Project Management
THE MANAGERIAL PROCESS
Clifford F. Gray Eric W. Larson
Third Edition
Chapter 5
Estimating 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. The task of balancing the expectations of stakeholders 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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Factors Influencing the Quality of Estimates
Planning Horizon
Other (Nonproject) Factors Project Duration
Organization Culture
Quality of Estimates
People
Padding Estimates
Project Structure and Organization
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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. Use consistent time units in estimating task times. 4. Treat each task as independent, dont aggregate. 5. Adding a risk assessment helps avoid surprises to stakeholders.
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Macro vs. Micro Estimating
Rough order of magnitude is good enough. Spending time on detailed estimating wastes money. Time is everything; our survival depends on getting there first! Time and cost accuracy is not an issue. The project is internal. We dont need to worry about cost The uncertainty is so great, spending time and money on estimates is a waste. The project is so small, we dont need to bother with estimates. Just do it. We were burned once. I want a detailed estimate of every task by the people responsible.
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Macro versus Micro Estimating
Conditions for Preferring Top-Down or 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 X X X X X Micro Estimates X
TABLE 5.1
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Estimating Projects: Preferred Approach
Make rough top-down estimates. Develop the WBS. Make bottom-up estimates. Develop schedules and budgets. Reconcile differences between top-down and bottom-up estimates
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Methods for Estimating Project Times and Costs
Macro (Top-down) Approaches
Consensus methods Ratio methods Apportion method Function point methods for software and system projects Learning curves
Project Estimate Times Costs
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Methods for Estimating Project Times and Costs (contd)
Micro (Bottom-up) Approaches
Template method Parametric Procedures Applied to Specific Tasks Detailed Estimates for the WBS Work Packages Phase Estimating: A Hybrid
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Level of Detail
Level of detail is different for different levels of management. Level of detail in the WBS varies with the complexity of the project. Excessive detail is costly.
Fosters (create) 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 timephased.
Time phasing begins with the time estimate for a project. Budget variances occur when actual and forecast events do not coincide.
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Types of Costs
Direct Costs
Costs that are clearly chargeable to a specific work package.
Labor, materials, equipment, and other
Direct (Project) Overhead Costs
Costs incurred that are directly tied to an identifiable project deliverable or work package.
Salary, rents, supplies, specialized machinery
General and Administrative Overhead Costs
Organization costs indirectly linked to a specific package that are apportioned to the project
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Estimating Guidelines for Times, Cost, and Resources
Responsibility Use several people to estimate Normal condition Time units Independence Adding Risk assessment to the estimate helps to avoid surprises to stakeholders.
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