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Estimating Project Times and CostsEstimating Project Times and Costs
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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
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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.
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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
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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.
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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.
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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
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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
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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
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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
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APPORTION METHOD
Allocating projects costs based on WBS
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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)
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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
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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.
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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
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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.
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WORK PACKAGE ESTIMATES
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THREE VIEWS OF COST
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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.
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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
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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.
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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.
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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
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T NKYOU