![ESTIMATING PROJECT COST AND TIME
(…[objective ] “have a 95 percent probability of meeting time and cost estimates.”
(Larson & Gray, 2021, p. 136)
Cost Error Impact
$ Increased risk
$ Cost overruns
$ Extended schedules
$ Project plan is eroded
$ Profit challenges
Time Error Impact
$ Increased risk
$ Cost overruns
$ Extended schedules
$ Project plan is eroded
$ Profit challenges](https://image.slidesharecdn.com/weldingtraining-240419013952-d3133dcf/85/Project-Proposal-for-Development-Training-9-320.jpg)
Project Proposal for Development Training
- 1. Project Proposal Development Training TRAINING FOR MID-LEVEL LEADERSHIP IN PROJECT COST ESTIMATING AND SCHEDULING
- 2. INTRODUCTION AND OVERVIEW Welcome to the class. It is the first in a series of classes that will be taught to mid-level managers to introduce them to project cost estimating and the mechanics of schedule development.
- 3. You Will Learn to: • Estimate the cost of a pipeline welding project with a minimum of estimating error. • To develop a timeline for the project that allows a margin for changes. • Describe methods, uses, and advantages/disadvantages of top-down and bottom-up estimating methods. • Distinguish different kinds of costs associated with a project.
- 5. PROJECT DEVELOPMENT BASED ON PROJECT LIFE CYCLE Larson & Gray (2021, p. 9)
- 8. Bottom-up Top-Down Consensus Parametric Cost and time important Fixed-price contract Customer wants details Estimate process down to the Work package level Strategic decision making High Uncertainty Internal, small project Unstable scope Uses pooled experience of upper- level management to estimate project duration and cost. Firms wanting greater rigor use the Delphi Method to make macro estimates. Ratio method is often used in the “need” phase to get an initial duration and cost estimate. Apportion method is an extension to the ratio method used when projects follow past projects. Cost Estimating Methods (pps. 140, 142, 146)
- 9. ESTIMATING PROJECT COST AND TIME (…[objective ] “have a 95 percent probability of meeting time and cost estimates.” (Larson & Gray, 2021, p. 136) Cost Error Impact $ Increased risk $ Cost overruns $ Extended schedules $ Project plan is eroded $ Profit challenges Time Error Impact $ Increased risk $ Cost overruns $ Extended schedules $ Project plan is eroded $ Profit challenges
- 10. Planning – Make estimates closer to work package definitions. Project scope – Ensure that scope is correctly written. People- Use people that are skilled in estimating. Project structure – Focus on complexity of project and making local decisions (pps. 136-137). ... REDUCING ESTIMATING ERRORS
- 11. REDUCING ESTIMATING ERRORS (Part II) Guard against padding cost and time estimates. Organizational culture – differing cultures impact estimates; some tend to over- estimate and some underestimate. Other factors – consider and allow for variables (p. 137).
- 12. THE ART AND SCIENCE OF FORECASTING
- 13. Cost vs. Forecast Cost = Estimate (or actual) of today’s cost to develop a work package. Forecast = Estimate of cost when project is complete and turned over to customer. Actual = Actual cost incurred from womb to tomb Cost estimate error = Difference between Cost and Actual
- 14. ESTIMATING TIME AND COST Supports good decisions Needed to schedule work Determines duration and cost Determines if the project is worth doing Needed to determine cash flow needs Helps determine how project is progressing (p. 138).
- 15. TOP-DOWN APPROACH Used when scope is not definitively defined No relevant historical data is available. EWAG made by upper-level management.
- 16. Steps Utilized to Apply Modern Forecasting Methodologies Top-Down Approach Rough estimate Usually occurs in “conceptual” stage Estimates often made over cocktails by upper management Not enough information available to finalize design Used until WBS tasks are clearly defined (p.142).
- 17. Top-Down Approach Consensus Method Delphi Method Ratio Method Apportion Method Function Point Method for Software and Systems Learning Curves (pps. 142- 145)
- 18. CONSENSUS METHOD DELPHI METHOD Group decision process about the likelihood that certain events will occur . Uses a panel of experts familiar with the kind of project in question. The notion is that insight and experience are better equipped to estimate project cost/times than theoretical approaches or statistical methods (p. 142). Uses pooled experience of senior and/or middle managers to estimate total project duration and cost. Involves a meeting where experts discuss, argue, and reach a decision as a best guesstimate (p. 142).
