3 Estimating Project Times and Cost (1)

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Estimating Project Times and CostsEstimating Project Times and Costs



ESTIMATING PROJECTS

Estimating

The process of forecasting or approximating the time

and cost of completing project deliverables

Types of Estimates

Top-down (macro) estimates: analogy, group

consensus, or mathematical relationships

Bottom-up (micro) estimates: estimates of elements

of the work breakdown structure



H ESTIMATING TIME AND COST ARE

IMPORTANT

Estimates are needed to determine how long the project should

take and its cost.

Estimates are needed to schedule work.

Estimates are needed to develop cash flow needs

Estimates are needed to develop time-phased budgets andestablish the project baseline.

Estimates are needed to determine whether the project is worth

doing.

Estimates are needed to determine how well the project is

progressing.

Estimates are needed to support good decisions.



FACTORS INFLUENCING THE QUALITY

OF ESTIMATES

Quality ofEstimates

Quality ofQuality ofEstimatesEstimates

ProjectDurationProjectProject

DurationDuration

Peopleproductivity

PeoplePeopleproductivityproductivity

Project

Structure andOrganization

ProjectProject

Structure andStructure andOrganizationOrganization

Padding

Estimates

PaddingPadding

EstimatesEstimates

Organization

Culture

OrganizationOrganization

CultureCulture

Other Factors(e.g.

.downtime)

Other FactorsOther Factors(e.g.(e.g.

.downtime).downtime)

PlanningHorizon

PlanningPlanningHorizonHorizon

TaskDefinition

TaskTaskDefinitionDefinition



ESTIMATING GUIDELINES FOR TIMES

COSTS AND RESOURCES

Have people familiar with the tasks make the estimate.

Use several people to make estimates.

Base estimates on normal conditions, efficient

methods, and a normal level of resources.

Use consistent time units in estimating task times.

Treat each task as independent, don’t aggregate.

Don’t make allowances for contingencies.

Adding a risk assessment helps avoid surprises tostakeholders.



MACRO VERSUS MICRO ESTIMATING

-MANAGERS POINT OF VIEW-

Rough order of magnitude is good enough. Spending timeon detailed estimating wastes money

Time is everything; our survival depends on getting therefirst and time/cost is not an issue

The project is internal. We don’t need to worry about cost

The uncertainty is so great that spending time and moneyon estimates is a wastes

Project is so small that we do not need to bother withestimates. Just do it.

They used an initial estimate “ for strategic decision” andthen we had to live with it.

We were burned once. I want a detailed estimate of everytask by the people responsible.



MACRO VERSUS MICRO ESTIMATING

Conditions for Preferring Top-Down/Bottom-Up Time and Cost Estimates

Condition Macro Estimates Micro EstimatesStrategic decision making X

Cost and time important X

High uncertainty X

Internal, small project X

Fixed-price contract X

Customer wants details X

Unstable scope X

The Macro or Top-Down approach can provide a quick but roughestimate

A Micro or Bottom-Up approach can provide a fairly accurate

estimate, but is time consuming and risk of overlooking tasks



STEPS TO DEVELOPING THE ESTIMATES

Make rough top-down estimates

Develop the WBS/OBS

Make bottom-up estimates

Develop schedules and budgets

Reconcile differences between top-down andbottom-up estimates



METHODS FOR ESTIMATING PROJECT

TIMES AND COSTS

Macro (Top-Down) Approaches

Consensus methods e.g. Delphi

Ratio methods: Given a cost for a previous project then an

estimate for a new project can be scaled from the known cost. e.g.NASA, at times, uses spacecraft weight to estimate total cost.

Learning curves: If the same task is repeated a number of times

there will be a cost / time savings relative to the first time the task isdone.

Apportion method: Given a similar previous project, costs for

major subunits of the new project would be proportional to similar

subunits in the previous project.

