Project Resource Estimation and Planning: Lunar International College July, 2021

Project Estimating Processes
Estimating Resources
Cost Estimation Project
Budgeting
P r o j e c t C a s h F lo w Analysis a n d C o s t A l l o c a t i o n
PPEC
3. Project Resource Estimation and Planning
Solomon K.(PhD)
Lunar International College
July, 2021
Solomon K. Project Planning....

Project Estimating
Processes Estimating
Resources C o st
Estimation Project
Budgeting
P r o j e c t C a s h F l o w Analysis a n d C o s t A l l o c at i o n
Table of Contents
1. Project Estimating Processes

o Types of Project Estimates
2. Estimating Resources
3. Cost Estimation
o Types of Project Cost
o Methods of Estimating Costs
4. Project Budgeting
o Methods of Project Budgeting
5. Project Cash Flow Analysis and Cost Allocation
Project Estimating
Resources C o st Ty p e s of P r o j e c t E s t i m a t e s
Estimation Project
Budgeting
Project Estimating Processes
• The purpose of the project estimating process is to describe the steps for
developing size, effort, cost, schedule, and critical resource estimates for a
project throughout its life cycle.
• The project estimation process can be hard, especially if there is less
information available.
• In order to have accurate project estimate, you need to know your team,
deliverables, and tasks (activities).
• Accuracy of estimates depends on:
 Level of detail: the degree of decomposition of the WBS.
 Risk assessment results and the remediation plan.
 The estimator's experience.
 The estimating method.
• These information are used to compare among available estimate
and select most accurate project estimates.
Project Estimating
Estimation Project
Budgeting
Levels of Estimating
Accuracy
There are three levels of estimating accuracy:
1. Ballpark estimates
• Ballpark or approximate estimates are made when little
information about the project is available and there are no
detailed requirements, except the initial project request.
• In order to do estimates, the delivery team must be familiar

with the similar types of project and the technology used.
• This type of estimate is also done when significant risks are

involved.

Project Estimating
Estimation Project
Budgeting
Levels of Estimating Accuracy
2. Preliminary estimates
• Preliminary estimates are performed immediately after

completion of Business Requirements.
• Those estimates heavily depend on the team's familiarity with
similar projects, business, and technology with no high risks
present.
• A high level WBS should be used to do this type of estimating.
• Preliminary estimates are used to establish the preliminary
project budget and are often used to establish initial project
funding.
Project Estimating
Estimation Project
Budgeting
Levels of Estimating Accuracy
3. Accurate estimates
• Accurate or definitive estimates are prepared from a
well-defined detailed data and WBS. This is the most
detailed estimate.
• This type of estimate is done just before the project plan
package is created or updated.
• It is not usually possible to do accurate estimates for the
entire project, because the lack of detailed information
for the required activities in the distant future.

Project Estimating
Estimation Project
Budgeting
Types of Project Estimates
There are 4 types of project estimates:

a) Estimate Size and complexity
b) Estimate Effort
c) Estimate Cost
d) Estimate Critical Resources

Project Estimating
Estimation Project
Budgeting
Estimate Size and complexity (1)

a) Size and complexity (Software Projects only) :
• Estimates of the project complexity, which are a measure of
the project sophistication and the number of inputs and
outputs combined with technology used.
• Size estimates vary with the type of project, because size
itself is an attribute of complexity that varies depending
on the practice area of the project.
o The size of documentation or processes may be expressed in
standard pages;
o The size of presentations may be expressed in number of slides,
o the size of a bridge may be expressed in terms of tons of steel,
and
o The size of a software application is expressed in number of
Function Points (FP) or sometimes in Lines of Code.

Project Estimating
Estimation Project
Budgeting
Estimate Size and complexity (1)

Size and complexity (Software Projects only):
• Function Points are units of software project complexity, which
are associated with the functionality of the software
application.
 if the application size is calculated as 400 Function
Points, then developing that application with MS
Visual C++ may take, for example, 6 months using 5
average skilled resources.
 However, developing the same functionality using
MVS/CICS/Cobol may take 18 months using the same
number of resources.
• Function Points Analysis (FPA) combined with the statistics
gathered, allows figuring out the unit cost of software
development for every platform being used to develop
software.
Project Estimating
Estimation Project
Budgeting
Estimate Effort (2)
b) Estimate Effort
• Estimates of time required to complete tasks outlined in the WBS.
• This effort (time), say, labor hours per task may be calculated
using one of the following major types of estimation:
i. Top-Down Effort Estimation
ii. Parametric Effort Estimation
iii. Bottom-Up Effort Estimation