- 19. RATIO METHOD APPORTION METHOD Extension to the ratio method. Used when projects closely follows past projects in features and costs. Estimates can be made quickly with little effort and reasonable accuracy. Common in relatively standard projects with some small variation or customization (p. 143). Used in the concept phase to get an initial cost/time estimate for the project. Examples: Using number of sq ft to estimate cost/time to build a house. Knowing sq ft and dollars per sq ft, it should take 100 days to complete (p. 143).
- 20. Learning Curves Function Point Methods - Software and Systems Projects Used when projects are repeated several times. The time to perform a task improves with repetition, especially tasks that are labor intensive. This pattern can be used to predict reductions in time to perform tasks. This pattern has been quantified in the learning curve (p. 145) . Used in the concept phase to get an initial cost/time estimate for the project. Examples: Using number of sq ft to estimate cost/time to build a house. Knowing sq ft and dollars per sq ft, it should take 100 days to complete (p. 143-144).
- 21. BOTTOM-UP APPROACH Cost and time are important. Can use a fixed-price contract.. Customer wants details.
- 22. Bottom-up Approach Can take place after the project has been defined in detail . Estimates should be made by knowledgeable people having relevant experience with the task to improve the time and cost projections. Estimates can be made at work package level using WBS components (p. 140).
- 23. Bottom-up Approach (cont.) Can provide customer with alternatives regarding project completion dates at the lower cost method vs. compressing the project delivery. Similar trade-offs can be compared for different levels of resources or increases in technical performance. The preferred approach is to compare both top-down and bottom-up approaches, develop schedules and budgets and reconcile the differences between the two methods. (p. 140).
- 24. Parametric Procedures Template Method Parametric procedures are top-down methods including ratios, or surrogates, to estimate project times or costs. Parametric procedures can be applied to specific tasks such as calculating conversion projects, home projects such as wallpapering the kitchen (p. 146). Templates can be used as a starting point for the new project. Differences in the new project can be noted and past times and costs adjusted to reflect these differences. Enables the firm to develop a potential schedule, estimate costs, and develop a budget in a short time. Development of such templates in a database can quickly reduce estimate errors (p. 146). Parametric Procedures Template Method Parametric procedures are top-down methods including ratios, or surrogates, to estimate project times or costs. Parametric procedures can be applied to specific tasks such as calculating conversion projects, home projects such as wallpapering the kitchen (p. 146). Templates can be used as a starting point for the new project. Differences in the new project can be noted and past times and costs adjusted to reflect these differences. Enables the firm to develop a potential schedule, estimate costs, and develop a budget in a short time. Development of such templates in a database can quickly reduce estimate errors (p. 146).
- 25. Phase Estimating Range Estimating Phase estimating is a hybrid approach using a top-down estimate and refining the estimate for phases as it is implemented. Some projects such as aerospace, IT projects, new technology and construction where design is incomplete frequently use phase or life-cycle estimating (p.147). Best used when “work packages have significant uncertainty associated with the time or cost to complete… Work packages with significant uncertainty should require three - time estimates –low, average, and high (borrowed from PERT methodology that uses probability distributions). Range Estimating Best used when “work packages have significant uncertainty associated with the time or cost to complete… Work packages with significant uncertainty should require three - time estimates –low, average, and high (borrowed from PERT methodology that uses probability distributions). Range Estimating Phase Estimating Best used when “work packages have significant uncertainty associated with the time or cost to complete… Work packages with significant uncertainty should require three - time estimates –low, average, and high (borrowed from PERT methodology that uses probability distributions). Range Estimating Phase estimating is a hybrid approach using a top-down estimate and refining the estimate for phases as it is implemented. Some projects such as aerospace, IT projects, new technology and construction where design is incomplete frequently use phase or life-cycle estimating (p.147). Phase Estimating Best used when “work packages have significant uncertainty associated with the time or cost to complete… Work packages with significant uncertainty should require three - time estimates –low, average, and high (borrowed from PERT methodology that uses probability distributions). Range Estimating
- 28. References ADVAYIA (2016). Project scheduling techniques: Probabilistic and deterministic. Images. (n.d.) Slides 6, 9, 10, 11, 16, retrieved from https://images.search.yahoo.com/ Larson, E. W. & Gray, C. F. (2021). Project management: The managerial process (8th ed.) McGraw-Hill Education Riley, D.G. (2020). Waukesha Pearce, Oklahoma City, OK Swanson, S. A. (2011). Estimating errors. PM Network, 25(10), 62–67.