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Estimating Project Times and Resource Costs

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1 Estimating Project Times and Resource Costs

2 Learning Objectives Describe various Methods of estimating times and costs Calculate and interpret Learning curves Recall different Types of costs Describe resource allocation Describe leveling resources

3 Estimating Projects Estimating The 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.

4 Types of Costs Direct Costs Indirect Costs Special Case Costs
Costs that are clearly chargeable to a specific work package. Indirect Costs Costs incurred that are not directly tied to an identifiable project deliverable or work package. Special Case Costs “estimated costs” usually assigned to task that has been done over and over. Sunk Costs Those costs that are unrecoverable. Capital Costs Assets that have a useful life, year or more. Direct Costs -- labor, materials, equipment, and other Indirect costs– Salary, rents, supplies, specialized machinery Special case costs - time takes to load software then hourly rate of person doing it.

5 Why Estimating Time and Cost Are Important
To 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.

6 Factors Influencing the Quality of Estimates
Planning Horizon Other (Nonproject) Factors Project Duration Quality of Estimates Organization Culture People Padding Estimates Project Structure and Organization

7 Estimating Guidelines for Times, Costs, and Resources
Have 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. Don’t make allowances for contingencies. Adding a risk assessment helps avoid surprises to stakeholders.

8 Types of Estimates Order of Magnitude “seat of your pants” estimate with very little thought or preparation Before it is stated, stress it is very rough and limited in accuracy Budget Estimate More accurate and requires some research Can use historical data

9 Cont. Definitive Estimate Pro Forma Assessments Most accurate
Use the WBS completed and tested for accuracy Include contingency allowances – lump sum amt. Includes: training, testing, travel, monitoring, etc. Pro Forma Assessments Initial profile of project costs Can be order of magnitude, budget, or definitive estimates Are refined until there is a particular level of comfort

10 Cost Estimating Approaches
Bottom- up Most time consuming and most expensive Uses WBS where each task is estimated and then added together as reverse upward. Tendency to “pad” as one goes Parametric Procedures Applied to Specific Tasks Using Industrial Engineering standards and analysis Involves cost per sq. ft., linear foot, etc. Time-Phased Budgets A cost estimate is not a budget unless it is time-phased. Time phasing begins with the time estimate for a project. Time-phased budgets mirror how the project’s cash needs (costs) will occur or when cash flows from the project can be expected. Budget variances occur when actual and forecast events do not coincide. Parametric Procedures – uses project characteristics in a math model to predict costs. Most likely reliable when– historical information is accurate; parameters are readily quantifiable; model is scalable works ok for small and large projects. Detailed estimates – costs of individual work items then summarize or roll up to get total; accuracy and cost is drivent by size of each task.

11 Cost Estimating Approaches
Macro (Top-down) Approaches Consensus methods Expert judgment Apportion method Learning curves Project Estimate Times Costs Top Down estimating = use actual costs of previous similar project as basis for estimating Used when do not have a lot of detailed information in early phases of project; Less costly technique but not as accurate more a form of judgement expert like Ratio Method

12 Refining Estimates Reasons for Adjusting Estimates
Interaction costs are hidden in estimates. Normal conditions do not apply. Things go wrong on projects. Changes in project scope and plans. Adjusting Estimates Time and cost estimates of specific activities are adjusted as the risks, resources, and situation particulars become more clearly defined.

13 Estimate duration times
Fairly certain if done before in other projects derive average duration from historical data Some projects books available containing mean tables for typical activities Ask around When considering the time commitment to a particular project, realistically, personnel (a resource) has 80% of their personnel time available, which is 4-6 hours of actual labor time (sometimes one can only get 4-5 hrs per day) while the rest of their time is involved with non-project related issues.

