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Estimating 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

WHY 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 and
establish 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
Other
OtherFactors
Factors
(e.g.
(e.g.
.downtime)
.downtime)
Organization
Organization
Culture
Culture
Padding
Padding
Estimates
Estimates

Planning
Planning
Horizon
Horizon

Quality
Qualityof
of
Estimates
Estimates

Project
Project
Duration
Duration
Task
Task
Definition
Definition
People
People
productivity
productivity

Project
Project
Structure
Structureand
and
Organization
Organization

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, dont aggregate.
Dont make allowances for contingencies.
Adding a risk assessment helps avoid surprises to
stakeholders.

MACRO VERSUS MICRO ESTIMATING


-MANAGERS POINT OF VIEW

Rough order of magnitude is good enough. Spending time


on detailed estimating wastes money

Time is everything; our survival depends on getting there


first and time/cost is not an issue
The project is internal. We dont need to worry about cost

The uncertainty is so great that spending time and money


on estimates is a wastes

Project is so small that we do not need to bother with


estimates. Just do it.

They used an initial estimate for strategic decision and


then we had to live with it.

We were burned once. I want a detailed estimate of every


task by the people responsible.

MACRO VERSUS MICRO ESTIMATING


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

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

estimate, but is time consuming and risk of overlooking tasks


Conditions for Preferring Top-Down/Bottom-Up Time and Cost Estimates
Condition
Strategic decision making
Cost and time important
High uncertainty
Internal, small project
Fixed-price contract
Customer wants details
Unstable scope

Macro Estimates
X

Micro Estimates
X

X
X
X
X
X

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 and


bottom-up estimates

METHODS FOR ESTIMATING PROJECT


TIMES AND COSTS
Macro (Top-Down) Approaches

Project
Estimate
Times
Costs

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 is
done.

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

LEARNING CURVES : FORMULAE

Y = aX

ln (Learning Rate)
b=
ln2

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)

a = 50 hours, X = 128 batches,

learning rate = 80%

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

Y = aX = 50 * 128
b

-0.32193

= 10.48576

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 of
some 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 take
2 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 estimates
at the expense of time devoted to developing the estimate.

Phase estimating: A hybrid

PHASE ESTIMATING OVER


PRODUCT LIFE CYCLE

On a phased project, details over the entire life-cycle may


not 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 the

complexity 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 timephased.

Time phasing begins with the time estimate for a


project.

Time-phased budgets mirror how the projects cash


needs (costs) will occur or when cash flows from the
project 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 tied to an identifiable


project 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
Direct overhead
G&A overhead (20%)
Profit (20%)
Total bid

$80,000
$20,000
$20,000
$24,000
$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 are
adjusted as the risks, resources, and situation
particulars become more clearly defined.

REFINING ESTIMATES
Contingency Funds and Time Buffers
Are created independently to offset uncertainty
Reduce the likelihood of cost and completion time
overruns for a project
Can be added to the overall project or to specific
activities or work packages
Can be determined from previous similar projects
Changing Baseline Schedule and Budget
Unforeseen events may dictate a reformulation of the
budget and schedule.

PROJECT SCHEDULES
WBS

OBS
Resp. Matrix

Work Packages

Assign
Resources

Activities

Level
Resources

Estimation of
Duration
Task
Interdependencies

Finalise
Project
Schedule
Network

THANKYOU