Estimating Project

Times and Resource

Costs
Learning Objectives

 Describe various Methods of estimating times and

costs
 Calculate and interpret Learning curves
 Recall different Types of costs
 Describe resource allocation
 Describe leveling resources
 Estimating Projects
 Estimating

The process of forecasting or

approximating the time and cost
of completing project
deliverables.
The task of balancing
expectations of stakeholders and
need for control while the project
is implemented.
 Types of Costs

 Direct Costs  Special Case Costs

 Costs that are clearly  “estimated costs” usually
chargeable to a specific work assigned to task that has been
package. done over and over.

 Indirect Costs  Sunk Costs

 Costs incurred that are not  Those costs that are
directly tied to an identifiable unrecoverable.
project deliverable or work
package.  Capital Costs
 Assets that have a useful life,
year or more.
Why Estimating Time and Cost Are Important

• To support good decisions.

• To schedule work.
• To determine how long the project
should take and its cost.
• To determine whether the project is
worth doing.
• To develop cash flow needs.
• To determine how well the project is
progressing.
• To develop time-phased budgets and
establish the project baseline.
 Factors Influencing the Quality of
Estimates
Planning Horizon

Other
Project
(Nonproject)
Duration
Factors

Quality of
Organization Estimates People
Culture

Padding Project Structure

Estimates and Organization

5–6
 Estimating Guidelines for Times,
Costs, and Resources

1. Have people familiar with the tasks make the

estimate.
2. Use several people to make estimates.
3. Base estimates on normal conditions, efficient
methods, and a normal level of resources.
4. Use consistent time units in estimating task times.
5. Treat each task as independent, don’t
aggregate.
6. Don’t make allowances for contingencies.
7. Adding a risk assessment helps avoid surprises
to stakeholders.

5–7
Types of Estimates

 Order of Magnitude

“seat of your pants” estimate with

very little thought or preparation
Before it is stated, stress it is very rough
and limited in accuracy
 Budget Estimate
 More accurate and requires some research
 Can use historical data
Cont.
 Definitive Estimate
 Most accurate
 Use the WBS completed and tested for accuracy
 Include contingency allowances – lump sum amt.
 Includes: training, testing, travel, monitoring, etc.
 Pro Forma Assessments
 Initial profile of project costs
 Can be order of magnitude, budget, or definitive estimates
 Are refined until there is a particular level of comfort
Cost Estimating Approaches
 Bottom- up
 Most time consuming and most expensive
 Uses WBS where each task is estimated and then added
together as reverse upward.
 Tendency to “pad” as one goes

 Parametric Procedures Applied to Specific Tasks

 Using Industrial Engineering standards and analysis
 Involves cost per sq. ft., linear foot, etc.
Cost Estimating Approaches

 Macro (Top-down) Approaches

 Consensus methods
Project Estimate
 Expert judgment Times
Costs
 Apportion method
 Learning curves
 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.

5–12
Estimate duration times

 Fairly certain if done before in other projects

 derive average duration from historical data
 Some projects books available containing mean
tables for typical activities
 Ask around
 When considering the time commitment to a
particular project, realistically, personnel (a resource)
has 80% of their personnel time available, which is 4-6
hours of actual labor time (sometimes one can only
get 4-5 hrs per day) while the rest of their time is
involved with non-project related issues.
Resources
Estimate Resources

 Four categories of  Questions to ask?

resources  Who and what are
 Money needed?
 Materials  Who and what can do
the work?
 Machines
 Who and what are
 People available?
 What level and
competence is
required?
 Resource Planning
 Resource planning is the process by which the project
manager decides which resources to obtain, from what
source, when to obtain them, and how to use them.
 Resource planning is mainly concerned with the trade-off
analysis between:
 1. cost of alternative schedules designed to accommodate
resources shortages, and
 2. cost of using alternative resources; for example, overtime to
meet a schedule or subcontracting to accommodate a schedule
change.
 Resource planning is a continuous process that takes place
throughout the life cycle of the project. In a multi project
environment the specific resource alternative selected also
affects other ongoing projects. It is common wisdom to start
the planning process by assuming that each activity is
performed by the minimum cost resource alternative.
Project Resource Tools