Project Estimating
Estimation Project
Budgeting
Top-Down Effort Estimation
i. Top-Down Effort Estimation

• This type of estimation is possible if there is a sufficient
number of statistics and experience available from similar
projects developed in the past.
• It is usually used in projects that do not (yet) have a detailed
WBS on a task level.
• Top-down estimating methods include the following elements:
 History of past projects and the available statistics (Analogous method)
 Opinion of the Subject Matter Experts (SMEs)
 High Level Work Breakdown Structure
• It is most suitable for the ballpark and preliminary estimates.

Project Estimating
Estimation Project
Budgeting
Parametric Effort Estimation
ii. Parametric Effort Estimation

• This method is used by estimating tools that are based on
statistical methods, such as Monte Carlo Analysis.
• Those tools will calculate the probability of completing
tasks within a certain time period based on past
experience, taking advantage of parameters (rates).
• It is as accurate as the number of statistics collected
during prior projects.
• This method is rarely used in software development but
cannot be excluded from consideration.
Project Estimating
Estimation Project
Budgeting
Bottom-Up Effort Estimation

iii. Bottom-Up Effort Esti mation
• This is the most accurate detailed estimation made by several subject
matter experts for all tasks.
• It uses P E RT method (visit Chapter 2) in order to eliminate subjective
factors in estimating.
E=
to + 4 (t m )+tp
E= expected estimate 6
Where to = most optimistic estimate

t m = most likely estimate
tp = most pessimistic estimate

Project Estimating
Estimation Project
Budgeting
Example
• Consider a lawyer believes a project will cost ETB 1000
in the best-case scenario and ETB 1500 in the worst-
case scenario, with ETB 1199 being the most likely
Figure. Then what is the estimate cost of the project?
+ 4 ( t m )+tp = 1000 +4 ( 11 99 ) +1 5 0 0
Estimate = t o
6 6
= ETB
1216
• Experience shows that if only one estimate, rather than

three, is requested from experts, they most often
provide the optimistic estimate.

Project Estimating
Estimation Project
Budgeting
Estimate Cost (3)

C) Estimate Cost
• These are estimates based on the effort estimates and resource rates.
• They are derivatives of efforts estimates, when efforts in hours are

multiplied by the hourly rate of resources plus additional factors, such as,
cost of training, computer equipment, licenses, travel expenses, etc.
• Usually, resource rates that project managers receive from

management include the cost of resources and many other indirect
costs.
• Entering rates into project scheduling tools will automatically determine

the unadjusted cost of the project. More this estimate is covered in the
next section.

Project Estimating
Ty p e s of
Resources C o st
Estimation Project
P r o j e c t C o s t M e t h o d s of
Budgeting
Estimating Costs
Cost Estimation
Cost Estimation
• Cost Estimation is the process of developing an approximation of the monetary
resources needed to complete project activities.
• Cost estimating is linked closely with scope, schedule, and resource planning.
• To estimate project costs accurately, the project manager must
understand
o the various types of cost,
o the timing and accuracy of cost estimates,
o the different methods that can be employed to estimate
costs, and
o a variety of cost estimating issues.
• Let us first discuss different types of project cost.

Project Estimating
Ty p e s of P r o j e c t C o s t
Resources C o st
M e t h o d s of E s t i m a t i n g C o s t s
Estimation Project
Budgeting
Types of Project Cost

• Fixed Versus Variable Costs :
o Fixed costs are those that remain the same

regardless of the size or volume of work.
Example:- If you need to buy a computer for your
project, the cost is the same regardless of how
much you use it.
o Variable costs are those that vary directly
with volume of use.
Example:- If you were building a cement wall,
the cost of the cement would vary directly with
the size of the wall.
Project Estimating
Resources C o st
Estimation Project
Budgeting

