all should be assessed as to the impact of any change.

5.4.2 Updated Forecast for Remainder of Project

The updated forecast is defi ned as the recalculation of the cost to complete the remainder of the project or phase objectives based on the actual consumption of resources to date. Estimate at completion (EAC) is the aggregate of actuals to date plus the remaining forecast.


44


5.4.3 Updated Change Request Log

Any updates to the list of project change requests, for example, approved, opened, and closed changes, are considered to be change log updates. These changes should include the quantifi cation of the impact of project time, project cost, or project resources.

5.4.4 Reporting and Communication

To keep all stakeholders, sponsors, and project team members advised of any changes to project cost estimates, project time estimates, and project resource estimates, reporting and communications should follow the guidelines and processes as defi ned in the communications management plan.

5.5 Considerations

Key considerations and generally accepted good practices for the activities in this stage include but are not limited to the following:

5.5.1 Actuals

Capturing actuals is the practice of using the data in such a way so as to recalibrate models, re-estimate the project, and reforecast the balance of the project.

It is important to ensure that time consumption is charged on the actual activities performed, in particular for those situations when employees enter time themselves. This practice allows the organization to refi ne and customize the estimating methods of the organization, thus contributing to improved initial estimates for future projects.

5.5.2 Variance Analysis

Variance analysis is the practice of analyzing, understanding, and communicating the impacts of time, scope, and resources and the interdependencies each has on the others. When the re-estimate results in a signifi cant variance, the sponsors or steering committee may determine that the entire project should be re-baselined. In these instances, follow the approved change management control process.

5.5.3 Change Control

Following the established guidelines and corporate methodologies for project management change control assists in maintaining close attention to the changes in cost, time, and quality when the scope of the project changes.

5.5.4 Quality of Estimates

Adhering to living estimate processes produces a quality of estimates that enables the project manager and project team to address and forecast changes to the project schedule, project costs, and project resources.



45


5.5.5 Organizational Culture

Overall management of estimates is infl uenced by organizational culture. If the organization is strict regarding compliance to tracking consumption of actual time and/or cost against project estimates and in re-estimating and reforecasting when change occurs, then the organizational culture for managing estimates will ensure reasonably accurate estimations.

5.6 Summary

In summary, the re-estimating of project costs, project time, and project resources is an intricate and interdependent exercise. As actuals are consumed, these are refl ected in the project plans. Variances from the plan should be reviewed, and decisions whether or not to formally change these aspects of the project need to be made. If the changes are approved and the baseline is altered, then re-estimates of time, resources, and cost are made to bring schedule variance and cost variance back in line to achieve delivery of the project objectives.

Controlling schedule, costs, and managing the project team, are project management processes covered in the PMBOK ® Guide —Fourth Edition, along with the Monitoring and Controlling Process Group. In this chapter of the Practice Standard for Project Estimating , defi nitions are provided as well as a recommended process, (living plan process) that defi nes why, when, and how to re-estimate project time, project cost, and project resources during the project life cycle.

The living plan process described in this chapter is based on the collation of a number of real life experiences and good practices. As this practice standard evolves, additional good practices and real life experiences will emerge and become incorporated into the recommendation for added depth. However, the estimating cycle is a valid model for other existing approaches and may be the basis for variations on the theme.



47

6

CHAPTER 6

IMPROVE ESTIMATING PROCESS

This chapter covers the fi nal stage of the project estimating life cycle. The objective of the Improve Estimating Process stage is to take actual data and lessons learned and complete the cycle by incorporating them back into the estimating processes and tools.


6.1 Introduction

6.2 Inputs

6.3 Activities

6.4 Outputs

6.5 Considerations

6.6 Summary

6.1 Introduction

The purpose of the Improve Estimating Process stage is to improve the estimating process for the current project, future projects, and the organization’s estimating process. This is an important step because it incorporates lessons learned and empirical data to calibrate the models and processes, and results in more accurate estimates.

Improvement can be made at any point in the project life cycle by collecting data, changing processes, and changing templates or tools.

Figure 6-1 shows the inputs and outputs of Improve Estimating Process stage which is described in this chapter.

Spending the appropriate amount of time improving the estimating process may affect other project management processes, tools and techniques, lessons learned, and organizational process assets.

6.2 Inputs

In order to improve the project estimating process, the project manager needs to gather the relevant information.


48

CHAPTER 6 – IMPROVE ESTIMATING PROCESS6

6.2.1 Project Information

Project information is used to characterize the project to benefi t future projects for understanding and comparison. This can include the following:

• High-level scope,

• Risk register, and

• Project characteristics (type, technology, methods, etc.).


This information includes the project estimating approach for the project including:

• Scope of estimate,

• Confi dence ranges,


6.4.1Updated Tools and

Techniques

6.3.1Gather Estimating Information

6.3.2Assess Estimating Process

6.3.3Determine Root Causes and

Lessons Learned

6.3.4Develop Action Plan for Changes

6.3.5Implement Action Plan and

Share Lessons Learned

Manage Estimates

6.4.2Updated Organizational

Process Assets

6.2.1Baseline Estimates


Approach

6.2.3Historical Project

Information

6.2.4BaselinedEstimates

6.2.5Updated Estimates/

Forecasts

6.2.6Change Log

6.2.7Actuals VersusEstimate Data

6.2.8StakeholderFeedback


Figure 6-1. Improve Estimating Process


49

CHAPTER 6 – IMPROVE ESTIMATING PROCESS 6

• Constraints and assumptions,

• Estimating technique [model],

• Resources and skills,

• Environment to support estimating integrity

• Reforecasting points,

• Improvement process, and

• Contingency reserves.

6.2.3 Historical Project Information

The historical information on similar projects that have been completed, which includes:

• WBS,

• Project schedule,

• Project cost,

• Resource usage, and

• Project documentation.

6.2.4 Baseline Estimates

A baseline estimate is the fi rst deliberate, detailed estimate of the resources, cost, and schedule. It is normally required for high-level decision making. This estimate is performed early in the project and serves as the basis for which subsequent estimates are measured against.

6.2.5 Updated Estimates/Forecasts

Updated estimates/forecasts are estimates that have been made subsequent to the baseline.

6.2.6 Change Log

The change log is a document that contains all of the requested changes to the project requirements with related information such as status and impacts to project time, cost, and resources.

6.2.7 Actual Versus Estimate Data

Actual versus estimate data include the labor hours, material costs, and other costs expended on a project through a specifi c period of time.


