Project Management

THE MANAGERIAL PROCESS

Clifford F. Gray Eric W. Larson
Third Edition

Chapter 5

Estimating Project Times and Costs

Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGrawPowerPoint Presentation by Charlie Cook

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

Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-

McGrawMcGraw-Hill/Irwin 52 5

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

Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-

McGrawMcGraw-Hill/Irwin 53 5

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.
Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGrawMcGrawMcGraw-Hill/Irwin 54 5

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.
Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGrawMcGrawMcGraw-Hill/Irwin 55 5

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
Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGrawMcGrawMcGraw-Hill/Irwin 56 5

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

Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-

McGrawMcGraw-Hill/Irwin 57 5

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

Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-

McGrawMcGraw-Hill/Irwin 58 5

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

Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-

McGrawMcGraw-Hill/Irwin 59 5

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
Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGrawMcGrawMcGraw-Hill/Irwin 510 5

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.

Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-

McGrawMcGraw-Hill/Irwin 511 5

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
Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGrawMcGrawMcGraw-Hill/Irwin 512 5

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.

Copyright 2006 The McGraw-Hill Companies. All rights reserved. McGraw-

McGrawMcGraw-Hill/Irwin 513 5