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Estimating Project Times and Costs: Chapter Five

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60 views25 pages

Estimating Project Times and Costs: Chapter Five

Helpful

Uploaded by

Noman Cheema
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER FIVE

Estimating Project
Times and Costs

McGraw-Hill/Irwin
Copyright 2011 by The McGraw-Hill Companies, Inc. All
rights reserved.

Where
Where We
WeAre
Are Now
Now

52

Estimating
Estimating Projects
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.

Types of Estimates
Top-down (macro) estimates: group consensus,
Bottom-up (micro) estimates: estimates of elements
of the work breakdown structure

53

Why
Why Estimating
Estimating Time
Time and
and Cost
Cost Are
Are Important
Important
To support good decisions.
To schedule work.
To determine how long the project should take
and its cost.
To develop cash flow needs.
To determine how well the project is progressing.
To develop time-phased budgets

EXHIBIT 5.1
54

Factors
Factors Influencing
Influencing the
the Quality
Quality of
of Estimates
Estimates
Planning
PlanningHorizon
Horizon
Project
Project
Duration
Duration

Other
Other(Nonproject)
(Nonproject)
Factors
Factors

Organization
Organization
Culture
Culture

Padding
Padding
Estimates
Estimates

Quality
Qualityof
of
Estimates
Estimates

People
People

Project
ProjectStructure
Structure
and
andOrganization
Organization

55

Estimating
Estimating Guidelines
Guidelines for
for Times,
Times,
Costs,
Costs, and
and Resources
Resources
1. Have people familiar with the tasks make the
estimate( responsibility) .
2. Use several people to make estimates.
3. Base estimates on normal conditions, efficient methods,
and a normal level of resources.
4. Use consistent time units in estimating task times.
5. Treat each task as independent, dont aggregate.
6. Dont make allowances for contingencies.
7. Adding a risk assessment helps avoid surprises
to stakeholders.
56

Top-Down
Top-Down versus
versus Bottom-Up
Bottom-Up Estimating
Estimating
Top-Down Estimates
Are usually are derived from some one who uses
experience and/or information to determine the project
duration and total cost.
Are made by top managers who have little knowledge
of the processes used to complete the project.

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.
57

Top-Down
Top-Down versus
versus Bottom-Up
Bottom-Up Estimating
Estimating
Conditions for Preferring Top-Down or Bottom-up
Time and Cost Estimates
Condition
Strategic decision making

Macro Estimates

Micro Estimates

Cost and time important

High uncertainty

Internal, small project

Fixed-price contract

Customer wants details

Unstable scope

TABLE 5.1
58

Estimating
Estimating Projects:
Projects: Preferred
Preferred Approach
Approach
Make rough top-down estimates.
Develop the WBS/OBS.
Make bottom-up estimates.
Reconcile differences between top-down
and bottom-up estimates

59

Top-Down
Top-Down Approaches
Approaches for
for Estimating
Estimating
Project
Project Times
Times and
and Costs
Costs
Consensus methods(Delphi
method)
Ratio methods
Apportion method

Project Estimate
Times
Costs

Learning curves

510

Apportion
Apportion Method
Method of
of Allocating
Allocating Project
Project Costs
Costs
Using
Using the
the Work
Work Breakdown
Breakdown Structure
Structure

FIGURE 5.1
511

Bottom-Up
Bottom-Up Approaches
Approaches for
for Estimating
Estimating
Project
Project Times
Times and
and Costs
Costs
Template methods
Parametric procedures
applied to specific tasks
Range estimates for
the WBS work packages
Phase estimating: A hybrid

512

Support
Support Cost
Cost Estimate
Estimate Worksheet
Worksheet

FIGURE 5.2
513

Phase
Phase Estimating
Estimating over
over Product
Product Life
Life Cycle
Cycle

FIGURE 5.3
514

Top-Down
Top-Downand
andBottom-Up
Bottom-UpEstimates
Estimates

FIGURE 5.4
515

Level
Level of
of Detail
Detail
Level of detail is different for
different levels of management.
Level of detail in the WBS varies
with the complexity of the project.
Excessive detail is costly.
Fosters a focus on departmental outcomes
Creates unproductive paperwork

Insufficient detail is costly.


Lack of focus on goals
Wasted effort on nonessential activities
516

Types
Types of
of Costs
Costs
Direct Costs
Costs that are clearly chargeable
to a specific work package.
Labor, materials, equipment, and other

Direct (Project) Overhead Costs


Costs incurred that are directly tied to an identifiable
project deliverable or work package.
Salary, rents, supplies, specialized machinery

General and Administrative Overhead Costs


Organization costs indirectly linked to a specific
package that are apportioned to the project
517

Contract
Contract Bid
Bid Summary
Summary Costs
Costs
Direct costs

$80,000

Direct overhead

$20,000

Total direct costs

$100,000

G&A overhead (20%)

$20,000

Total costs

$120,000

Profit (20%)

$24,000

Total bid

$144,000

FIGURE 5.5
518

Three
Three Views
Views of
of Cost
Cost

FIGURE 5.6
519

Refining
Refining Estimates
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.

520

Creating
Creating aa Database
Database for
for Estimating
Estimating

FIGURE 5.7
521

Key
Key Terms
Terms
Apportionment methods
Bottom-up estimates
Contingency funds
Delphi method
Direct costs
Function points
Learning curves

Overhead costs
Padding estimates
Phase estimating
Range estimating
Ratio methods
Template method
Time and cost databases

522

WBS
WBS Figure
Figure

TABLE 5.4
523

Learning
Learning Curves
Curves Unit
Unit Values
Values

TABLE A5.1
524

Learning
Learning Curves
Curves Cumulative
Cumulative Values
Values

TABLE A5.2
525

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