14 Resources

15 Estimate Resources Four categories of resources Questions to ask?
Money Materials Machines People Questions to ask? Who and what are needed? Who and what can do the work? Who and what are available? What level and competence is required? Money – budgeted up front; important when you spend it as well as how you spend it Materials – goes as far as budget goes; when run out go to your contingency plan Machines – borrowed, schedule accordingly Who and what needed? what is the best case scenario Who and what can do the work? minimum requirements People – assigned for the total project or borrowed for a short time. Plan for over-allocation of resources and set priorities

16 Resource Planning Resource planning is the process by which the project manager decides which resources to obtain, from what source, when to obtain them, and how to use them. Resource planning is mainly concerned with the trade-off analysis between: 1. cost of alternative schedules designed to accommodate resources shortages, and 2. cost of using alternative resources; for example, overtime to meet a schedule or subcontracting to accommodate a schedule change. Resource planning is a continuous process that takes place throughout the life cycle of the project. In a multi project environment the specific resource alternative selected also affects other ongoing projects. It is common wisdom to start the planning process by assuming that each activity is performed by the minimum cost resource alternative.

17 Project Resource Tools
WBS Resource Matrix Gantt chart Remember the Project Goal when assigning resources. Assign the Right resources to the tasks. Project softwares only recognizes resources tied to tasks. You have to look at skill level, knowledge, what the resource needs to do (remember the story of NASA spending millions on a pen to work in space and Russia used a pencil). Resources are people, materials, equipment, and money. Create a detailed resource pool. Focusing on if you need the resource for unlimited amount of time and for any task or for a specific time and task. Know the limitations for obtaining a resource. Limitations could be company policy regarding rental equipment, consulting fees, or equipment purchases. Make sure you get approvals signed off before you get the resource. Consider the cost of the resources you want to use. What are the up front cost figures and then throughout the project? What are the hourly and overtime pay rates? What are the flat per-visit charges? What are the contractual fixed costs?

18 Resource Availability
Renewable resources are resources that are available at the same level every time period. (e.g., a fixed workforce) Depletable resources are resources that come in a lump sum at the beginning of the project and are used up over time, such as materials or computer time on a super computer. Doubly constrained resources are resources available in limited quantities each period. However, their total availability throughout the project is also circumscribed. The cash available for a project is a typical example of a doubly constrained resource. Nonconstrained resources are resources available in unlimited quantities for a cost. A typical example is untrained labor or general-purpose equipment.

19 Schedule Load – tasks and resources
Factors to Consider in Assigning Work (Loading Resources): Don't always pick the same people for the toughest assignments. Choose people with an eye to fostering their development through participation on the project. Pick people with compatible work habits and personalities but who complement each other. Team-up veterans with new hires to share experience and socialize newcomers into the organization. Select people who may need to learn work together on later stages of the project or other projects. HEURISTICS (rule of thumb) As soon as possible As late as possible Shortest task time first - what takes the least amount of time to do Most resources first - which needs the most people, equipment, material to get done Minimum Slack first Most critical followers-the tasks that follow are critical and must start on time or the project will be delayed. Most successors

20 Resource Leveling You might decide to use resource leveling when you look at your schedule and see that you have one or more resources that are allocated at more than their Max Units values for a given time period (or periods). Leveling within slack The Level Only Within Available Slack option looks at the Slack value of a task and delays tasks only within that amount of slack. For example, if a task is five days long and has 15 days of slack, leveling with this option turned on will delay this task only 10 days, even if this means leaving some overallocations unresolved. But does not extend the project. Leveling outside slack Using Leveling outside slack, we can delay or extend a tasks for when we have resources available. Unfortunately, this extends the project total time. Do note that leveling either way does not always solved the resource overallocations. So one may have to: Hire more help Reevaluate the task time Look at secondary skills of existing resources.

21 Learning Curves

22 Learning Curve Past experience indicates that individuals learn by experience (i.e., get better and better at the job by carrying out the tasks more and more).

