Project Estimating Process
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PMBOK defines an estimates as a quantitative assessment of the likely amount or outcome. Precise estimating in today’s business environment is crucial to the success of any project. A well compiled estimate sets the groundwork for successful project planning, and management of time, cost, and resources.
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Project Estimating Process
- 2. What is an Estimate? – PMBOK Definition of estimate • An estimate is defined as a quantitative assessment of the likely amount or outcome. – Importance of precision in estimating • Precise estimating in today’s business environment is crucial to the success of any project. A well compiled estimate sets the groundwork for successful project planning, and management of time, cost, and resources. Getting Started
- 3. Project Management Body Of Knowledge (PMBOK) Project Time Management KA Project Time management Estimate Activity Resources Process Estimate Activity Durations Process
- 4. Process Overview • Requirements for process or project presented • High level estimate (rough order of magnitude) compiled • Various estimating techniques are reviewed and best fitting is selected • Estimate is performed • Estimate is reviewed • Estimate is presented Getting Started
- 5. The Estimating Process Getting Started Build a WBS Detailed task list Generate Statement of Work Including Assumptions Identify System Requirements With Client Assign Project Manager Responsible for estimating & execution Identify Opportunity Review with Client Write Proposal Identify Risks & Calculate Contingencies Conduct Group Estimating Session
- 6. Estimating Best Practices • Expectations • Multiple Estimates • History • Review • Document Getting Started
- 7. Estimating Techniques • Expert Judgment • Analogous Estimating • Parametric Estimating • Bottom-Up Estimating • Reserve Analysis • Vendor Bid Analysis • Three Point Estimate Getting Started
- 8. Expert Judgment Other Internal Units Subject Matter Experts Industry Groups Stakeholders Professional & Technical Associations Consultants
- 9. Analogous Estimating Maybe Faster to Execute Less Costly Limited amount of Data A form of Expert Judgment Based on Past Project Information
- 10. Parametric Estimating Produces High-Confidence Estimate Analyzes Trends Utilizes Current Statistical Information Based on Historical Information
- 11. Bottom-Up Estimating Break down activities into smaller units of work Estimate the resources for each section of work Combine the estimates into a total amount. New Drug Project Management Planning Procurement Administration Research Phase Lab work Clinical Trials Market Research Design Phase Package Insert Marketing Strategy Production Line Production Phase Roll Out Phase 16 people 10 Consumers 17 people 5 people
- 12. Vendor Bid Analysis When using a vendor, the cost of their services can be determined by an RFP (request for proposal). The RFP is sent to a list of approved vendors.
- 13. Reserve Analysis • Managerial Reserve • Contingency Reserve
- 14. Three Point Estimating Weighted Average Formula Final Estimated Duration = (Pessimistic Estimate) + (4 X Realistic Estimate) + (Optimistic Estimate) 6 Standard Deviation Formula Standard Deviation = Pessimistic Estimate – Optimistic Estimate 6 Getting Started
- 15. Resource Estimating Advertising Workshop Human Resources Operations Trainer Content Writer Graphic Designer Equipment Operations CPU Writers CPU Designers CPU Office Printer Consumables Maps Training Booklets Pens Meals for Delegates Logistics Training Venue Travel Budget $3,000 $1,000 $1,000 $50 $1,000 $2,000 $5,000 $25,000 Total $1,000 15 Staff 5 Trainers $2,000
- 16. Inputs to Resource Estimating Scope Baselines Project Schedule/Resource Calendar Activity List/ Human Resource Plan Project Management Cost Risk Register Organizational Process Assets Enterprise Environmental Factors
- 17. Outputs to Resource Estimating Activity resource requirements Resource breakdown structure Project document updates.
- 18. Duration Estimating • Estimating Duration Overview • Process Inputs • Estimating Techniques • Process Outputs Getting Started
- 19. Process Inputs • Activity List • Activity Attributes • Activity Resource Requirements • Resource Calendar • Project Scope Statement • Organizational Process Assets • Enterprise Environmental Factors Getting Started
- 20. Process Outputs • Estimated Activity Durations • Project Document Updates Getting Started
- 21. Estimating Cost to Initiate Projects Estimates are usually needed to raise funds, agreement of contracts with vendors, resources requested and a timeline for the project picked.
- 22. Establishing a Budget and Budgeting the Timeline A project needs to be broken down into activities. Then the overall project costs can be calculated by estimating the individual activity costs. This process of totaling costs by activities is called cost aggregation.
