3Estimating Projects Estimating Types of Estimates Project Management 6e.Estimating ProjectsEstimatingThe 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 EstimatesTop-down (macro) estimates: analogy, group consensus, or mathematical relationshipsBottom-up (micro) estimates: estimates of elements of the work breakdown structure
4Why Estimating Time and Cost Are Important Project Management 6e.Why Estimating Time and Cost Are ImportantTo 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.EXHIBIT 5.1
5Factors Influencing the Quality of Estimates Project Management 6e.Factors Influencing the Quality of EstimatesPlanning HorizonOther (Nonproject) FactorsProject DurationQuality of EstimatesOrganization CulturePeoplePadding EstimatesProject Structure and Organization
6Developing Work Package Estimates Project Management 6e.Developing Work Package EstimatesUse people familiar with the tasksInclude a risk assessmentUse several people to make estimatesPreparing Initial EstimatesMake no allowance for contingenciesAssume normal conditionsAssume tasks are independentUse consistent time units
7Estimating Guidelines for Times, Costs, and Resources Project Management 6e.Estimating Guidelines for Times, Costs, and ResourcesHave people familiar with the tasks make the estimate.Use several people to make estimates.Base estimates on normal conditions, efficient methods, and a normal level of resources.Use consistent time units in estimating task times.Treat each task as independent, don’t aggregate.Do not make allowances for contingencies.Add a risk assessment to avoid surprises to stakeholders.
8Top-Down versus Bottom-Up Estimating Project Management 6e.Top-Down versus Bottom-Up EstimatingTop-Down EstimatesAre usually derived from someone who uses experience and/or information to determine the project duration and total cost.Are made by top managers who have little knowledge of the processes used to complete the project.Bottom-Up ApproachCan serve as a check on cost elements in the WBS by rolling up the work packages and associated cost accounts to major deliverables at the work package level.
9Top-Down versus Bottom-Up Estimating Project Management 6e.Top-Down versus Bottom-Up EstimatingConditions for Preferring Top-Down or Bottom-up Time and Cost EstimatesTop-down Bottom-up Condition Estimates EstimatesStrategic decision making XCost and time important XHigh uncertainty XInternal, small project XFixed-price contract XCustomer wants details XUnstable scope XTABLE 5.1
10Estimating Projects: Preferred Approach Project Management 6e.Estimating Projects: Preferred ApproachMake rough top-down estimates.Develop the WBS/OBS.Make bottom-up estimates.Develop schedules and budgets.Reconcile differences between top-down and bottom-up estimates
11Top-Down Approaches for Estimating Project Times and Costs Project Management 6e.Top-Down Approaches for Estimating Project Times and CostsConsensus methodsRatio methodsApportion methodFunction point methods for software and system projectsLearning curvesProject Estimate Times Costs
12Project Management 6e.Apportion Method of Allocating Project Costs Using the Work Breakdown StructureFIGURE 5.1
13Project Management 6e.Simplified Basic Function Point Count Process for a Prospective Project or DeliverableTABLE 5.2
14Example: Function Point Count Method Project Management 6e.Example: Function Point Count MethodTABLE 5.3
15Bottom-Up Approaches for Estimating Project Times and Costs Project Management 6e.Bottom-Up Approaches for Estimating Project Times and CostsTemplate methodsParametric procedures applied to specific tasksRange estimates for the WBS work packagesPhase estimating: A hybrid
17Phase Estimating over Product Life Cycle Project Management 6e.Phase Estimating over Product Life CycleFIGURE 5.3
18Top-Down and Bottom-Up Estimates Project Management 6e.Top-Down and Bottom-Up EstimatesFIGURE 5.4
19Project Management 6e.Level of DetailLevel 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 a focus on departmental outcomesCreates unproductive paperworkInsufficient detail is costly.Lack of focus on goalsWasted effort on nonessential activities
20Types of Costs Direct Costs Direct (Project) Overhead Costs Project Management 6e.Types of CostsDirect CostsCosts that are clearly chargeable to a specific work package.Labor, materials, equipment, and otherDirect (Project) Overhead CostsCosts incurred that are directly tied to an identifiable project deliverable or work package.Salary, rents, supplies, specialized machineryGeneral and Administrative Overhead CostsOrganization costs indirectly linked to a specific package that are apportioned to the project
22Project Management 6e.Three Views of CostFIGURE 5.6
23Refining Estimates Reasons for Adjusting Estimates Adjusting Estimates Project Management 6e.Refining EstimatesReasons for Adjusting EstimatesInteraction costs are hidden in estimates.Normal conditions do not apply.Things go wrong on projects.Changes in project scope and plans.Adjusting EstimatesTime and cost estimates of specific activities are adjusted as the risks, resources, and situation particulars become more clearly defined.