• Direct Versus Indirect Costs:
oDirect costs are those that only occur because of the project and
are often classified as either direct labor or other direct costs.
 Example:- Workers who are hired specifically to work on
the project and who will be either assigned to a new
project or released when the project is complete.
 Costs of materials, travel, consultants, subcontracts,
purchased parts, and computer time.
o Indirect costs are those that are necessary to keep the
organization running but are not associated with one specific
project.
Example:-The salaries of the company executives and the cost
of company buildings, utilities, and insurance .
Project Estimating
Resources C o st
M e t h o d s of E s t i m a t i n g C
Estimation Project
Budgeting
osts

• Recurring Versus Nonrecurring Costs
o Recurring costs are those that repeat as the project work
continues. They tend to occur during project execution.
Example:- The cost of writing code or laying bricks.
o Nonrecurring costs are those that happen only once during a
project. They tend to occur during project planning & closing.
Example:- The cost developing a design that, once approved, guides
the project team.
• Regular Versus Expedited Costs
o Regular costs are preferred and occur when progress can be made
by normal work hours and purchasing agreements.
o Expedited costs occur when the project must be conducted
faster than normal and overtime for workers and/or extra charges
for rapid delivery from suppliers are necessary.
S o lo m o n K . Project Planning....
Project Estimating
Resources C o st
Estimation Project
Budgeting
Methods of Estimating Project Costs
• Many methods can be used for estimating project

costs.
• Most of the methods are variations of one of the
following techniques.
• The major techniques of estimating cost are:
1. Analogous Estimation
2. Parametric Estimation
3. Bottom-Up Estimation

Project Estimating
Resources C o st
Estimation Project
Budgeting
Methods of Estimating Project Costs
• Analogous estimation: is a technique for estimating the duration or cost

of an activity or a project using historical data from a similar project.
• Parametric estimation: is a technique in which an algorithm is used to

calculate cost or duration based on historical data and project parameters. A
bit more information is needed to complete a parametric cost estimate.
• Bottom-Up Estimation: is a method of estimating project duration or

cost by aggregating the estimates of the lower-level components of the WBS.
 For a bottom-up estimate, the WBS needs to be broken down
to the most detailed level, and the specifications need to be
very clear.

Project Estimating
Resources C o st
Estimation Project
Budgeting
Comparison Cost Estimating Method
Table 3.1: Comparison Cost Estimating Method

Criteria Analogous P arametric Bottom-Up
Amount of information Least Most
required Middle
Amount of time required Least Middle Most
Accuracy obtained Lowest Highest
Middle

Project Estimating
Estimation Project
Budgeting
Estimate Critical Resources (4)

d) Estimate Critical Resources
• Critical resources needed to support design and implementation
must be identified in this process.
• Their cost must be added to the project, unless they are

expenses that may be used in other projects, called capital
expenses.
• The cost of critical resources must be included in cost estimates,

unless it is explicitly mentioned in the SOW, that those costs are
not included in the cost case and must be added separately.

Project Estimating
Resources C o st
Estimation Project
Budgeting
Estimating Resources
➢ Resource estimation is the process of estimating the types
and quantities of material, human resources, equipment, or
supplies required to perform each activity.
➢ When a project team determines a detailed list of activities

that must be performed, they should identify type of person
(by specific knowledge or skill) is needed to perform each of
the activities.
➢ They still need to determine how many resources and what

knowledge and skill each needs to complete the project even if
they didn't identify individual activities.
Project Estimating
Resources C o st M e t h o d s of P r o j e c t B u d g e t i n
Estimation Project
Budgeting
P r o j e c t C a s h F l o w Analysis a n d C o s t A l l o c at i o n g
Project Budgeting
• Once the project costs have been estimated, it is time
to establish the project budget.
• Project budgeting is simply the process of forecasting
what resources the project will require, what quantities
of each will be needed, when they will be needed, and
how much they will cost.
• Budgeting skills are necessary when estimating the
resources and materials you will need for the project.
• Here, you have reached a major milestone in the
project's planning process; the budget is the last
Planning document you will create.
Project Estimating
Resources C o st M e t h o d s of P r o j e c t B u d g e t i
Estimation Project
Budgeting
P r o j e c t C a s h F l o w Analysis a n d C o s t A l l o c at i o n ng
Project Budgeting
• A budget must be developed in order to obtain the
resources needed to accomplish the project's objectives.
• A budget is simply a plan for allocating
organizational resources to the project activities.
• Hence, the project budget is nothing more than the
project plan, based on the WBS, expressed in
monetary terms.
• Once the budget is developed, it acts as a tool for
upper management to monitor and guide the
project.
Project Estimating
Resources C o st M e t h o d s of P r o j e c t B u d g e t i n g
Estimation Project
Budgeting
Methods of Project Budgeting