50


6.2.8 Stakeholder Feedback

Stakeholder feedback about the project estimates, assumptions, actual data, or variances may lead to corrective and preventative actions.

6.2.9 Organizational Process Assets

Organizational process assets are the established measure, model, defi nition, or criterion against which the estimating process is measured. Organizational process assets include items such as policies, schedule templates, project document templates, tools, and training materials.

6.3 Activities

The following are activities used in the Improve Estimating Process stage:

6.3.1 Gather Estimating Information

This activity includes gathering all information necessary for analysis of the estimates.

6.3.2 Assess Estimating Process

This step determines whether the estimating process performs and adheres to a set of parameters. It will examine the deliverables, the estimating process steps, the people and skills utilized to formulate the estimate, along with the tools and techniques used. For each stage in the estimating life cycle, a set of questions should be asked. A sample set of questions is provided in Figure 6-2.

6.3.3 Determine Root Causes and Lessons Learned

This step uses the output of the “assess estimating process” step (see 6.3.2) to utilize problem-solving work sessions for determining the root cause of any problems that occurred in the estimating process. Root causes can be identifi ed by using techniques such as brainstorming or using such tools as the fi shbone diagram (Ishikawa). Lessons learned should be documented for inclusion in the “develop action plan for changes” step (see 6.3.4).

6.3.4 Develop Action Plan for Changes

This step uses the output of the “determine root causes and lessons learned: step (see 6.3.3). An action plan should be developed to remedy the problems found in the estimating process or associated processes for the current project, future projects, or the estimating process.

6.3.5 Implement Changes and Share Lessons Learned

This step uses the output of the “develop action plan for changes” step (see 6.3.4). The steps in the action plan are executed and lessons learned are shared.


51

CHAPTER 6 – IMPROVE ESTIMATING PROCESS 6

Prepare to Estimate Stage Was the project information that was gathered for input complete and correct?

Did the experts identified to create the estimate have the right skill set?

Was the estimating technique selected the correct one for the project?

Were the constraints and assumptions for the project identified?

Was the historical project data gathered sufficient to be used?

Were the ranges and confidence level at defined points documented?

Was the estimating environment of a level of maturity to create an estimate with a high degree of confidence? (i.e., adequate time and estimating resources available)

Was a plan developed to properly manage contingency reserves?

Was a lessons learned process documented with proper cost allocation and resource efforts?

Was the estimating approach document signed off by the key stakeholders?

Was the estimating approach document communicated with the entire project team for input?

Were expectations set properly with the stakeholders of the project regarding confidence in the estimate and information that was available?

Create Estimates Stage Was the documented estimating approach clear and complete?

Was the estimating approach document used to create the estimate?

Were other estimating models used to validate the estimate?

Were the experts identified to perform estimating tasks available?

Was the estimating environment of a level of maturity to create an estimate with a high degree of confidence? (e.g., adequate time and estimating resources available)

Were lessons learned documented and acted upon?

Was the baseline estimate for resources, cost, and schedule documentation signed off by the key stakeholders?

Was the baseline estimate for resources, cost, and schedule documentation communicated to the entire project team for input?

Manage Estimates Stage Did changes go through an integrated change control process including an assessment of impact to project time, project cost, and project resources?

Was a change log maintained?

Was the scope verified and managed?

Were human resources managed?

Were risks identified and managed?

Was actual data captured and compared to the estimate in a timely manner?

Was the estimating environment of a level of maturity to create recalibrated estimates and forecasts with a high degree of confidence? (e.g., experts available, adequate time, and tools and techniques used?)

Were lessons learned documented and acted upon?

Was the estimate’s living plan process documented and shared?

Were recalibrated estimates and forecasts shared with key stakeholders and the project team?

Figure 6-2. Checklist for Assessing the Estimating Process


52


6.4 Outputs

Upon completion of improving the estimating process, there are key outputs as follows:

6.4.1 Updated Tools and Techniques

Updates to any tools or techniques that were used in the estimating process can include the following:

• Historical information used as an example for analogous estimating,

• Calibrated parametric models based on actual data from the project, and

• Updated templates and other documentation.

6.4.2 Updated Organizational Process Assets

Updates to organizational process assets can include the following:

• Update to any document that defi nes the standard for estimating or affects the estimating process,

• Updated estimating approach document, and

• Documented lessons learned for use in future projects.

6.5 Considerations

6.5.1 Spend the Appropriate Time

The project manager should be diligent to take the time to complete this step because of the enormous impact on the current project, future projects, and the overall estimating process for the organization. The project estimate should include the time and cost to improve the estimate.

6.5.2 Consider the Skill Set

It is important to note that the skill set to facilitate problem-solving sessions for determining the root causes may require resources that are not assigned to the current project. These resources should have facilitation skills as well as problem-solving skills. It is usually deemed wise to have an external resource to conduct these sessions so as not to bias the outcome.

6.6 Summary

The Improve Estimating Process is an iterative stage that encompasses the entire project estimating life cycle. It occurs during all of the project management processes within the Initiating, Planning, Executing, Monitoring and Controlling, and Closing Process Groups. It receives inputs or produces outputs for most of the Project Management Knowledge Areas: Project Integration Management, Project Scope Management, Project Time Management, Project Cost Management, Project Quality Management, Project Human Resource Management, Project Communications Management, Project Risk Management, and Project Procurement Management.

The environment of the organization needs to be open to capturing lessons learned to ensure that they are incorporated into the tools, techniques, and the organizational process assets that affect the estimating process.


53

REFERENCES

[1] Project Management Institute. 2008. A Guide to the Project Mangement Body of Knowledge —Fourth Edition. Newtown Square, PA: Author.

[2] Project Management Institute. 2005. Practice Standard for Earned Value Management . Newtown Square, PA: Author.

[3] Project Management Institute. 2006. Practice Standard for Work Breakdown Structures —Second Edition. Newtown Square, PA: Author.

[4] Project Management Institute. 2006. Practice Standard for Scheduling. Newtown Square, PA: Author.

[5] Project Management Institute. 2009. Practice Standard for Project Risk Management . Newtown Square, PA: Author.

[6] Project Management Institute. 2008. Practice Standard for Program Management —Second Edition. Newtown Square, PA: Author.

[7] Project Management Institute. 2008. Practice Standard for Portfolio Management —Second Edition. Newtown Square, PA: Author.