Function point methods for software & system projects

ProjectEstimate

Times

Costs



LEARNING CURVES : FORMULAE

baXY

where Y = Cumulative Average Time (CAT)

a = time/cost of the 1st unit or batch

X = cumulative production or batches produced

b = learning exponent (rate)

ln2

Rate)(Learningln b

a = 50 hours, X = 128 batches, learning rate = 80%

b = ln0.8/ln2 = -0.22314/0.69315= -0.32193

10.48576128*50aXY -0.32193 b===

This means that at 128 batches, CAT = 10.48576

So total time = 10.48576 * 128 = 1,342.18



APPORTION METHOD

Allocating projects costs based on WBS



FUNCTION POINT METHODS FOR S/W

AND SYSTEMS PROJECTS

Total adjusted count provides the basis for estimating the labor effort and cost for the project)



METHODS FOR ESTIMATING PROJECT

TIMES AND COSTS

Micro (Bottom-Up) Approaches

Template method: Uses historical data to establish detailed costs

and schedules for project subunits. A new project composed ofsome combination of these subunits can then be quickly estimated.

Parametric procedures applied to specific tasks: Similar to

the Macro ratio method but applied to specific tasks associated with

project subunits. For example, if it takes 1 day to build & test a

particular sensor unit, then an instrument with 10 sensors would take2 technicians, 5 days to complete.

Detailed estimates for the WBS work packages: Times and

costs associated with the lowest level WBS work packages are

estimated and then these are added or rolled-up to yield the costs for

higher level units. This method provides the most accurate estimatesat the expense of time devoted to developing the estimate.

Phase estimating: A hybrid



PHASE ESTIMATING O ER

PRODUCT LIFE CYCLE

On a phased project, details over the entire life-cycle maynot be immediately available. During the each phase details

for the remaining phases are refined, modified or changed.



LEVEL OF DETAIL

Level of detail in the WBS varies with thecomplexity of the project.

Excessive detail is costly. Fosters a focus on departmental outcomes

Creates unproductive paperwork

Insufficient detail is costly.

Lack of focus on goals Wasted effort on nonessential activities



DEVELOPING BUDGETS

Time-Phased Budgets

A cost estimate is not a budget unless it is time-

phased.

Time phasing begins with the time estimate for a

project.

Time-phased budgets mirror how the project’s cash

needs (costs) will occur or when cash flows from theproject can be expected.

Budget variances occur when actual and forecast

events do not coincide.



WORK PACKAGE ESTIMATES



THREE VIEWS OF COST



TYPES OF COSTS

Direct Costs

Costs that are clearly chargeable to a specific work

package. e.g. Labor (contractual), materials, equipment,and other

Direct (Project) Overhead Costs

Costs incurred that are directly t ied to an identifiableproject deliverable or work package e.g. Salary, rents,supplies, specialized machinery

General and Administrative Overhead Costs

Organization costs indirectly linked to a specific

package that are apportioned to the project e.g.advertising, accounting etc.



CONTRACT BID SUMMARY COSTS

Direct costs $80,000

Direct overhead $20,000G&A overhead (20%) $20,000

Profit (20%) $24,000

Total bid $144,000



REFINING ESTIMATES

Reasons for Adjusting Estimates

Interaction costs are hidden in estimates.

Normal conditions do not apply.

Things go wrong on projects.

Changes in project scope and plans.

Adjusting Estimates

Time and cost estimates of specific activities areadjusted as the risks, resources, and situationparticulars become more clearly defined.



REFINING ESTIMATES

Contingency Funds and Time Buffers

Are created independently to offset uncertainty

Reduce the likelihood of cost and completion timeoverruns for a project

Can be added to the overall project or to specific

activities or work packagesCan be determined from previous similar projects

Changing Baseline Schedule and BudgetUnforeseen events may dictate a reformulation of the

budget and schedule.



PROJECT SCHEDULES

WBSWBSOBSOBS

Resp. MatrixResp. Matrix

Work PackagesWork Packages

ActivitiesActivities

Estimation of Estimation of

DurationDuration

TaskTaskInterdependenciesInterdependencies

ProjectProject

Network Network

AssignAssign

ResourcesResources

LevelLevel

ResourcesResources

FinaliseFinalise

ProjectProject

ScheduleSchedule



T NKYOU

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3 Estimating Project Times and Cost (1)