 WBS
 Resource Matrix
 Gantt chart
Resource Availability

 Renewable resources are resources that are available at

the same level every time period. (e.g., a fixed workforce)
 Depletable resources are resources that come in a lump
sum at the beginning of the project and are used up over
time, such as materials or computer time on a super
computer.
 Doubly constrained resources are resources available in
limited quantities each period. However, their total
availability throughout the project is also circumscribed.
The cash available for a project is a typical example of a
doubly constrained resource.
 Nonconstrained resources are resources available in
unlimited quantities for a cost. A typical example is
untrained labor or general-purpose equipment.
 Schedule Load
– tasks and
resources
 HEURISTICS (rule of thumb)
 As soon as possible
 As late as possible
 Shortest task time first - what
takes the least amount of time
to do
 Most resources first - which
needs the most people,
equipment, material to get
done
 Minimum Slack first
 Most critical followers-the
tasks that follow are critical
and must start on time or the
project will be delayed.
 Most successors
 Factors to Consider in
Assigning Work (Loading
Resources):
 Don't always pick the
same people for the
toughest assignments.
 Choose people with an
eye to fostering their
development through
participation on the
project.
 Pick people with
compatible work habits
and personalities but who
complement each other.
 Team-up veterans with
new hires to share
experience and socialize
newcomers into the
organization.
 Select people who may
need to learn work
together on later stages of
the project or other
projects.
Resource Leveling
You might decide to use resource leveling when you look
at your schedule and see that you have one or more
resources that are allocated at more than their Max Units
values for a given time period (or periods).

 Leveling within slack  Leveling outside slack

The Level Only Within Available
Slack option looks at the Slack
value of a task and delays tasks
only within that amount of slack.
For example, if a task is five days
long and has 15 days of slack,
leveling with this option turned
on will delay this task only 10
days, even if this means leaving
some overallocations
unresolved. But does not extend
the project.
Using Leveling outside slack, we
can delay or extend a tasks for
when we have resources
available. Unfortunately, this
extends the project total time.
 Do note that leveling either
way does not always solved
the resource
overallocations. So one
may have to:
 Hire more help
 Reevaluate the task time
 Look at secondary skills of
existing resources.
Learning Curves
Learning Curve

Past experience indicates that

individuals learn by experience
(i.e., get better and better at
the job by carrying out the
tasks more and more).
Learning curve

This phenomenon was first

reported by T. P. Wright in
1936. But, the learning
curve theory is based on
assumptions such as those
listed next Chase, R B.,
1981
Underlying Principles of Learning Curves

1. Each time you perform a task it takes less time than the last
time you performed the same task

2. The extent of task time decreases over time

3. The reduction in time will follow a

predictable pattern
The Experience
As plants produce more products, they
Curve gain experience in the best production
methods and reduce their costs per unit

Yesterday

Cost or Today
price Tomorrow
per unit

Total accumulated production of units

Learning Curve assumptions

 The learning curve may vary one product to another

and from one organization to another. The rate of
learning depends on factors such as the quality of
management and the potential of the process and
products
Moreover, it may be said that
any change in personnel,
process, or product disrupts the
learning curve. Consequently,
there is a need for the utmost
care in assuming that a learning
curve is continual and
permanent.
 The learning curves are found to be quite useful in a
variety of applications, including strategic evaluation
of company and industry performance, internal labor
forecasting, establishing costs and budgets,
production planning, external purchasing, and
subcontracting of items
Formulas

 To determine Learning Curve rate:

T2/T1 = T4/T2=T6/T3=T8/T4

 To determine time to produce nth or n units:

Learning Curves
5–30
Examples
 Example Problems:
1. Beth Zion hospital has received initial certification from the state of California
to become a center for liver transplants. The hospital, however, must complete
its first 18 transplants under great scrutiny and at no cost to the patients. The
very first transplant, just completed, required 30 hours. On the basis of research
at the hospital, Beth Zion estimates that it will have an 80% learning curve.
a. How long will it take to complete the 5th transplant?
b. How long will it take for all of the first 5 transplants?
c. How long will it take to do the last 13 transplants?
2. A student at Winona State University bought six (6) bookcases for her dorm
room. Each required unpacking of parts and assembly, which included some
nailing and bolting. She completed the first bookcase in five (5) hours and the
second in four (4) hours.
a. What is the learning rate?
b. Assuming the same rate continues, how long will the 3rd bookcase take?
c. How long will it take to do all 6 bookcases?
Any Questions?