- 24. Sources • http://www.pm-primer.com/ • http://www.projectmanagementdocs.com/ • http://www2.cdc.gov/cdcup/library/ • http://doit.maryland.gov/sdlc/documents/ • http://pm4id.org/9/1/ • http://pmstudycircle.com/2012/06/4-tools-to-estimate-costs-in-the-project-management/ • http://www.free-management-ebooks.com/faqpm/cost-03.htm • https://www.project-management-prepcast.com/ • Rad, P. and Anantatmula, V., 2010, Integrated Project Planning, Berkeley Heights, NJ: Project Management Excellence. • (ed), Rodney Turner. ( © 2014). Gower handbook of project management, fifth edition. [Books24x7 version] Available fromhttp://common.books24x7.com.ezproxy.lib.uh.edu/toc.aspx?bookid=64390 Getting Started
Editor's Notes
- Script: This Project in Motion lesson covers the Project Estimating Process (6 seconds) Anton
- Script: PMBOK defines an estimates as a quantitative assessment of the likely amount or outcome. Precise estimating in today’s business environment is crucial to the success of any project. A well compiled estimate sets the groundwork for successful project planning, and management of time, cost, and resources. (17 seconds) Ashley
- Script: The process of generating activity resource estimates is a part of the Project Time Management Knowledge Area. Under the umbrella of “Project Time Management” topics include the estimate activity resource process and the estimate activity durations process. Using poor resource and duration estimates may cause project failure. You could run out of resources or schedule them inaccurately, costing both time and money to the company. (23 seconds) Crystal
- During the process of performing and estimate, first the requirements for the process or project are presented by the client or sponsor. A high level estimate known as the rough order of magnitude is compiled base on limited available data. Various estimating techniques are reviewed and best fitting is/are selected. The estimate is then performed, during which resource requirements and availability are identified and durations are assigned. Finally the financial burden is calculated based on resources, durations, and other constraints. Following, the estimate is reviewed and presented to the sponsor. (25 seconds) Ashley
- Script: In the estimating process, project managers must: Understand all requirements of the project Estimate work effort for each task Estimate resources requirement for each activity Estimate durations of each activity (100% resource loaded) Estimate cost based on required resources (100% resource loaded) Identify dependencies (internal and external) Preform 1st pass scheduling utilizing logic based on dependencies Identify available resources Revise cost and durations based on resource availability (24 seconds) Crystal
- Script: Established estimating best practices when utilized can add value and validity to an estimate. 1) Set expectations regarding estimates based on the information available. As more information becomes available estimates become more accurate and the expectations for the estimate should be reevaluated. 2) For increased accuracy use multiple estimating techniques and different sources for each estimate. 3) Maintain complete historical records of previous projects, this allows an estimator to access and analyze the historical data providing for a more accurate estimate. 4) Perform a sanity check on your own estimates and request a peer review. 5) Ensure that all requirements are understood and that all assumptions made are logical and well documented. (36 seconds) Anton
- Script: Many techniques have been coined for the performance of project estimates the following portion covers those techniques accepted as standard. (10 seconds) Ashley
- Script: Estimates are affected by various variables such as labor rates, material costs, inflation, risk factors and other variables. Expert judgment is affected by historical information. It provides valuable information of previous similar projects. Expert judgment, in conjunction with objective estimation techniques, provides valuable information about the organizational environment and information from prior comparable projects. (20 seconds) Crystal
- Script: Analogous estimating is when you use the costs of a past project to forecast the costs of a current project. It's most reliable when the projects you compare are very similar. Analogous estimating uses expert judgment to adjust past costs according to the scope, duration, and budget of the current project. The analogous estimating technique is most effective when used in conjunction with other estimating techniques. It is useful whether you're estimating costs for the total project or for a particular phase or part of the required work. (25 seconds) Crystal
- Script: Through the use of historical information along with statistical data, Parametric Estimating technique utilizes variables from similar projects and current trends and applies them to the current project’s requirements producing an estimate. A parametric estimate must be based on actual project data to have validity. The extent of the information available as well as the sophistication of the data analysis determines the effectiveness of the estimate. (20 seconds) Anton
- Script: Bottom up estimating is when you break a project into its component pieces of work and then estimate the resources needed for each of the pieces. When this has been done for all of the pieces, you add up all the estimates and get a total. There are three steps of bottom-up estimating. Decompose activities into smaller work units Estimate resources for each piece of work Aggregate all estimates into a total quantity (22 seconds) Crystal
- Script: Vendor bid analysis is performed to evaluate the information provided by a vendor as the basis of the estimate. Generally a RFP or request for proposal is used to describe the service or product requirements for the specific scope of the vendor or subcontractor. Vendors responding to the RFP provide bids which are evaluated for use in the overall estimate. (17 seconds) Ashley
