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CHAPTER 5: ESTIMATING
UNIVERSITY OF FINANCE - MARKETING
FACULTY OF BUSINESS ADMINISTRATION PROJECT TIMES AND COSTS

CHAPTER 5:
ESTIMATING PROJECT TIMES
AND COSTS

Course ID number: 1931101013902

QUẢN TRỊ DỰ ÁN
Project estimation is indeed a yardstick for project cost control.
And if the yardstick is faulty, you start on the “wrong foot.” . . . We
Lecturer: Dr. PHAM HAI CHIEN exhort you not to underestimate the estimate.
January, 2021
Faculty of Business Administration —A Project Manager—
CHAPTER 5: ESTIMATING PROJECT TIMES AND COSTS 2

LEARNING OBJECTIVES CHAPTER OUTLINE

1. Understand estimating project times and costs are the 1. Factors Influencing the Quality of Estimates
foundation for project planning and control.
2. Estimating Guidelines for Times, Costs, and Resources
2. Describe guidelines for estimating time, costs, and
resources. 3. Top-Down versus Bottom-Up Estimating
3. Describe the methods, uses, and advantages and 4. Methods for Estimating Project Times and Costs
disadvantages of top-down and bottom-up estimating
methods. 5. Level of Detail
4. Distinguish different kinds of costs associated with a project. 6. Types of Costs
5. Suggest a scheme for developing an estimating database
for future projects. 7. Refining Estimates
6. Understand the challenge of estimating mega projects and 8. Creating a Database for Estimating
describe steps that lead to better informed decisions.
7. Define a “white elephant” in project management and 9. Mega Projects: A Special Case
provide examples. 10. Summary
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1. FACTORS INFLUENCING 2. ESTIMATING GUIDELINES FOR

THE QUALITY OF ESTIMATES TIMES, COSTS, AND RESOURCES

1. Planning Horizon 1. Responsibility

2. Project Complexity 2. Use several people to estimate
3. People 3. Normal conditions
4. Project Structure and Organization 4. Time units
5. Padding Estimates 5. Independence
6. Organization Culture 6. Contingencies
7. Other factors (non-project factors) 7. Adding risk assessment to the estimate helps to avoid
 National holidays, vacations, legal limits, etc. surprises to stakeholders

 Project priority
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3. TOP-DOWN VERSUS BOTTOM-UP ESTIMATING 3. TOP-DOWN VERSUS BOTTOM-UP ESTIMATING

Top-down estimates usually are derived from someone

who uses experience and/ or information to determine the
project duration and total cost. However, these estimates
are sometimes made by top managers who have very little
knowledge of the component activities used to complete
the project.
Bottom-up estimates push the estimating process down
to the work package level that establish low-cost, efficient
methods. This process can take place after the project has
been defined in detail. Estimates should come from the
people most knowledgeable about the estimate needed.
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4. METHODS FOR ESTIMATING

3. TOP-DOWN VERSUS BOTTOM-UP ESTIMATING
PROJECT TIMES AND COSTS

Condition Top-Down Bottom-Up Top-Down Approaches for Estimating Project Times and
Estimates Estimates Costs:
Strategic decision X
1. Consensus Methods
making
Cost and time X 2. Ratio Methods
important
3. Apportion Methods
High uncertainty X
Internal, small project X 4. Function Point Methods for Software and System
Projects
Fixed-price contract X
Customer wants X 5. Learning Curves
details
Unstable scope X
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4. METHODS FOR ESTIMATING 4. METHODS FOR ESTIMATING

PROJECT TIMES AND COSTS PROJECT TIMES AND COSTS

Top-Down Approaches: Ratio Methods Top-Down Approaches: Apportion Methods

 Top-down methods (sometimes called parametric)
usually use ratios, or surrogates, to estimate project
times or costs.
 An initial duration and cost estimate for the project
For example:
 2,700 feet × $160 per foot equals $432,000.
 Likewise, knowing the square feet and dollars per
square foot, experience suggests it should take
approximately 100 days to complete.
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4. METHODS FOR ESTIMATING 4. METHODS FOR ESTIMATING

