Improving cost estimates

This section deals with a number of ways for improving the process of cost
estimating and an easy way of measuring its accuracy
Measured numerically; e.g., task durations, the time for which specialized
personnel will be required, or the losses associated with specific types of
risks should they occur
These improvements range from better formalization of the estimating/
forecasting process, using forms and other simple procedures, to straight
forward quantitative techniques involving learning curves and tracking
signals.

Forms

To help the PM in obtaining accurate estimates, not only of direct costs,

but also when the resource is needed, how many are needed, who should
be contacted, and if it will be available when needed.

Learning Curves

The reason for the error is the learning exhibited by humans when they
repeat a task.

The time required to produce the n th unit can be calculated as

Tn _ T 1 nr

Where T n is the time required to complete the n th unit, T 1 is time

required to complete the fi rst unit, and r is the exponent of the learning
curve and is calculated as the log(learning rate)/log(2).

The impact of learningcan also be incorporated into spreadsheets

developed to help prepare the budget for aproject as is illustrated in the
example at the end of this section.

The use of learning curves in project management

o To approximate composite learning curves for entire projects
o For approximating total costs from the unit learning curve
o Or including learning curve effects in critical resource diagramming
The effects of learning, even in one - time projects, should not be
ignored. If costs are underestimated, the result will be an unprofitable
project.

Tracking Signals

There are two types of error in those estimates.

o

Random error are random when there is a roughly equal chance

that estimates are above or below the true value of a variable, and
the average size of the error is approximately equal for over and
under estimates.

Systematic errors Random errors cancel out, which means that if

adding them up the sum will approach zero. Errors caused by bias
do not cancel out.

Calculation of a number called the tracking signal can reveal if there is

systematic bias in cost and other estimates and whether the bias is
positive or negative

Tracking signal helps to reveal if there is systematic bias in cost and other
estimates and whether the bias is positive or negative.
It is helpful to PM in making future estimates or on the critically important
task of judging the quality if estimates made by others.

It is important to recognize that most overestimates or resource

requirements are the result of an attempt by the subordinate to make
safe estimates, and underestimates result from over optimism.

PM should avoid sharp criticism if the subordinates are overcorrect.