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CHAPTER 5.pptx
- 1. Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–1 Estimating Project Times and Costs CHAPTER FIVE
- 2. Where We Are Now
- 3. Estimating Projects Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–3 • Estimating –The process of forecasting or approximating the time and cost of completing project deliverables. –The task of balancing the expectations of stakeholders and the need for control while the project is implemented • Types of Estimates –Top-down (macro) estimates: analogy, group consensus, or mathematical relationships –Bottom-up (micro) estimates: estimates of elements of the work breakdown structure
- 4. Why Estimating Time and Cost Are Important EXHIBIT 5.1 • Estimates are needed to support good decisions. • Estimates are needed to schedule work. • Estimates are needed to determine how long the project should take and its cost. • Estimates are needed to determine whether the project is worth doing. • Estimates are needed to develop cash flow needs. • Estimates are needed to determine how well the project is progressing. • Estimates are needed to develop time-phased budgets and establish the project baseline. Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–4
- 5. Factors Influencing the Quality of Estimates Quality of Estimates Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–5 Project complexity People Project Structure and Organization Padding Estimates Organization Culture Other (Nonproject) Factors Planning Horizon
- 6. Estimating Guidelines for Times, Costs, and Resources Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–6 1. Responsibility. 2. Use several people to estimate. 3. Normal conditions. 4. Time units. 5. Independence. 6. Contingencies. 7. Adding a risk assessment helps avoid surprises to stakeholders.
- 7. Top-Down versus Bottom-Up Estimating • Top-Down Estimates(Macro) are usually derived from a resource or group of resources who use prior experience and information to determine the project duration and total cost. • Bottom-Up Estimates (Micro) can serve as a check on cost elements in the WBS by rolling up the work package associated cost accounts to major deliverables at the work package level.
- 8. Macro versus Micro Estimating Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–8 TABLE 5.1 Conditions for Preferring Top-Down or Bottom-up Time and Cost Estimates Condition Strategic decision making Macro Estimates X Micro Estimates Cost and time important X High uncertainty X Internal, small project X Fixed-price contract X Customer wants details X Unstable scope X
- 9. Estimating Projects: Preferred Approach Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–9 •Make rough top-down estimates. •Develop the WBS/OBS. •Make bottom-up estimates. •Develop schedules and budgets. •Reconcile differences between top-down and bottom-up estimates
- 10. Methods for Estimating Project Times and Costs • Top-down Approaches (Macro) –Consensus methods –Ratio methods –Apportion method –Function point methods for software and system projects –Learning curves Project Estimate Times Costs Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5– 10
- 11. Apportion Method of Allocating Project Costs Using a (High Level) Work Breakdown Structure FIGURE 5.1 Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5– 11
- 12. Simplified Basic Function Point Count Process for a Prospective Project or Deliverable: Example In this approach we are looking at durations, not costs TABLE 5.2 Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–10
- 13. Example: Function Point Count Method TABLE 5.3 Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–11
- 14. Methods for Estimating Project Times and Costs (cont’d) • Bottom-up Approaches (Micro) –Template method –Parametric Procedures Applied to Specific Tasks –Range Estimating –A Hybrid: Phase Estimating Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–14
- 15. Phase Estimating over Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–15 Product Life Cycle FIGURE 5.3
- 16. Level of Detail Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–16 • 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
- 17. Types of Costs Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–17 • 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 that are not directly linked to a specific project
- 18. Example: Contract Bid Summary Costs FIGURE 5.6 Direct costs $80,000 Direct overhead Total direct costs $20,000 $100,000 G&A overhead (20%) Total costs $20,000 $120,000 Profit (20%) $24,000 Total bid $144,000 Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–18
- 19. Three Views of Cost Accrual FIGURE 5.5 Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–19
- 20. Refining Estimates Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–20 • 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. –Overly optimistic –Strategic misrepresentation • Adjusting Estimates –Time and cost estimates of specific activities are adjusted as the risks, resources, and situation particulars become more clearly defined.
- 21. Creating a Database for Estimating • The best way to improve the accuracy of estimates is to collect and archive data from previous projects, both estimates and actuals. • Historical data provides a knowledge base for improving project time and cost estimates. Creating an estimating database is a “best practice” among leading project management organizations.
- 22. Creating a Database for Estimating Copyright © 2006 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 5–22 FIGURE 5.7 Estimating Database Templates
Editor's Notes
- Define the project Step 1: Defining the Project Scope Step 2: Establishing Project Priorities Step 3: Creating the Work Breakdown Structure Step 4: Integrating the WBS with the Organization Step 5: Coding the WBS for the Information System Responsibility matrices Project communication plan 1. Project objective 2. Deliverables 3. Milestones 4. Technical requirements 5. Limits and exclusions 6. Reviews with customer
- Estimating project time and cost is the foundation for project planning and control It is carried out at the early stage of the project Assumption kung gaano katagal at kung gaano kalaki yung magiging cost sa pag gawa ng project It balance the expectation kasi pag nag estimate tayo is palaging malapit dapat sa reality or dun sa inexpect natin That’s why Innacurate estimates lead to false expectations and consumer dissatisfaction Top down estimates are usually done by senior management. Management will often derive estimates from analogy, group consensus, or mathematical relationships. Bottom-up estimates are typically performed by the people who are doing the work. Their estimates are based on estimates of elements found in the work breakdown structure All project stakeholders prefer accurate cost and time estimates, but they also understand inherent uncertaintay in all projects
- Calculations Nagkakaron ng expectations Cost, time, and budget estimates are the lifeline for control; they serve as the standard for comparison of actual and plan throughout the life of the project.