[8] United States General Accounting Offi ce (GAO). 1972. The Theory and Practice of Cost Estimating for Major Acquisitions, Report B-163058, July 24, 1972. Washington, DC: Author.

[9] Brooks, F. P., Jr. 1995. The Mythical Man-Month: Essays on Software Engineering. 20th Anniversary Edition . Reading, MA: Addison-Wesley, 322 pages.



55

A

APPENDIX A

GUIDELINES FOR A PMI PRACTICE STANDARD

A.1 Introduction

A PMI practice standard is characterized as follows:

• Each practice standard provides guidelines on the mechanics (e.g., nuts and bolts, basics, fundamentals, step-by-step usage guide, how it operates, how to do it) for some signifi cant process (input, tool, technique, or output) that is relevant to a project manager.

• A practice standard does not necessarily mirror the life-cycle phases of many projects. But, an individual practice standard may be applicable to the completion of one or more phases within a project.

• A practice standard does not necessarily mirror the Knowledge Areas within A Guide to the Project Management Body of Knowledge ( PMBOK ® Guide –Fourth Edition), although an individual practice standard will provide suffi cient detail and background for one or more of the inputs, tools and techniques, and/or outputs. Therefore, practice standards are not required to use the name of any Knowledge Area.

• Each practice standard should include information on what the signifi cant process is and does, why it is signifi cant, how to perform it, when it should be performed, and, if necessary for further clarifi cation, who should perform it.

• Each practice standard should include information that is accepted and applicable for most projects most of the time within the project management community. Processes that are generally restricted or applicable to one industry, country, or companion profession (i.e., an application area ) may be included as an appendix for informational purpose, rather than part of the practice standard. With strong support and evidence, an application area-specifi c process may be considered as an extension practice standard, in the same manner as extensions to the PMBOK ® Guide –Fourth Edition are considered.

• Each practice standard will benefi t from the inclusion of examples and templates. It is best when an example or template includes a discussion of its strengths and weaknesses. A background description may be necessary to put this discussion in the appropriate context. The examples should be aligned with the relevant information in the standard or its appendix and placed in proximity to that information.

• All practice standards will be written in the same general style and format.

• Each practice standard project will assess the need to align with or reference other practice standards.

• Each practice standard will be consistent with the PMBOK ® Guide –Fourth Edition.

• Each practice standard is intended to be more prescriptive than the PMBOK ® Guide –Fourth Edition.



57

B

APPENDIX B

EVOLUTION OF PMI’S PRACTICE STANDARD

FOR PROJECT ESTIMATING

B.1 Pre-Project

In late 2006, PMI began exploration for developing the fi rst Practice Standard for Project Estimating. The focus would be placed on providing information that is generally recognized as “good practices” rather than “standard practices” and is applicable to most projects most of the time. The project itself was divided into two major phases: research and development. The research phase started in late 2006 shortly after the formation of the core team and was directed at performing a global scan of the available bodies of knowledge in the industry. The result of the research phase brought a signifi cant depth of information regarding the science of estimating. However, gaps were identifi ed surrounding the actual context of estimating (i.e., when to use the science and in what situations, how a quality estimate is known, questions to ask about an estimate, etc.) It was also noted during this phase that project managers typically are not and should not be the experts in the practice of estimating. However, a project manager who is fl uent and capable in the contextual concepts of estimating can make a signifi cant impact on a project’s probability of success (e.g., delivered on time, on scope, and within budget). In March 2009, the Standards Members Advisory Group approved the fi nal charter for the standard with Chris Richards, PMP, as Chair and Judi Vincent, PMP, as Vice Chair. The charter included the following characteristics for the standard:

• Characteristics of an environment for estimating integrity.

• Responsibility at different organizational levels for estimating integrity (project, program, portfolio, functional, business unit, and executive).

• Managing the process of estimation.

• Processes for project managers—not estimators.

• Defi ning the context for estimating.

• Quality of the estimating process.

• Estimating biases: human and cultural.

• Having a comparative reference for an estimate.

• What estimates are and are not, including:

○ Not to include contingency fund.

○ Not related to budgeting.

○ Not to include reserves.

○ Relationship of estimates to budgets.


58

B APPENDIX B – EVOLUTION OF PMI’S PRACTICE STANDARD

• Uses and abuses in estimating.

• Validating the results of the estimating scheme.

• Managing the process of project estimating not doing estimates.

• Describes “estimating principles” and estimating techniques.

• Notes, as appropriate, estimating concepts common across industries, even if the language used to describe them vary by industry.

• Is consistent with the PMBOK ® Guide —Fourth Edition. However, this practice standard may identify new concepts, approaches, and tools that will need to be included in the next revision of the PMBOK ® Guide as they relate to project estimating. A list of recommended changes to existing standards shall be delivered to the Standards Manager upon completion of the project.

• Is written for project management practitioners.

• Is interlinked with the process material in appropriate sections of the PMBOK ® Guide —Fourth Edition.

• Uses the Glossary from the PMBOK ® Guide —Fourth Edition as the starting point for its Glossary, and does not contain contradictions, changes, or additional terms or concepts unless the changes are negotiated through the Standards Manager.

• Is aligned with, and does not contradict, other PMI standards. Documentation demonstrating this alignment shall be delivered to the Standards Manager upon completion of the project.

• Follows the PMI Style Guide, is written in North American English, translatable to PMI offi cial languages, and is sensitive to cultural issues.

• Is approximately 50 pages, exclusive of front and back matter.

• Can be approved as a PMI and ANSI standard, which means that in addition to the content being acceptable, the standard is to be developed in compliance with the ANSI-approved process.

B.2 Development Work

The development phase began in April 2009 and writing was completed in October 2009. The content leads for the chapters were: Kerry Wills, PMP, lead developed the outline for the standard and prepared Chapters 1–3; Parviz Rad, PMP, prepared Chapter 4; Clifford Sprague, PMP, prepared Chapter 5; and Barbara Fuller, PMP, prepared Chapter 6. To assist in validating the content, the team engaged several industry experts to perform a subject matter expert review and provide feedback on the content prior to exposure. This group was comprised of representatives across multiple industries.