- Script: Reserve analysis is performed to cover uncertainties. This reserve is more than the planned budget and allows for unexpected costs. Things do not always go as planned and this is where reserves can save a project. The Contingency reserve is used to manage identified risks or “known-unknown”. It is an estimated reserve based on various risk management techniques, such as EMV or Expected Monetary Value. Controlled by the project manager, contingency reserve is used whenever any identified risk occurs. The Managerial reserve is used to manage the unidentified risks or “unknown-unknown”. Management reserve is not an estimated reserve but rather a random figure defined according to the organization’s policy. (35 seconds) Ashley
- Script: The Three Point Estimate, also known as PERT utilizes the weighted average of multiple estimates of varying probability to produces a single realistic result. Additionally, Standard Deviation is applied to the Three Point Estimate method to extrapolate the confidence with which an estimate can be used. A lower Standard Deviation equates to higher confidence in the accuracy of the estimate. (17 seconds) Anton
- Script: All projects require resources, such as people, equipment, money, raw materials, and office facilities, which are used to complete project tasks. Because resources are critical to the success of a project, it's important that they are properly planned, assigned, and managed throughout the duration of the project. Resource is defined as the total means available to a company for increasing production, service or profit. (18 seconds) Crystal
- Script: In order to estimate the resources needed for project activities, you use inputs from several different sources: Scope baselines cover the work required to meet the project objectives. The project schedule provides milestone dates. The HR plan can give information on pay rates, and you must also include your own project management costs. Understanding risks helps in estimating, as well as templates and history from organizational process assets. Lastly, as a project manager you must know the marketplace conditions. (23 seconds) Crystal
- Script: The major output of estimating is resource allocation to a work unit, which in turn generates a duration. There are three outputs from the estimate activity resources process: Activity resource requirements are normal documents that describe the number of resources for each schedule activity, and the knowledge, skills and experience of each. Resource breakdown structures describe the resources by category and type. Lastly, resource estimating wraps up with documenting updating. (21 seconds) Crystal
- A common mistake that new project managers make is assuming that an estimate of the duration of each task must be made, without first estimating the required work effort and resources. As discussed in previous slides work effort and resource requirements must first be identified. The Estimate Activity Duration process within PMBOK requires one to analyze each activity and estimate how long it will take to complete, this ultimately depends on the amount of work required within the activity, the resources required to perform the work, and the availability of those resources. (32 seconds) Anton
- Utilizing the estimating techniques discussed the following seven *factors* are analyzed in the estimate activity durations process: The Activity List which is the main input, identifies and includes every activity to be estimated. The Activity Attributes accompany the activity list these are additional information about each of the activities. The Activity Resource Requirements, is a main output from the Activity Resource Process and elaborates fully on the resource. The Resource Calendar explains resource constraints such as availability for human resources. The Project Scope Statement created and defined within the Scope Definition Process, includes any constraints and assumptions predicted to have an effect on the estimate. The Organizational Process Assets are historical information for previous similar projects. And Enterprise Environmental Factors. (40 seconds) Anton
- This process produces as it’s main output the Estimate Activity Durations. And as an ancillary output, Project Document Updates are performed at this time, it is still very important that all project documents be reviewed and updated resultant from assumptions made and constraints discovered during the estimating process. (15 seconds) Anton
- Script: Estimates are usually needed to raise funds, agreement of contracts with vendors, resources requested and a timeline for the project picked. Estimates are important to predict cost of resources and duration of the project. (17 seconds) Ashley
- Script: A project needs to be broken down into activities. Then the overall project costs can be calculated by estimating the individual activity costs. This process of totaling costs by activities is called cost aggregation. It is important to budget the timeline. Each project or activity has a start and end date. Money should be transferred at the correct time. If money is transferred too early it cannot be used in other aspects of the project. If money is transferred too late, then payment is late for that activity and it may not start on time. (27 seconds) Ashley
- Script: Remember that costs cannot be estimated until we understand the schedule and dependencies contained within the network diagram. The type and quantity of resources, both human and non-human and when they are needed will have an impact on costs and time and hence on estimating. When performing estimating remember to include costs for the management of the project as well as those needed to create the project specialist deliverables. (20 seconds) Anton