Chap005 Estimating Time & Cost

8/19/2019 Chap005 Estimating Time & Cost

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THE MANAGERIAL PROCESS

Project ManagementProject Management

Chapter 5Chapter 5

Estimating Project Times and CostsEstimating Project Times and Costs


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Remember Remember

Project estimation is indeedyardstick for project cost control.

And if the yardstick is faulty, youstart on the “rong foot! ".

#e e$hort you not to underestimatethe estimates""""


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Why Estimating Time and Cost Are ImportantWhy Estimating Time and Cost Are Important

%. Estimates are needed to support good decisions.&. Estimates are needed to schedule ork.

'. Estimates are needed to determine ho long theproject should take and its cost.

(. Estimates are needed to determine hether theproject is orth doing.

). Estimates are needed to de*elop cash flo needs.

+. Estimates are needed to determine ho ell theproject is progressing.

. Estimates are needed to de*elop time-phasedbudgets and establish the project baseline.


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Chapter ThemeChapter Theme

%. uality time and cost estimates are the bedrock ofproject control.

&. Past e$perience is the best starting point for theseestimates.

'. The /uality of estimates is influenced by other factorssuch as people, technology, and dontimes.

(. The key for getting estimates that represent realistica*erage times and costs is to ha*e an organi0ationculture that allos errors in estimates ithout

incriminations.). The use of teams that are highly moti*ated can help in

keeping task times and costs near the a*erage. 1orthis reason, it is crucial to get the team to buy into

time and cost estimates.


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+. 2sing top-don 3macro4 estimates is good for initialand strategic decision making or in situations herethe costs associated ith de*eloping better estimatesha*e little benefit.

. 5oe*er, in most cases the bottom-up approach3micro4 to estimating is preferred and more reliablebecause it assesses each ork package, rather thanthe hole project, section, or deli*erable of a project.

6. Estimating time and costs for each ork package

facilitates de*elopment of the project netork and atime-phased budget, hich are needed to controlschedule and cost as the project is implemented.



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7. 2sing the estimating guidelines ill help eliminate manycommon mistakes made by those unac/uainted ithestimating times and costs for project control.

%8. Establishing a time and cost estimating database fits ellith the learning organi0ation philosophy.

%%. The le*el of time and cost detail should follo the old sayingof 9no more than is necessary and sufficient!

%&. :anagers must remember to differentiate beteencommitted outlays, actual costs, and scheduled costs.

%'. 1inally, ho estimates are gathered and ho they are used

can affect their usefulness for planning and control.%(. The team climate, organi0ation culture, and organi0ation

structure can strongly influence the importance attached totime and cost estimates and ho they are used in managingprojects.



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;earning cur*es A mathematical cur*e used to predict a pattern of timereduction as a task is performed o*er and o*er.:acro and :icro estimating:acro estimates are topdon, rough estimates that use

surrogates to estimate project time and cost and are used todetermine project selection or go-ahead decisions.


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Phase estimatingThis estimating method begins ith a macroestimate for the project and then refinesestimates for phases of the project as it is

implemented.Ratio 3parametric4 methods2ses the ratio of past actual costs for similarork to estimate the cost for a potential project.This macro method of forecasting cost doesnot pro*ide a sound basis for project costcontrol since it does not recogni0e differences

among projects.

Key TermsKey Terms


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Time and cost databasesCollection of actual *ersus estimated times and costsof ork packages o*er many projects that are used forestimating ne project tasks and their e$pected

possible error.

Time-phased budgetsPlanned costs that are broken don by distinct timeperiods 3e.g., >),888 per eek4 for a ork package, as

opposed to a budget for a hole job?project 3+ monthsfor a total of >%'8,8884. Time phasing allos better costcontrol by measuring the actual rate of e$penditure*ersus the planned e$penditure rate o*er small pieces

of the project.

Key TermsKey Terms


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Apportionment methodCosts allocated to a specific segment of a project by usinga percent of planned total cost@for e$ample, framing ahouse might use &) percent of the total cost, or coding ateaching module (8 percent of total cost.

Contingency reser*es2sually an amount of money or time set aside to co*eridentified and unforeseen project risks.

irect costsCosts that are clearly charged to a specific ork packageBusually labor, materials, or e/uipment.