59

BAPPENDIX B – EVOLUTION OF PMI’S PRACTICE STANDARD

B.3 Exposure and Consensus

The standard was submitted as an exposure draft on 30 March 2010. There were 1160 comments. The team’s comment acceptance rate (comments accepted outright, and accepted with modifi cations) was 38%. The resultant fi nal draft was submitted to the PMI Standards Program Consensus body for offi cial ballot on 11 September 2010. Twenty-six members of the PMI Standards Consensus Body agreed to participate in the ballot of The Practice Standard for Project Estimating. Those not participating included the PM and Deputy PM for this standard because their participation was considered to be a confl ict of interest. The balloting period was closed on 10 October 2010 with 23 ballots returned. Consensus Body voting results were as follows: 17 affi rmative, 4 affi rmative with comment, 1 abstention and 1 rejection.



61

C

APPENDIX C

CONTRIBUTORS AND REVIEWERS OF THE PRACTICE STANDARD

FOR PROJECT ESTIMATING

This appendix lists, alphabetically within groupings, those individuals who have contributed to the development and production of the Practice Standard for Project Estimating . No simple list or even multiple lists can adequately portray all the contributions of those who have volunteered to develop the Practice Standard for Project Estimating .

The Project Management Institute is grateful to all of these individuals for their support and acknowledges their contributions to the project management profession.

C.1 Practice Standard for Project Estimating Core Committee (Development Phase)

The following individuals served as members, were contributors of text or concepts, and served as leaders within the Project Core Committee during the development phase of this project:

Chris Richards, PMP, ChairJudith K. Vincent, PMP, Vice ChairCynthia A. Berg, PMP, MBAPaula Ximena Varas, MBA, PMPKristin L. Vitello, CAPM, Standards Project SpecialistKerry R. Wills, PMPLinda Zupan, MS, PMP

C.2 Signifi cant Contributors

In addition to the members of the Project Core Committee, the following individuals provided signifi cant input or concepts:

Barbara A. Fuller, PMP, CEGParviz F. Rad, PhD, PMPClifford W. Sprague, PMP


62

C APPENDIX C – CONTRIBUTORS AND REVIEWERS

C.3 Practice Standard for Project Estimating Reviewers

In addition to those listed previously, the following individuals participated on the Practice Standard for Project Estimating Project Committee as editors/reviewers and researchers of content:

Mamoun A. Besaiso, CEPuja Kasariya, PMPMary M. Kosovich, PE, PMPMercedes Martinez Sanz, PMPAntonio Quiroz-Magan, PMP, CCCAPamela Krol Taupier, PMP

C.4 Practice Standard for Project Estimating SME Reviewers

The following individuals provided their subject matter expertise to the draft of the Practice Standard for Project Estimating prior to the public exposure draft review.

Wanda Curlee, DM, PgMPJane Darga, PMP, CTPUsha Easwaran, MSc, PMPTom Kendrick, PMPCarl L. Pritchard, PMI-RMP, EVPBoris Shvartsberg

C.5 Practice Standard for Project Estimating Core Committee (Research Phase)

The following individuals served as members, were contributors of text or concepts, and served as leaders within the Project Core Committee during the research phase of this project:

Shelly A. Brotherton, MPM, PMPElaine Lazar, AStd, Standards Project SpecialistEric S. Norman, PMP, PgMPJohn F. PetricelliChris Richards, PMPPaula Ximena Varas, MBA, PMPJudith K. Vincent, PMPLinda Zupan, MS, PMP


63

CAPPENDIX C – CONTRIBUTORS AND REVIEWERS

C.6 Practice Standard for Project Estimating Committee Members (Research Phase)

The following individuals participated on the Practice Standard for Project Estimating Project Committee:

Ala Ziyad Abou-HmadanSheena AliSusan BarthNewton BuyiA. Sloan Campbell, MBA, F CIMVidya DevarajVijay GunetaEvbu O. Ileaboya, PMPRui Li, PMP, IMBA Adriano Marques da SilvaJohn Morfaw, MBA, PMCeline Sie Yiung Ng, PMPDavid Orient, PMPShady R. Sammy, MBA, PMPPriya Samraj, BTech, PMPIan Stewart, PMPNajam Syed, PMPKyle L. VaughanRajan Preet Singh WadhwaLei XunNtombazi Zulu

Asim Ajmal, PMPMohit Arora, MBA, PMPJohn Kevin BorgstedtChester Camp, PMPTeresa Colon, PMPPiyush Govil, BE, PMPMichael HoppRameshchandra B. KetharajuAhsan Maqbool, PMPArlene F. MinkiewiczDmitry NechayevFelicia OnatehGeorge Pasieka, PMP, ACPPGuillermo Salazar NahuatlatoKishore Shetty, PMPKaren Z. Sullivan, MBA, PMPPamela Krol Taupier, PMPMahadevan VenkatesanMichael D. Williams, MBAChady Youakim


64

C APPENDIX C – CONTRIBUTORS AND REVIEWERS

C.7 Final Exposure Draft Reviewers and Contributors

In addition to team members, the following individuals provided recommendations for improving the Exposure Draft of the Practice Standard for Project Estimating :

Ahmed Taha Abd El-Hameed, MBA, PMPKenneth A. Ahiarakwem, MEng, PMPOndiappan (“Ari”) Arivazhagan, PMP, PMI-RMPPablo Bálsamo, MPM, PMPEduardo Bazo Safra, PMPDamiano Bragantini, PMPLuigi Buglione, PhD, COSMICJames F. Carilli, MBA, PgMPSubrahmanyam V. N. Chinta, PMPLaurent DelaleMichael J. Frenette, PMP, CMCRegis Gimenis, PMPSharad S. Harale, MBA, PMPMamane Ibrahim, PMP, APMCRadha IyerMichele J. Jones, PMPRamakrishna Kavirayani, PMPIan Laliberte, PMP, P2PAnmar MangoJeffi n MathewMohit Mathur, PMPRicardo Mendonça, MBA, PMPHarishchandra Nayak, PMPFernando Nunes de Oliveira, PMP, PMI-SPCrispin (“Kik”) Piney, BSc, PgMPAndrew J. Pirnik, Jr., PMPChandra S. Rachakonda, PMPNagesh Ramamurthy, PMP, CSQA