- 1. The quality of the estimate depends on the planning horizon; mas accurate po yung estimates pag short lamang yung duration ng projects. 2. Project complexity - Time to implement new technology has a habit of expanding in an increasing, nonlinear fashion. Sometimes poorly written scope specifications for new technology result in errors in estimating times and costs. 3, The people factor can influence the quality of time and cost estimates. For example, accuracy of estimates depends on the skills of the people making the estimates. How familiar are they with the task they are estimating? A close match of skills to the task will influence productivity and learning time and, conversely, the opposite is also true. Staff turnover and whether people have worked on projects together in the past also influences accurate estimating. 4. Which project structure is chosen to manage the project will influence time and cost estimates. Project structure refers to matrix, functional, and projectized. The “speed” advantage of a focused dedicated team comes at a higher cost than a matrix team; however the matrix team will not deliver as quickly due to competing demands and divided focus. 5. When asked to estimate, most are inclined to “pad” estimates in order to increase the probability of being on budget and reducing the risk of being late. Padding, however, defeats the chance of truly arriving at realistic estimates, which is greatly needed in order to be competitive. 6. Organization culture can significantly influence project estimates. Some organizations tolerate padding, others encourage it, still others oppose it. in some organization t detailed estimating takes too much time and is not worth the effort or that it’s impossible to predict the future. Accurate estimates are the bedrock of effective project management. Dahil may ibat iba nga tayong organization culture nakakaapekto ito sa quality ng ating estimates. 7. Finally, nonproject factors can impact time and cost estimates. Equipment downtime, holidays, vacations, staff reduction, strikes, and legal limits influence project estimates.
- To do the estimates At the work package level, ang may responsibility dapat sa estimates should be made by the person(s) most familiar with the task, They will give an estimate based on experience and best judgment. Usually yung mga first-line supervisors or technicians ang responsible because they are experienced and familiar with the type of work involved. It is well known that a cost or time estimate usually has a better chance of being reasonable and realistic when several people with relevant experience and/or knowledge of the task are used (sometimes called “crowdsourcing”) they have differences pero kapag pinagsama sama yung mga differences ng kanialang estimates it will lead to concensus magkakaron sila ng maraming ideas at dun sa ideas na yun makikita nila yung magaganda at maiiwasan or maalis nila yung mga estimates na sa tingin nila ay maglelead lang into errors 3. When task time, cost, and resource estimates are determined, they are based on certain assumptions. Estimates should be based on normal conditions, efficient methods, and a normal level of resources. normal workday is eight hours, the time estimate should be based on an eight-hour day. Similarly, if the normal workday is two shifts, the time estimate should be based on a two-shift workday. time and cost estimates should be based on the normal levels of resources. 4. network analysis requires a standard unit of time. Specific time units to use should be selected early in the development phase of the project network. All task time estimates need consistent time units. Estimates of time must consider whether normal time is represented by calendar days, workdays, workweeks, person days, single shift, hours, minutes, etc. In practice the use of workdays is the dominant choice for expressing task duration. 5. each task time estimate should be considered independently of other activities. Estimators should treat each task as independent of other tasks that might be integrated by the WBS. Kasi magkakaiba naman ng task at may ttask na madali, matagal mahirap 6. Work package estimates should not include allowances for contingencies. The estimate should assume normal or average conditions even though every work package will not materialize as planned. For this reason top management needs to create an extra fund for contingencies that can be used to cover unforeseen events. 7. It is obvious some tasks carry more time and cost risks than others.
- these estimates are sometimes made by top managers who have very little knowledge of the component activities used to complete the project. The bottom-up approach also provides the customer with an opportunity to compare the low-cost, efficient method approach with any imposed restrictions. The main disadvantage of top-down approaches to estimating is simply that the time and cost for a specific task are not considered. Grouping many tasks into a common basket encourages errors of omission and the use of imposed times and costs. Micro estimating methods are usually more accurate than macro methods.
- This figure depicts conditions that suggest when one approach is preferred over another. Macro – top down Micro- bottom up
- these steps will be done before final negotiation with either an internal or external customer. In conclusion, the ideal approach is for the project manager to allow enough time for both the top-down and bottom-up estimates to be worked out so a complete plan based on reliable estimates can be offered to the customer. In this way false expectations are minimized for all stakeholders and negotiation is reduced
- This method simply uses the pooled experience of senior and/or middle managers to estimate the total project duration and cost. This typically involves a meeting where experts discuss, argue, and ultimately reach a decision as to their best guess estimate. Top-down methods (sometimes called parametric) usually use ratios, or surrogates, to estimate project times or costs. Top-down approaches are often used in the concept or “need” phase of a project to get an initial duration and cost estimate for the project. This method is an extension to the ratio method. Apportionment is used when projects closely follow past projects in features and costs. Given good historical data, estimates can be made quickly with little effort and reasonable accuracy. This method is very common in projects that are relatively standard but have some small variation or customization. In the software industry, software development projects are frequently estimated using weighted macro variables called “function points” or major parameters such as number of inputs, number of outputs, number of inquiries, number of data files, and number of interfaces. These weighted variables are adjusted for a complexity factor and added. The total adjusted count provides the basis for estimating the labor effort and cost for a project. learning curve (also known as improvement curve, experience curve, and industrial progress curve), which is described by the following relationship. Some projects require that the same task, group of tasks, or product be repeated several times. Managers know intuitively that the time to perform a task improves with repetition. This phenomenon is especially true of tasks that are labor intensive. In these circumstances the pattern of improvement phenomenon can be used to predict the reduction in time to perform the task.
- The database approach allows the project estimator to select a specific work package done in the past and glean information for estimating the current project. Over time, historical data and the degree of accuracy in the database should improve.