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Chapter 5 – Estimating Project Times and Costs. Definition, Types, Influencing factors, Guidelines, Macro vs. Micro, Methods, Cost types . Course Structure. Estimating. Definition The process of forecasting or approximating the time and cost of completing project deliverables

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Chapter 5 – Estimating Project Times and Costs

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Chapter 5 estimating project times and costs l.jpg

Chapter 5 – Estimating Project Times and Costs

Definition, Types, Influencing factors, Guidelines, Macro vs. Micro, Methods, Cost types

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Course Structure

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Estimating

  • Definition

    • 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

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Estimates Are Needed to …(1)

  • Support good decisions.

  • Schedule work.

  • Determine how long the project should take and its cost.

  • Determine whether the project is worth doing.

EXHIBIT 5.1

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Estimates Are Needed to …(2)

  • Develop cash flow needs.

  • Determine how well the project is progressing.

  • Develop time-phased budgets and establish the project baseline.

EXHIBIT 5.1

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Planning Horizon

Other (Nonproject)Factors

ProjectDuration

Quality of Estimates

OrganizationCulture

PaddingEstimates

Project Structure and Organization

Factors Influencing the Quality of Estimates

People

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Estimating Guidelines for Times, Costs, and Resources (1)

  • Have people familiar with the tasks make the estimate.

  • Use several people to make estimates.

  • Base estimates on normal conditions, efficient methods, and a normal level of resources.

  • Use consistent time units in estimating task times.

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Estimating Guidelines for Times, Costs, and Resources (2)

  • Treat each task as independent, don’t aggregate.

  • Don’t make allowances for contingencies.

  • Adding a risk assessment helps avoid surprises to stakeholders.

  • Consider 3-time estimates (O = optimistic, P = pessimistic, M = most likely)

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Macro versus Micro Estimating

Conditions for Preferring Top-Down or Bottom-Up Time and Cost Estimates

Condition Macro Estimates Micro Estimates

(Top-down)(Bottom-up)

Strategic decision making X

Cost and time important X

High uncertainty X

Internal, small project X

Fixed-price contract X

Customer wants details X

Unstable scope X

TABLE 5.1

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Estimating Projects:Preferred Approach

  • 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

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Project EstimateTimesCosts

Methods for Estimating Project Times and Costs

  • Macro (Top-Down) Approaches

    • Consensus methods

    • Ratio methods

    • Apportion method

    • Function point methodsfor software and system projects

    • Learning curves

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Apportion Method of Allocating Costs Using the WBS

FIGURE 5.1

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Simplified Basic Function Point Count Process for a Prospective Project or Deliverable

TABLE 5.2

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Example:Function Point Count Method

TABLE 5.3

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Methods for Estimating Project Times and Costs (cont’d)

  • Micro (Bottom-Up) Approaches

    • Template method

    • Parametric procedures appliedto specific tasks

    • Detailed estimates for the WBS work packages (see SB45)

    • Phase estimating: A hybrid (project life cycle)

SJSU - Bus. 286 David Bentley (Gray & Larson)


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SB45 Support Cost Estimate Worksheet

FIGURE 5.2

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Phase Estimating overProduct Life Cycle

FIGURE 5.3

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Level of Detail - (1)

  • Level of detail is different for different levels of management.

  • Level of detail in the WBS varies with the complexity of the project.

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Level of Detail - (2)

  • 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

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Types of Costs

Direct Costs

Project Overhead Costs

General & Administrative Overhead Costs

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Direct Costs

  • Costs that are clearly chargeable to a specific work package.

    • Labor, materials, equipment, and other

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Direct (Project) Overhead Costs

  • Costs incurred that are directly tied to an identifiable project deliverable or work package.

    • Salary, rents, supplies, specialized machinery

SJSU - Bus. 286 David Bentley (Gray & Larson)


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General and Administrative Overhead Costs

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

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Contract Bid Summary Costs

Direct costs $80,000

Direct overhead $20,000

G&A overhead (20%) $20,000

Profit (20%) $24,000

Total bid $144,000

FIGURE 5.6

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Three Views of Cost

FIGURE 5.5

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Refining Estimates - (1)

  • 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.

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Refining Estimates - (2)

  • Contingency Funds and Time Buffers

    • Are created independently to offset uncertainty

    • Reduce the likelihood of cost and completion time overruns for a project

    • Can be added to the overall project or to specific activities or work packages

    • Can be determined from previous similar projects

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Refining Estimates - (3)

  • Changing Baseline Schedule and Budget

    • Unforeseen events may dictate a reformulation of the budget and schedule.

SJSU - Bus. 286 David Bentley (Gray & Larson)


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Creating a Database for Estimating

Estimating Database Templates

FIGURE 5.7

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Key Terms

Apportionment methods

Bottom-up estimates

Contingency funds

Delphi method

Direct costs

Function points

Interaction costs

Learning curves

Overhead costs

Padding estimates

Phase estimating

Ratio methods

Template method

Time and cost databases

Top-down estimates

SJSU - Bus. 286 David Bentley (Gray & Larson)


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