Khurram Abbas, PMPSaul H. Ackovitz, PMPTobias AliagaTim E. Arthur, PMP, MSMOTDimah Barakat, MSc, PMPStephen F. Bonk, PE, PMPAlexander Budzier, PMPCarlos M. Buxton, PMP, CSMJames E. Cavin, MBA, PMPEmanuel Ferreira Coutinho, MSc, PMPScott D. Freauf, PMP, IPMA-COliver Gildersleeve, Jr., PMP, MCTSJose Rafael Alcala Gomez, PMPPatricia HoodMohammad Irshaid Y. Abu Irshaid, PMPJurgita Janickaite, PMPR. Kannan, PMPRameshchandra B. KetharajuHenry Lie, PMP, PMI-RMPAndré Martini, MSc, PMPWilliam J. MathisIan Meggarrey, PMP, CMQ/OEEric M. Myers, PMP, MCPMichael C. Nollet, MBA, PMPVenkateswar P. Oruganti-Fiete, PMPJose Angelo Pinto, MIS, PMPMadhav Prabhu, PMP, CISAChandrasekar Ramakrishnan, PMP, CSQA


65

CAPPENDIX C – CONTRIBUTORS AND REVIEWERS

Michael R. Reed, PMPVivek Salunke, PMPHilary ShreterRanda Speller, PMPMark A. Swiderski, PMP, MBAChristophe A. Thierry, PMPMassimo Torre, PhD, PMPJaime González Vargas, PMPVijay K. Vemana, PMPSteven WalterKevin R. Wegryn, PMP, CPMGregory WestPeter G. Wrisley, PMPSamer A. Zawaydeh, MSc, PMP

M. K. Ramesh, BE, PMPBernard RoduitArchana Sharma, MS, PMPMárcio Silveira, PMPJuergen Sturany, PMPGangesh ThakurRenzo J. Toledo, MBA, PMPBiagio Tramontana, Eng, PMPMartin VaughanDave Violette, MPM, PMPPatrick Weaver PMP, FAICDLars Wendestam, MCsAnthony Wojnar, PMPShahrzad Yazdani, PMP, LSS GB

C.8 PMI Standards Member Advisory Group (MAG)

The following individuals served as members of the PMI Standards Member Advisory Group (MAG) during development of the Practice Standard for Project Estimating :

Monique Aubry, PhD Margareth Carneiro Chris Cartwright, MPM, PMP Terence J. Cooke-Davies, PhD Carol Holliday, MA, PMP Deborah O’Bray, CIM (Hons) Asbjørn Rolstadås, PhD, Ing David W. Ross, PgMP, PMP Paul E. Shaltry, PMP John Zlockie, MBA, PMP

C.9 Staff Contributors

Special mention is due to the following employees of PMI:

Donn Greenberg, Manager, Publications Roberta Storer, Product Editor Barbara Walsh, CAPM, Publications Production Supervisor



67

D

APPENDIX D

ESTIMATING MODELS

D.1 Overview

Table D-1 was created through team-based knowledge and industry research during the diligence phase of the standard. It is important to note that there are other models which may be utilized outside of those identifi ed in the table.


68

D APPENDIX D – ESTIMATING MODELS

Cons

truct

ive

cost

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69

GLOSSARY

1. Common Acronyms

CCB change control board EAC estimate at completion ETC estimate to complete EVM earned value management OPA organizational process assets PMIS project management information system RBS risk breakdown structure SOW statement of work WBS work breakdown structure

2. Defi nitions

Activity Attributes. Multiple attributes associated with each schedule activity that can be included within the activity list . Activity attributes include activity codes, predecessor activities, successor activities, logical relationships, leads and lags, resource requirements, imposed dates, constraints, and assumptions.

Activity Duration. The time in calendar units between the start and fi nish of a schedule activity. See also duration .

Activity Duration Estimate. A quantitative assessment of the likely amount or outcome for the duration of an activity.

Activity List. A documented tabulation of schedule activities that shows the activity description, activity identifi er, and a suffi ciently detailed scope of work description so project team members understand what work is to be performed.

Activity Resource Estimate. A quantitative assessment of the likely amount of resource for a specifi c activity.

Analogous Estimating . An estimating technique that uses the values of parameters, such as scope, cost, budget, and duration or measures of scale such as size, weight, and complexity from a previous, similar activity as the basis for estimating the same parameter or measure for a future activity.

Analogous Estimating Model . A simplifi ed mathematical description of a system or process, used to assist calculations and predictions that evaluate similar items as a basis for estimating the same parameter for measure of a future activity.

Baseline. An approved plan for a project, plus or minus approved changes. It is compared to actual performance to determine if performance is within acceptable variance thresholds. Generally refers to the current baseline, but may refer to the original or some other baseline. Usually used with a modifi er (e.g., cost performance baseline, schedule baseline, performance measurement baseline, technical baseline).


70

GLOSSARY

Baseline Estimate. A quantitative assessment of the likely amount or outcome for the approved plan for a project.

Bottom-up Estimating. A method of estimating a component of work. The work is decomposed into more detail. An estimate is prepared of what is needed to meet the requirements of each of the lower, more detailed pieces of work, and these estimates are then aggregated into a total quantity for the component of work. The accuracy of bottom-up estimating is driven by the size and complexity of the work identifi ed at the lower levels.

Bottom-up Estimating Model. A simplifi ed mathematical description of a system or process, used to assist calculations and predictions, that is prepared by starting at the lower, more detailed pieces of work; these estimates are then aggregated into a total quality for the component of work.

Change Control. Identifying, documenting, approving or rejecting, and controlling changes to the project baselines.

Change Control Board (CCB). A formally constituted group of stakeholders responsible for reviewing, evaluating, approving, delaying, or rejecting changes to a project, with all decisions and recommendations being recorded.

Change Request. Requests to expand or reduce the project scope, modify policies, processes, plans, or procedures, modify costs or budgets, or revise schedules.

Communication Management Plan . The document that describes: the communications needs and expectations for the project; how and in what format information will be communicated; when and where each communication will be made; and who is responsible for providing each type of communication. The communication management plan is contained in, or is a subsidiary plan of, the project management plan.

Confi dence Level . A measure of how reliable a statistical result is, expressed as a percentage that indicates the probability of the result being correct.

Contingency Reserv e. The amount of funds, budget, or time needed above the estimate to reduce the risk of overruns of project objectives to a level acceptable to the organization.

Contractor Bid and Analysis. The price that the contractor is proposing to charge the client for a particular project. Therefore, a bid will contain all of the elements of the real cost of a project plus an amount that would represent the profi t or return on investment.

Cost Estimate. A quantitative assessment of the likely amount for project, work package, or activity cost.