The major approaches for gathering the data for budgeting a project:
1. Top-down Budgeting
2. Bottom-up Budgeting
1. Top-down Budgeting
• This method
1
is based on the collective judgments and experiences of top
and middle managers concerning similar past projects.
• These managers estimate the overall project cost by estimating the
costs of the major tasks.
• Then these estimates are given to the next lower level of managers to
split up among the tasks under their control, and so on, until all the
work is budgeted.
Project Estimating
Estimation Project
Budgeting
Bottom-up Budgeting
2. Bottom-up Budgeting
• In this method, the WBS identifies tasks, whose

resource requirements are estimated by those
responsible for executing them.
• These resources, such as labor and materials, are then
converted to costs and aggregated to get an overall
direct cost for the project.
• The project manager then adds indirect costs to arrive
at a final project budget.

Project Estimating
Estimation Project
Budgeting
Which method is rarely

used?
• Bottom-down budgeting can result in much more accurate
estimates. Unfortunately, true bottom-up budgeting is rare.
Why?
o Upper-level managers are reluctant to let the workers develop the
budget, fearing the natural tendency to overstate costs, and fearing
complaints if the budget must later be reduced to meet organizational
resource limitations.
o Budget is upper management's primary tool for control of the project,
and they are reluctant to let others set the control limits.
• Top-down budgeting allows the budget to be controlled by
people who play little role in designing and doing the work
required by the project.

Project Estimating
Estimation Project
Budgeting
Best Practice
• Employ both forms of developing budgets by

combining the two forms of budgeting.
 They both have advantages, and the use of one

does not preclude the use of the other.
• The only disadvantage of this approach is that it
requires some extra time and trouble: a small price to
pay for the advantages.

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Project Estimating Processes

Lunar International College

Solomon K. Project Planning....

1. Project Estimating Processes

Project Estimating Processes

• In order to do estimates, the delivery team must be familiar

• This type of estimate is also done when significant risks are

Solomon K. Project Planning....

Levels of Estimating Accuracy

• Preliminary estimates are performed immediately after

Levels of Estimating Accuracy

Solomon K. Project Planning....

Types of Project Estimates

There are 4 types of project estimates:

Solomon K. Project Planning....

Estimate Size and complexity (1)

Solomon K. Project Planning....

Estimate Size and complexity (1)

Estimate Effort (2)

i. Top-Down Effort Estimation

ii. Parametric Effort Estimation

iii. Bottom-Up Effort Estimation

Solomon K. Project Planning....

Top-Down Effort Estimation

i. Top-Down Effort Estimation

Solomon K. Project Planning....

Parametric Effort Estimation

ii. Parametric Effort Estimation

Bottom-Up Effort Estimation

Where to = most optimistic estimate

Solomon K. Project Planning....

• Experience shows that if only one estimate, rather than

Solomon K. Project Planning....

Estimate Cost (3)

• They are derivatives of efforts estimates, when efforts in hours are

• Usually, resource rates that project managers receive from

• Entering rates into project scheduling tools will automatically determine

Solomon K. Project Planning....

Solomon K. Project Planning....

Types of Project Cost

o Fixed costs are those that remain the same

Types of Project Cost

Types of Project Cost

Methods of Estimating Project Costs

• Many methods can be used for estimating project

Solomon K. Project Planning....

Methods of Estimating Project Costs

• Analogous estimation: is a technique for estimating the duration or cost

• Parametric estimation: is a technique in which an algorithm is used to

• Bottom-Up Estimation: is a method of estimating project duration or

Solomon K. Project Planning....

Comparison Cost Estimating Method

Table 3.1: Comparison Cost Estimating Method

Solomon K. Project Planning....

Estimate Critical Resources (4)

• Their cost must be added to the project, unless they are

• The cost of critical resources must be included in cost estimates,

Solomon K. Project Planning....

➢ When a project team determines a detailed list of activities

➢ They still need to determine how many resources and what

Methods of Project Budgeting

• In this method, the WBS identifies tasks, whose