23 Learning curve This phenomenon was first reported by T. P. Wright in But, the learning curve theory is based on assumptions such as those listed next Chase, R B., 1981

24 Underlying Principles of Learning Curves
1. Each time you perform a task it takes less time than the last time you performed the same task 2. The extent of task time decreases over time 3. The reduction in time will follow a predictable pattern Reasons for the effect Examples NASA quotes the following experience curves:[4] Aerospace 85% Shipbuilding 80-85% Complex machine tools for new models 75-85% Repetitive electronics manufacturing 90-95% Repetitive machining or punch-press operations 90-95% Repetitive electrical operations 75-85% Repetitive welding operations 90% Raw materials 93-96% Purchased Parts 85-88% There are a number of reasons why the experience curve and learning curve apply in most situations.[citation needed] They include: Labour efficiency - Workers become physically more dexterous. They become mentally more confident and spend less time hesitating, learning, experimenting, or making mistakes. Over time they learn short-cuts and improvements. This applies to all employees and managers, not just those directly involved in production. Standardization, specialization, and methods improvements - As processes, parts, and products become more standardized, efficiency tends to increase. When employees specialize in a limited set of tasks, they gain more experience with these tasks and operate at a faster rate. Technology-Driven Learning - Automated production technology and information technology can introduce efficiencies as they are implemented and people learn how to use them efficiently and effectively. Better use of equipment - as total production has increased, manufacturing equipment will have been more fully exploited, lowering fully accounted unit costs. In addition, purchase of more productive equipment can be justifiable. Changes in the resource mix - As a company acquires experience, it can alter its mix of inputs and thereby become more efficient. Product redesign - As the manufacturers and consumers have more experience with the product, they can usually find improvements. This filters through to the manufacturing process. A good example of this is Cadillac's testing of various "bells and whistles" specialty accessories. The ones that did not break became mass produced in other GM products; the ones that didn't stand the test of user "beatings" were discontinued, saving the car company money. As GM produced more cars, they learned how to best produce products that work for the least money. Value chain effects - Experience curve effects are not limited to the company. Suppliers and distributors will also ride down the learning curve, making the whole value chain more efficient. Network-building and use-cost reductions - As a product enters more widespread use, the consumer uses it more efficiently because they're familiar with it. One fax machine in the world can do nothing, but if everyone has one, they build an increasingly efficient network of communications. Another example is accounts; the more there are, the more efficient the network is, the lower the cost to everyone of using it. Shared experience effects - Experience curve effects are reinforced when two or more products share a common activity or resource. Any efficiency learned from one product can be applied to the other products. 3

25 The Experience Curve Cost or price per unit
As plants produce more products, they gain experience in the best production methods and reduce their costs per unit Total accumulated production of units Cost or price per unit Yesterday Today Tomorrow

26 Learning Curve assumptions
The learning curve may vary one product to another and from one organization to another. The rate of learning depends on factors such as the quality of management and the potential of the process and products

27 Moreover, it may be said that any change in personnel, process, or product disrupts the learning curve. Consequently, there is a need for the utmost care in assuming that a learning curve is continual and permanent.

28 The learning curves are found to be quite useful in a variety of applications, including strategic evaluation of company and industry performance, internal labor forecasting, establishing costs and budgets, production planning, external purchasing, and subcontracting of items

29 Formulas To determine Learning Curve rate:
T2/T1 = T4/T2=T6/T3=T8/T4 To determine time to produce nth or n units: Pull up AIOM Learning curves examples to work from.

30 Learning Curves

31 Examples

32 Example Problems: 1. Beth Zion hospital has received initial certification from the state of California to become a center for liver transplants. The hospital, however, must complete its first 18 transplants under great scrutiny and at no cost to the patients. The very first transplant, just completed, required 30 hours. On the basis of research at the hospital, Beth Zion estimates that it will have an 80% learning curve. a. How long will it take to complete the 5th transplant?  b. How long will it take for all of the first 5 transplants?  c. How long will it take to do the last 13 transplants? 2. A student at Winona State University bought six (6) bookcases for her dorm room. Each required unpacking of parts and assembly, which included some nailing and bolting. She completed the first bookcase in five (5) hours and the second in four (4) hours. a. What is the learning rate?  b. Assuming the same rate continues, how long will the 3rd bookcase take?  c. How long will it take to do all 6 bookcases?

33 Any Questions?

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