Create Estimate. This is the stage of estimating activity resources, activity duration, and costs for a project. There are several models and techniques for determining the estimates.

Delphi Method. A systematic, interactive forecasting method that relies on a panel of experts. The experts answer questionnaires in two or more rounds. After each round, a facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons they provided for their judgments.

Determine Budget. The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

Develop Schedule. The process of analyzing activity sequences, durations, resource requirements, and schedule constraints to create the project schedule.


71

GLOSSARY

Duration. The total number of work periods (not including holidays or other nonworking periods) required to complete a schedule activity or work breakdown structure component. Usually expressed as workdays or workweeks. Sometimes incorrectly equated with elapsed time.

Earned Value Management (EVM). A management methodology for integrating scope, schedule, and resources, and for objectively measuring project performance and progress. Performance is measured by determining the budgeted cost of work performed (i.e., earned value) and comparing it to the actual cost of work performed (i.e., actual cost).

Enterprise Environmental Factors. Any or all external environmental factors and internal organizational environmental factors that surround or infl uence the project’s success. These factors are from any or all of the enterprises involved in the project, and include organizational culture and structure, infrastructure, existing resources, commercial databases, market conditions, and project management software.

Estimate. A quantitative assessment of the likely amount or outcome. Usually applied to project costs, re-sour ces, effort, and durations and is usually preceded by a modifi er (i.e., preliminary, conceptual, feasibility, order-of-magnitude, defi nitive). It should always include some indication of accuracy (e.g., � x percent).

Estimate Activity Durations. The process of approximating the number of work periods needed to complete individual activities with estimated resources.

Estimate Activity Resources. The process of estimating the type and quantities of material, people, equipment, or supplies required to perform each activity.

Estimate at Completion (EAC). The expected total cost of a schedule activity, a work breakdown structure component, or the project when the defi ned scope of work will be completed. The EAC may be calculated based on performance to date or estimated by the project team based on other factors, in which case it is often referred to as the latest revised estimate. See also estimate to complete .

Estimate Costs . The process of developing an approximation of the monetary resources needed to complete project activities.

Estimate to Complete (ETC). The expected cost needed to complete all the remaining work for a schedule activity, work breakdown structure component, or the project. See also estimate at completion .

Estimating Life Cycle. The duration of estimating in a project, which includes the stages of: Prepare Estimate, Create Estimate, Manage Estimate, and Improve Estimating Process.

Forecast. An estimate or prediction of conditions and events in the project’s future, based on information and knowledge available at the time of the forecast. The information is based on the project’s past performance and expected future performance, and includes information that could impact the project in the future, such as estimate at completion and estimate to complete.

Historical Information. Documents and data on prior projects including project fi les, records, correspondence, closed contracts, and closed projects.

Human Resource Plan. A document describing how roles and responsibilities, reporting relationships, and staffi ng management will be addressed and structured for the project. It is contained in or is a subsidiary plan of the project.

Identify Risks. The process of determining which risks may affect the project and documenting their characteristics.


72

GLOSSARY

Improve Estimating Process. This project estimating stage is used as the projects progress. Lessons learned are applied to the estimating process, which includes calibrating the models based on actual values and maintaining checklists of areas to include in the estimates.

Integrated Change Control. Identifying, documenting, approving or rejecting, and controlling changes to the project baselines in a coordinated manner across all involved disciplines and Knowledge Areas to ensure overall integrity of the fi nal product, and includes an assessment of impact to project time, project cost, and project resources.

Lessons Learned. The learning gained from the process of performing the project. Lessons learned may be identifi ed at any point. Also considered a project record, to be included in the lessons learned knowledge base.

Manage Estimate. This project estimating stage is used when the original estimate is completed and the project work has started. Many activities are used, including change controls, calibrating the forecast, and comparing actuals to the estimate.

Manage Stakeholder Expectations. The process of communicating and working with stakeholders to meet their needs and addressing issues as they occur.

Order of Magnitude (OOM) Estimate. The class of scale or magnitude of any amount, where each class contains values of a fi xed ratio to the class preceding it. In its most common usage, the amount being scaled is 10 and the scale is the (base 10) exponent being applied to this amount.

Organizational Process Assets. Any or all process-related assets, from any or all of the organizations involved in the project that are or can be used to infl uence the project’s success. These process assets include formal and informal plans, policies, procedures, and guidelines. The process assets also include the organizations’ knowledge bases such as lessons learned and historical information.

Parametric Estimating. An estimating technique that uses a statistical relationship between historical data and other variables (e.g., square footage in construction, lines of code in software development) to calculate an estimate for activity parameters, such as scope, cost, budget, and duration. An example for the cost parameter is multiplying the planned quantity of work to be performed by the historical cost per unit to obtain the estimated cost.

Parametric Estimating Model. A simplifi ed mathematical description of a system or process, used to assist calculations and predictions. Generally speaking, parametric models calculate the dependent variables of cost and duration on the basis of one or more variables.

Power-Series Estimate. An enhancement of the ratio estimating model in that it presumes that the ratio of the cost of two projects is related to a value that is derived by raising the ratio of the capacities to a certain power.

Prepare Estimate. This is the estimating stage which includes the identifi cation of activities, determining the techniques to be used for estimating, identifying the estimating team, preparing estimating inputs, and documenting any constraints to the estimate (e.g., cost, schedule, resources).

Program Evaluation and Review Technique (PERT). A technique for estimating that applies as weighted average of optimistic, pessimistic, and most likely estimates when there is uncertainty with the individual activity estimates.


73

Progressive Elaboration. Continuously improving and detailing a plan as more detailed and specifi c information and more accurate estimates become available as the project progresses, and thereby producing more accurate and complete plans that result from the successive iterations of the planning process.

Project Charter. A document issued by the project initiator or sponsor that formally authorizes the existence of a project, and provides the project manager with the authority to apply organizational resources to project activities.

Project Estimating. The act of creating a quantitative assessment of the likely amount or outcome. Usually applied to project costs, resources, effort, and durations.

Project Estimating Approach . A document, created in the Prepare Estimate stage, which outlines the overall approach, techniques used, project information assumptions, constraints and other important information needed to create the estimates.

Project Life Cycle. A collection of generally sequential project phases whose name and number are determined by the control needs of the organization or organizations involved in the project. A life cycle can be documented with a methodology.

