After reading the material in this chapter, you should be able to: Understand that estimating can be carried out to differing levels of detail and accuracy, apply any number of estimating techniques to assist in scoping and planning a project, understand the concept of contingency versus padding.
CHAPTER Estimating Project, Times and Costs Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-1 Learning Elements 6.1 Understand that estimating can be carried out to differing levels of detail and accuracy 6.2 Apply any number of estimating techniques to assist in scoping and planning a project 6.3 Understand the concept of contingency versus padding Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-2 RECAP Leading on from Step Estimating: Moving towards a draft budget and schedule ESTIMATING The journey from WBS to estimating and the creation of the budget schedule and resource matrix Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-3 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 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-4 What is being estimated? • Resources • Durations • Costs Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-5 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 ã Cost of Quality (CoQ) Copyright â 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-6 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 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-7 Methods for Estimating Project Costs, Time and Resources • • • • • • Consensus methods Expert judgment Alternative analysis Parametric estimating Analogous method 3-point estimate Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-8 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 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-9 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) Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-10 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) Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-11 Three-point Estimate Also known as the PERT method Optimistic + (4 x Most Likely) + Pessimistic Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-12 Summary of Estimating Tools Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-13 Level of Detail in Estimating The estimating trumpet Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-14 Refining Estimates Reasons for adjusting estimates • Interaction costs are hidden in estimates • Normal conditions 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 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-15 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 Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-16 ...Learning Elements 6.1 Understand that estimating can be carried out to differing levels of detail and accuracy 6.2 Apply any number of estimating techniques to assist in scoping and planning a project. .. Gray, Project Management in Practice, 1e 6-1 2 Summary of Estimating Tools Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-1 3... Level of Detail in Estimating The estimating trumpet Copyright © 2013 McGraw-Hill Education (Australia) Pty Ltd Pearson, Larson, Gray, Project Management in Practice, 1e 6-1 4 Refining Estimates