Estimating Project Times and Costs Chapter 5

Objectives Methods of estimating times and costs Using Learning curves Types of costs

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 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

Micro (Bottom-up) Approaches Template method Parametric Procedures Applied to Specific Tasks Detailed Estimates for the WBS Work Packages Phase Estimating: A Hybrid 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.

Why are good Time and Cost estimates important? schedule work. needed to determine how long the project should take. needed to determine project cash flow needs. needed to determine how well the project is progressing. needed to establish the project baseline.

Considerations to Estimates Quality Estimate Project Duration People Other Planning Horizon Padding Estimates

Direct (Project) Overhead Costs Types of Costs Direct Costs Costs that are clearly chargeable to a specific work package. Direct (Project) Overhead Costs Costs incurred that are directly tied to an identifiable project deliverable or work package. General and Administrative Overhead Costs Organization costs indirectly linked to a specific package that are apportioned to the project Direct Costs -- labor, materials, equipment, and other Direct Overhead – Salary, rents, supplies, specialized machinery

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

Four categories of resources Estimate Resources Four categories of resources Money Materials Machines People 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 People – assigned for the total project or borrowed for a short time. Plan for over-allocation of resources and set priorities

Learning Curves A person engaged in a repetitive task will improve his/her performance over time. Airline industry was first industry to use Learning curves

To determine Learning Curve rate: Formulas To determine Learning Curve rate: T2/T1 = T4/T2=T6/T3=T8/T4 To determine time to produce nth or n units:

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