Project Management Information System (PMIS). An information system consisting of the tools and techniques used to gather, integrate, and disseminate the outputs of project management processes. It is used to support all aspects of the project from initiating through closing, and can include both manual and automated systems.

Project Schedule. The planned dates for performing schedule activities and the planned dates for meeting schedule milestones.

Ratio Estimating. A model that presumes that there is a linear relationship between the cost of a project with one, or more of the basic features of its deliverable. The basic deliverable features that will need to be quantifi ed and used with this model are either physical attributes or performance characteristics.

Resource Calendar. A calendar of working days and nonworking days that determines those dates on which each specifi c resource is idle or can be active. Typically defi nes resource specifi c holidays and resource availability periods.

Risk Register. The document containing the results of the qualitative risk analysis, quantitative risk analysis, and risk response planning. The risk register details all identifi ed risks, including description, category, cause, probability of occurring, impact(s) on objectives, proposed responses, owners, and current status.

Rough Estimate. Also known as a “ballpark estimate,” this is an inexact representation of something that is still close enough to be useful.

Schedule Compression. Shortening the project schedule duration without reducing the project scope.

Staffi ng Management Plan. The document that describes when and how human resource requirements will be met. It is contained in, or is a subsidiary plan of, the human resource plan.

Stakeholder. Person or organization (e.g., customer, sponsor, performing organization, or the public) that is actively involved in the project, or whose interests may be positively or negatively affected by execution or completion of the project. A stakeholder may also exert infl uence over the project and its deliverables.

GLOSSARY


74

GLOSSARY

Standard. A document that provides, for common and repeated use, rules, guidelines, or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context.

Statement of Work (SOW). A narrative description of products, services, or results to be supplied.

Template. A partially complete document in a predefi ned format that provides a defi ned structure for collecting, organizing, and presenting information and data.

Three-Point Estimate. An analytical technique that uses three cost or duration estimates to represent the optimistic, most likely, and pessimistic scenarios. This technique is applied to improve the accuracy of the estimates of cost or duration when the underlying activity or cost component is uncertain.

Variance Analysis. A method for resolving the total variance in the set of scope, cost, and schedule variables into specifi c component variances that are associated with defi ned factors affecting the scope, cost, and schedule variables.

Work Breakdown Structure (WBS). A deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project objectives and create the required deliverables. It organizes and defi nes the total scope of the project.

Work Performance Information. Information and data, on the status of the project schedule activities being performed to accomplish the project work, collected as part of the direct and manage project execution processes. Information includes: status of deliverables; implementation status for change requests, corrective actions, preventive actions, and defect repairs; forecasted estimates to complete; reported percent of work physically completed; achieved value of technical performance measures; start and fi nish dates of schedule activities.


75

A Accuracy, false perception of level of, 23 Action plan for changes, developing, 50 Activities

in create estimates, 27–32 analogous, 27–30 ( See also Analogous techniques) bottom-up, 27–28, 31–32 parametric, 27–28, 30–31

in improve estimating process, 50–51 gather estimating information, 50 assess estimating process, 50 determine root causes and lessons learned, 50 develop action plan for changes, 50 implement changes and share lessons learned, 50

in manage estimates, 39–43 apply actuals, 40 estimate management cycle, 39 re-estimate, 41–42 review and control, 41 tools and techniques, use of, 42–43

in prepare to estimate, 20–21 create project estimating approach, 20

Activity list, 18–26, 31, 69 Actuals, 1, 21, 38–40, 44, 48 Additional infl uences, 19 Analogous techniques, 27–30

power-series estimating, 29–30 range estimating, 30 ratio estimating, 29 three-point estimating, 30

Approach, project estimating, 17–18, 20–22, 39, 48–49 Approved changes to baseline, 37 Assess estimating process, 50–51 Assumptions, 19, 21 Attributes, 18

B Baseline, approved changes to, 37 Baseline estimates

in improve estimating process, 49 in manage estimates, 36

Basis of estimates, 32 Bottom-up techniques, 27–28, 31–32

C Capacity factor, 29 Change control, 44 Change log, 49 Change request log, updated

in improve estimating process, 49 in manage estimates, 44

Checklist, for assessing the estimating process, 51 Communications management plan, 43–44 Completed estimates, 32 Confi dence level of estimates, 12 Constraints and assumptions, 19, 21 Construction, project estimating in, 15 Contingency reserve

application of, 12, 15 defi nition of, 10

Contingency reserve planning, 21 Contracted positions, 38 Cost forecast

in re-estimating, 42 updated, 43

Cost-schedule interrelationship, 33 Create estimates, 23–34

accounting for time, 33 activities, 27–32 approach, 22 basis of estimates, 32 bottom-up techniques, use of, 31 completed estimates, 32 cost-schedule interrelationship, 33 estimators, 26–27 expert judgment, 34 historical data normalization, 33 inputs, 25–27 optimism in estimates, 32–33 outputs, 32 parametric techniques, use of, 30 progressive elaboration of estimates, 33

Culture, organizational, 45

INDEX


76

INDEX

D Data, actual vs. estimate, 49 Delphi method, 34 ( See also Expert judgment) Determine root causes and lessons learned, 50 Develop action plan for changes, 50 Documents, project, 17–18

E Earned value management (EVM), 42 Effort, historical project, 20 Enterprise environmental factors, 19, 27 Equipment ratio, 29 Estimate activity durations, 4 Estimate activity resources, 3 Estimate confi dence, 21 Estimate costs, 4 Estimates, 3

baseline, 36 basic characteristics, 14 basis of, 32 completed, 32 confi dence level of, 12 evolving, 12 faulty, 14 good, 14 optimism in, 32 progressive elaboration of, 33 resource, 31–32 rough order of magnitude, 12

Estimating assumptions, 21 Estimating information, 26 Estimating process, assessing, 50–51 Estimating techniques, 19, 21 Estimators, 11, 26–27 Expert judgment, 34 Experts, 18

F Feedback, stakeholder, 50 Fixed-cost contracts, 38 Forecast

in improve estimating process, 49 in manage estimates, 43–44

Forecasting cost in re-estimating, 42 updated, 43

G Gather estimating information, 50 Good estimates, characteristics of, 14

H Historical data, normalization of, 33 Historical project information

in improve estimating process, 49 in prepare estimates, 19–20

I Information and resources to create estimate, 22 Implement changes and share lessons learned, 50 Improve estimating process, 10, 47–52

activities 50–51 actual versus estimate data, 49 appropriate time on, 52 assess estimating process, 50 baseline estimates, 49 change log, 49 determine root causes and lessons learned, 50 develop action plan for changes, 50 gather estimating information, 50 historical project information, 49 implement changes and share lessons learned, 50 inputs, 47–50 outputs, 47, 52 organizational process assets, 50 purpose, 47 project information, 48 project estimating approach, 48 skill set, consideration for, 52 stakeholder feedback, 50 updated estimates/forecasts, 49 updated organizational process assets, 52 updated tools and techniques, 52