1unction points

Key TermsKey Terms


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Chapter SummeryChapter Summery

%. 1actors influencing the /uality of estimates a) Planning horizon) Project durationc) Peopled) Project management structuree) Padding estimates!) "rganization culture

&. :acro *ersus micro estimating


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'. Estimating project time and costs:acro approachesa) #atio methods) Apportion methods

c) $unction point methodsd) %earning cur&es:icro approachesa) Template method) Parametric procedures applied to speci!ic tas'sc) (etailed estimates !or the WS *or' pac'agesd) A hyrid+ Phase estimating



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(. ;e*el of detail). e*eloping budgets

+. Types of costs

a) (irect costs) (irect o&erhead costs

c) ,eneral and administrati&e o&erhead costs

. Estimating guidelines for time, costs, and resources

6. Refining estimates and contingency funds

7. Creating a database for estimating

%8. ummary



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Estimating ProjectsEstimating Projects

. Estimating /The process o! !orecasting or appro0imating the timeand cost o! completing project deli&erales1

/The tas' o! alancing the e0pectations o! sta'eholders

and the need !or control *hile the project isimplemented

. Types o! Estimates /Top2do*n 3macro) estimates+ analogy4 group

consensus4 or mathematical relationships /ottom2up 3micro) estimates+ estimates o! elements o!

the *or' rea'do*n structure


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Estimating ,uidelines !or Times4Estimating ,uidelines !or Times4

Costs4 and #esourcesCosts4 and #esources

51 6a&e people !amiliar *ith the tas's ma'e the estimate1

71 8se se&eral people to ma'e estimates1

91 ase estimates on normal conditions4 e!!icient methods4and a normal le&el o! resources1

:1 8se consistent time units in estimating tas' times1

;1 Treat each tas' as independent4 don


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Macro &ersus Micro EstimatingMacro &ersus Micro Estimating

Conditions for Preferring Top-on or


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Estimating Projects+ Pre!erred ApproachEstimating Projects+ Pre!erred Approach

. Ma'e rough top2do*n estimates1

. (e&elop the WS@"S1

. Ma'e ottom2up estimates1

. (e&elop schedules and udgets1

. #econcile di!!erences et*een top2do*n andottom2up estimates


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Apportion Method o! Allocating Project Costs Apportion Method o! Allocating Project Costs8sing the Wor' rea'do*n Structure8sing the Wor' rea'do*n Structure

1F2RE ).%


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Simpli!ied asic $unction Point Count ProcessSimpli!ied asic $unction Point Count Process!or a Prospecti&e Project or (eli&erale!or a Prospecti&e Project or (eli&erale


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E0ample+ $unction Point Count MethodE0ample+ $unction Point Count Method

TA


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Methods !or Estimating ProjectMethods !or Estimating Project

Times and Costs 3cont


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S:; Support Cost Estimate Wor'sheetS:; Support Cost Estimate Wor'sheet


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Phase Estimating o&er Product %i!e CyclePhase Estimating o&er Product %i!e Cycle

1F2RE ).'


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%e&el o! (etail%e&el o! (etail

. %e&el o! detail is di!!erent !or di!!erent le&els o!management1

. %e&el o! detail in the WS &aries *ith thecomple0ity o! the project1

. E0cessi&e detail is costly1 /$osters a !ocus on departmental outcomes

/Creates unproducti&e paper*or'

. Insu!!icient detail is costly1 /%ac' o! !ocus on goals

/Wasted e!!ort on nonessential acti&ities


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(e&eloping udgets(e&eloping udgets

. Time2Phased udgets / A cost estimate is not a udget unless it is time2phased1

• Time phasing begins with the time estimate for aproject.

• Time-phased budgets mirror how the project’s cashneeds (costs) will occur or when cash ows from theproject can be expected.

•Budget ariances occur when actual and forecasteents do not coincide.


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Types o! CostsTypes o! Costs

. (irect Costs /Costs that are clearly chargeale to a speci!ic *or'pac'age1

•!abor" materials" e#uipment" and other

. 3Project) "&erhead Costs /Costs incurred that are directly tied to an identi!iale

project deli&erale or *or' pac'age1•$alar%" rents" supplies" speciali&ed machiner%

. ,eneral and Administrati&e "&erhead Costs /"rganization costs indirectly lin'ed to a speci!ic

pac'age that are apportioned to the project


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#e!ining Estimates#e!ining Estimates

. #easons !or Adjusting Estimates /Interaction costs are hidden in estimates1 /Formal conditions do not apply1

/Things go *rong on projects1

/Changes in project scope and plans1

. Adjusting Estimates /Time and cost estimates o! speci!ic acti&ities are

adjusted as the ris's4 resources4 and situation

particulars ecome more clearly de!ined1


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#e!ining Estimates 3cont


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Creating a (ataase !or EstimatingCreating a (ataase !or Estimating

1F2RE ).

EstimatingatabaseTemplates


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D=# G=2R T2RDD=# G=2R T2RD

=pen

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Chap005 Estimating Time & Cost