PROJECT TIMES AND COSTS PROJECT TIMES AND COSTS

Top-Down Approaches: Function Point Methods for
Software and System Projects
CHAPTER 5: ESTIMATING PROJECT TIMES AND COSTS
Top-Down Approaches: Learning Curves
 Some projects require that the same task, group of
tasks, or product be repeated several times. Managers
know intuitively that the time to perform a task improves
with repetition.
 The pattern of this improvement has been quantified in
the learning curve (also known as improvement curve,
experience curve, and industrial progress curve), which
is described by the following relationship: Each time the
output quantity doubles, the unit labor hours are
reduced at a constant rate.
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4. METHODS FOR ESTIMATING 4. METHODS FOR ESTIMATING

PROJECT TIMES AND COSTS PROJECT TIMES AND COSTS

Bottom-Up Approaches for Estimating Project Times and Bottom-Up Approaches: Template Methods
Costs:  If the project is similar to past projects, the costs from
1. Template Methods past projects can be used as a starting point for the
new project. Differences in the new project can be
2. Parametric Procedures Applied to Specific Tasks noted and past times and costs adjusted to reflect
3. Range Estimating these differences
 For example: a ship repair drydock firm has a set of
standard repair projects (i.e., templates for overhaul,
electrical, mechanical)
 This approach enables the firm to develop a potential
schedule, estimate costs, and develop a budget in a
very short time span.
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4. METHODS FOR ESTIMATING 4. METHODS FOR ESTIMATING

PROJECT TIMES AND COSTS PROJECT TIMES AND COSTS

Bottom-Up Approaches: Parametric Procedures Applied to Bottom-Up Approaches: Range Estimating

Specific Tasks  Range estimating works best when work packages
 Just as parametric techniques such as cost per square have significant uncertainty associated with the time or
foot can be the source of top-down estimates, the cost to complete.
same technique can be applied to specific tasks.  If the work package is routine and carries little
For example: uncertainty, using a person most familiar with the work
 To estimate the wallpapering allowance on a house package is usually the best approach.
remodel, the contractor figured a cost of $5 per square
yard of wallpaper and $2 per yard to install it, for a total
cost of $7. By measuring the length and height of all
the walls she was able to calculate the total area in
square yards and multiply it by $7.
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4. METHODS FOR ESTIMATING 4. METHODS FOR ESTIMATING

PROJECT TIMES AND COSTS PROJECT TIMES AND COSTS

Bottom-Up Approaches: Range Estimating A Hybrid: Phase Estimating:

This approach begins with a top-down estimate for the
project and then refines estimates for phases of the project
as it is implemented

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5. LEVEL OF DETAIL 6. TYPES OF COSTS

Level of detail is different for different levels of 1. Direct costs

management.  Materials
1. Top management interests usually center on the total  Labor
project and major milestone events that mark major
 Equipment
accomplishments
 Other
2. Middle management might center on one segment of
the project or one milestone 2. Direct project overhead costs

3. First-line managers’ interests may be limited to one 3. General and administrative (G&A) overhead costs
task or work package
Level of management can have the kind of information
necessary to make decisions.
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7. REFINING ESTIMATES 8. CREATING A DATABASE FOR ESTIMATING

1. Interaction costs are hidden in estimates Creating an estimating database is a “best practice”
among leading project management organizations.
2. Normal conditions do not apply
3. Things go wrong on projects
4. Changes in project scope and plans
5. Overly optimistic
6. Strategic misrepresentation

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9. MEGA PROJECTS: A SPECIAL CASE
Mega projects are large-scale, complex ventures that
typically cost $1 billion or more, take many years to
complete, and involve multiple private and public
stakeholders. They are often transformational, and impact
millions of people.
Examples include high-speed rail lines, airports,
healthcare reform, the Olympics, development of new
aircraft, and so forth.
A “white elephant” suggests a valuable, but burdensome,
possession which the owner cannot easily dispose of and
whose cost (particularly upkeep) is out of proportion with
its usefulness.
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10. CHAPTER SUMMARY
1. Past experience is the best starting point for these
estimates. The quality of estimates is influenced by other
factors such as people, technology, and downtimes.
2. Using top-down estimates is good for initial and strategic
decision making or in situations where the costs associated
with developing better estimates have little benefit.
3. Estimating time and costs for each work package facilitates
development of the project schedule and a time-phased
budget, which are needed to control the project as it is
implemented.
4. Establishing a time and cost estimating database fits well
with the learning project management organization.
5. The level of time and cost detail should follow “no more than
is necessary and sufficient”
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