Improvement processes, 21 Inputs

in create estimates, 25–27 enterprise environmental factors, 27 estimating information, 26 estimators, 26–27 organizational process asset infl uences, 27 project estimating approach, 25

in improve estimating process, 47–50 actual vs. estimate data, 49


77

INDEX

baseline estimates, 49 change log, 49 historical project information, 49 organizational process assets, 50 project estimating approach, 48–49 project information, 48 stakeholder feedback, 50 updated estimates/forecasts, 49

in manage estimates, 36–39 approved changes to baseline, 37 baseline estimates, 36 organizational process assets, 38–39 project estimating approach, 39 resource plan, 37 work performance information, 38

in prepare to estimate, 17–20 additional infl uences, 19 constraints and assumptions, 19 enterprise environmental factors, 19 estimating techniques, 19 experts, 18 historical project information, 19–20

Integrated change control process, 43 Internal positions, 38

L Lessons learned, 50 Life cycle stages, 10–11 Living plan cycle, 39–42

vs. Monitoring and Controlling Process Group, 35 scope of, 35

M Manage estimates, 35–45. See also specifi c topics

activities, 39–43 actuals, 44 approved changes to baseline, 37 baseline estimates, 36 change control, 44 estimate management cycle, 39 living plan cycle, 39–42 manage estimates, 40 organizational culture, 45 organizational process assets, 38 outputs, 43–44 project estimating aproach, 39 quality of estimates, 44

reporting and communication, 44 resource plan, 37 tools and techniques, use of, 42 updated change request log, 44 updated estimates, 43 updated forecast, 43–44 variance analysis, 44 work performance information, 38

Management processes, 21 Metrics, in project estimating, 13 Monitoring and Controlling Process Group, 35 Monitoring processes, 21

N Nonbillable time, 38 Normalization, of historical data, 33

O Optimism in estimates, 32–33 Order of magnitude estimates, 28 Organizational culture, 45 Organizational process assets, 19, 20

in improve estimating process, 50 infl uences on, 27 in manage estimates, 38–39 in prepare to estimate, 20

Outputs in create estimates, 32

basis of estimates, 32 completed estimates, 32

in improve estimating process, 52 updated organizational process assets, 52 updated tools and techniques, 52

in manage estimates, 43–44 reporting and communication, 44 updated change request log, 44 updated estimates, 43 updated forecast for remainder of project, 43

in prepare to estimate, 18, 22 information and resources to create estimate, 22 project estimating approach, 22

P Parametric techniques, 27–28, 30–31 Planning, time for, 22 Power series, 29


78

INDEX

Power-series estimating, 29–30 Preliminary estimates, 28 Prepare to estimate, 10, 17–23

accuracy of, false perception of, 23 activities, 20–21 creating approach to, 20–21 considerations, 32 documenting approach in, 17–18, 22 inputs 17–20 outputs, 18, 22 stakeholder expectations, 22 time for planning, 22

Principles and concepts, 9–15 estimating variances, 13–14 evolving estimates, 12 good estimates, 14 industry differences, 15 life cycle stages, 10–12 metrics, 13 scope of project estimating, 9–10

Program evaluation and review technique (PERT), 30 Progressive elaboration, 4–5 Progressive elaboration of estimates, 33 Project cost, historical, 20 Project cost estimates

management of, 40 updated, 43

Project documents, 17–18 Project documents, historical, 20 Project effort, historical, 20 Project estimating

approach, 25 creation, 10 defi nition of, 3–4 estimating roles, 10–11 evolving estimates, 12 good estimate, characteristics of, 14 hierarchy of, 2 industry differences, 15

in construction, 15 in software development, 15 in petroleum refi ning, 15

life cycle stages of, 10–11 management, 10 metrics, use of, 13 preparation, 10 principles and concepts, 9 process improvement, 11

project management practice and, 4–5 roles, 10–11 variances in, causes of, 13–14

Project estimating approach, 17–18, 20–22, 25, 39, 48–49 Project estimating life cycle, 10–12 Project information, 48 Project life cycle, vs. project estimating life cycle, 11–12 Project Management Information System (PMIS), 42 Project portfolio management (PPM) tools, 42 Project work information, 20

Q Quality of estimates, 44

R Range estimating, 30 Ratio estimating, 29 Re-estimates

in estimate management, 41–42 project resource, 43

Reforecasting, continuous, 5 Reporting and communication, 44 Requirements documentation, 17 Reserve, contingency, 12

defi nition of, 10 planning for, 21

Resource calendar, 18 Resource estimates, 31–32 Resources needed to estimate, 21 Resource plan, 37 Resources, project

estimate management for, 40 historical, 20 re-estimates of, 43 required, 31

Risk assessment, 21 Risk register, 18 Root causes, determining, 50 Rough order of magnitude (ROM) estimate, 12

S Schedule, project, 18

estimate management for, 40 historical, 20

Scheduling software, advanced, 42


79

INDEX

Scope baseline, 18 Scope of estimate, 20 Skill set, consideration of, 52 Spreadsheets, 42 Staffi ng management, planning of, 37 Stakeholder expectation management, 22 Stakeholder feedback, 50

T Techniques. See also Activities

updates in, from improve estimating process, 52 Templates, for managing estimates, 42 Three-point estimating, 30 Time

accounting for, 33 appropriate, 52 nonbillable, 38 for planning, 22

Time and material contracts, 38 Time estimates, updated project, 43 Tools. See Activities Top-down estimating. See Analogous techniques

U Updated change request log, 44 Updated estimates

in improve estimating process, 49, 52 in manage estimates, 43

Updated forecast, 43 Updated organizational process assets, 52 Updated tools and techniques, 52

V Variance analysis, 43, 44 Variances

causes of, 13–14 examples of, 4 from re-estimating, 41

W Work breakdown structure (WBS), 18, 27–28 WBS dictionary, 18 Work package, 31 Work performance information, 38

