6-1 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e CHAPTER 6 Estimating Project, Times and Costs

6-2 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Learning Elements 6.1Understand that estimating can be carried out to differing levels of detail and accuracy. 6.2Apply any number of estimating techniques to assist in scoping and planning a project. 6.3Understand the concept of contingency versus padding.

6-3 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e RECAP. Leading on from Step 4. Estimating: Moving towards a draft budget and schedule The journey from WBS to estimating and the creation of the budget schedule and resource matrix ESTIMATING

6-4 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Estimates are needed to: –Support good decisions –Determine whether the project is worth doing –Determine how long the project should take and its overall cost –Schedule work –Determine the resource required (human and other) –Develop time-phased budgets (cash flow) –Establish the project baseline –Determine how well the project is progressing

6-5 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e What is being estimated? Resources Durations Costs

6-6 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Estimating Guidelines for Time, Costs and Resources Consider: Responsibility Use several people to estimate Normal conditions Time units Independence Contingencies Carrying out a risk assessment Cost of Quality (CoQ)

6-7 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Top-down versus Bottom-up Estimating Top-down approach Are usually derived from someone who uses experience and/or information to determine the project duration and total cost. Bottom-up approach Can 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. Hybrid – phase estimating Used when an unusual amount of uncertainty surrounds a project and it is impractical to estimate times and costs for the entire project.

6-8 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Methods for Estimating Project Costs, Time and Resources Consensus methods Expert judgment Alternative analysis Parametric estimating Analogous method 3-point estimate

6-9 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Methods for Estimating Project Costs, Time and Resources (cont.) Vendor bid analysis Estimating tools and systems Function point methods Learning curves Template methods Range estimating

6-10 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Analogous Estimating ‘Analogous estimating is a technique for estimating the duration or cost of an activity or a project using historical data from a similar activity or project. ‘Analogous estimating uses parameters from a previous, similar project, such as duration, budget, size, weight, and complexity, as the basis for estimating the same parameter or measure for a future project.’ (PMI 2013, p. 169)

6-11 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Parametric Estimating ‘Parametric estimating is an estimating technique in which an algorithm is used to calculate cost or duration based on historical data and project parameters. ‘Parametric estimating uses a statistical relationship between historical data and other variables (e.g. square footage in construction) to calculate an estimate for activity parameters, such as cost, budget and duration’. (PMI 2013, p. 170)

6-12 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Three-point Estimate Optimistic + (4 x Most Likely) + Pessimistic 6 Also known as the PERT method.

6-13 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Summary of Estimating Tools

6-14 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Level of Detail in Estimating The estimating trumpet

6-15 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 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.

6-16 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e Key Terms 3-point estimate bottom-up estimates contingency Cost of Quality (CoQ) Delphi Method direct costs estimating tools function points indirect costs (G&A or overhead costs) learning curve padding estimates PERT method phase estimating range estimating templates top-down estimates