# Project Management Chapter 5

What is estimating
– forecasting the time & cost of completing project deliverables
Why are accurate estimates critical to effective project management?
They are needed to:
– Support good decisions
– Schedule work
– determine how long the project should take and how much it will cost
– determine whether the project is worth doing
– Develop cash flow needs
– Determine how well the project is progress
– develop time phased budgets and establish the project baseline

NOTE:
If estimates are inaccurate, it will lead to false expectations & customer dissatisfaction

Estimating becomes a tradeoff between balancing the benefits of better accuracy vs the costs for securing increased accuracy

cost, time, and budget estimates are the life line of control in a project đ

Estimating processes are commonly classified as…
top down & bottom up
What are the differences between bottom-up and top-down estimating approaches? Under what conditions would you prefer one over the other?
Top down estimates (macro)
– usually done by senior management
– often derive estimates from an analogy, group consensus, or mathematical relationships
– Top down estimates are sometimes inaccurate; they don’t know about all the details of the project but give a rough estimate to help select and prioritize projects

Bottom up estimates (micro)
– typically done by the people doing the work
– estimates are made from elements of the work breakdown structure
– estimates establish low cost & efficient methods
– prefer bottom up if time to estimate is available, estimating cost is reasonable

What is the preferred approach for estimating projects?
– make rough top down estimates
– develop a WBS/OBS
– make bottom up estimates
– develop schedules and budgets
– Reconcile differences between the top down and bottom up estimates
List the top down approaches for estimating project times and costs
1) Consensus Methods
– uses pooled experiences of top middle managers
2) Ratio Methods
3) Apportion Method
– estimates made based on previous projects history
4) Function point methods for Software and System Projects
5) Learning Curves
List the bottom-up approaches for estimating project times and costs
1) Template methods
2) Parametric procedures applied to specific tasks
3) Range estimates for the WBS work packages
– use when work packages have uncertainty associated with time or cost to complete
4) Phase estimating
What are some of the factors that affect the quality of estimates?
1) Planning Horizon
– estimates of current events are more accurate than events that will be occuring further in the future
2) Project Duration
3) People
– accuracy of estimates depends on the skills of the people making the estimates
4) Project Structure & Organization
– matrix may help reduce costs by efficiently sharing personnel across projects
– dedicated project teams have more focus
– you estimate based on the type of person you are conversing with
– people add a little padding to their estimates to ensure that they are not late*
6) Organization Culture
– organizations vary in the importance they attach to estimates; some don’t believe estimates help, others believe it is the bedrock
7) Other (non project) factors
– things such as holidays, machine down time, vacations, legal limits etc
How does the culture of an organization influence the quality of estimates?
Organizations vary in the importance, some say it isn’t possible to estimate the future, where other organizations say its the bedrock
What are the major types of costs? Which costs are controllable by the project manager?
1) Direct Costs
– Includes labour, materials, equipment, other
– chargeable to specific work ie. equipment
2) Direct Project O/H costs
– tied to project deliverables & work packages ie. salary of project manager, temporary rental space for project team
3) General & Administrative O/H Costs
– costs that are not directly linked to the overall project
– advertising, accounting, and senior management above project level

Direct costs are controllable by the project manager đ

When preparing initial estimates managers need to do the following:
1) Include a risk assessment (helps avoid surprises for stakeholders)
2) Make no allowance for contingencies (should assume normal conditions even though not all work packages materialize as planned)
3) Assume tasks are independent
4) Use consistent time units (workday, hr, minute depending on the situation)
5) Assume normal conditions (ie. if a normal work day is 8 hr then the estimate should be based on 8hr work days)
6) Use several people to make estimates (“crowdsourcing”)
7) Use people who are familiar with the tasks
Categories: Project Management