Factors Influencing EstimatesFactors Influencing EstimatesFactors Influencing EstimatesFactors Influencing Estimates
• Planning horizon – accuracies close to 100% when events are current.
• Project duration – long duration project increase uncertainty, technology tends to increase exponentially
• People – close match of people and skills improves accuracy
• Project management structure – dedicated project teams save time and money
• Padding estimates – PMs tend to pad in order to increase probability and reduce risk
• Organization culture – sometimes padding encouraged, other organizations might place premium on accuracy
Macro vs. Micro EstimatingMacro vs. Micro EstimatingMacro vs. Micro EstimatingMacro vs. Micro Estimating
Macro (top-down) Micro (bottom-up)
Strategic decision-making
XX
Cost/time important XX
High uncertainty XX
Internal, small project
XX
Fixed price XX
Customer wants detail
XX
Unstable scope XX
Best approach is to do bothBest approach is to do both
Estimating Time and CostsEstimating Time and CostsEstimating Time and CostsEstimating Time and Costs
Macro Approaches1) Ratio methods – e.g., 2,700 sq ft @ $100
2) Apportion methods – historical dependency, time/costs apportioned to deliverables (e.g., slide 10)
3) Function point methods – software industry, # inputs, # outputs, # inquiries, # files, # interfaces
4) Learning curves – repeated tasks weighted more heavily when initially completed (see table learning curve values)
See learning curve tablesSee learning curve tablesSee learning curve tablesSee learning curve tables
$50 to manufacture flying pig (5 pigs = $250)
60% learning curve
5th = .3054 x $50=$15.27
Cost to manufacture five flying pigs =
$50 x 2.71=$135.50
Norwegian Satellite Development CompanyNorwegian Satellite Development CompanyNorwegian Satellite Development CompanyNorwegian Satellite Development Company
Cost estimates for World Satellite Telephone Exchange Project
NSDC has a contract to produce eight satellites to support a worldwide telephone system ( for Alaska Telecom, Inc.) that allows individuals to use a single, portable telephone in any location on earth to call in and out. NSDC will develop and produced the eight units. NSDC has estimated that the R&D costs will be $12,000. Material costs are expected to be $6,000. They have estimated the design and production of the first satellite will require 1,000 labor hours and an 80% improvement curve is expected. Skilled labor cost is $30 per hour. Desired profit for all projects is 25% of total costs.
A. How many labor hours should the eighth satellite require?
B. How many labor hours for the whole project of eight satellites?
C. What should NSCD estimate as the total cost for this project?
1000 labor hours x.512 = 512 labor hours for the 8th unit
1000 labor hours for per unit x 5.346 = 5346 total for 8 units
R&D $12,000
Materials $6,000
Labor 5346x$30 = $160,380
COSTS=$178,380
25% PROFIT=$44,595
TOTAL PROJECT ESTIMATE: $222,975
Estimating Time and CostsEstimating Time and CostsEstimating Time and CostsEstimating Time and Costs
Micro approaches1) Template method – use when project is similar to past
project
2) Parametric procedures applied to specific tasks – like the macro ratio method, but applied to individual tasks
3) Detailed estimates for the WBS – most reliable method (e.g., slide 12)
4) Phase estimating – begins with macro approach then refines as phases of project completed (e.g., slide 11)
Level of detailLevel of detailLevel of detailLevel of detail
• Different for various levels of managementTop – total project & milestonesMiddle – one segment or one milestoneFirst-line – one task
• Excessive detail means unnecessary paperwork
What are ways to determine level of detail needed for a project?
Developing budgetsDeveloping budgetsDeveloping budgetsDeveloping budgets
• Cost estimates are not a budget!
• Time-phased budget determine when money will be needed
• Schedule is developed to mirror WBS• Three views of costs (to slide 13)
Types of costs Types of costs Types of costs Types of costs
• Direct costs (vary by project)
– Labor– Materials– Equipment– Other
• Project overhead costs
• General & administrative overhead costs
Estimating guidelinesEstimating guidelinesEstimating guidelinesEstimating guidelines
Responsibility – At the WBS event level, the most expert person should estimate
Use several people – Time estimates are more accurate with different perspectives
Normal conditions – Estimates should be made assuming normal conditions
Time units – consistent time units should be applied throughout
Independence – estimates should assume independence regardless of WBS dependencies
Contingencies – WBS events should not incorporate contingencies, a separate category should be created
Add risk estimate – optimistic, most likely, pessimistic
Refining estimatesRefining estimatesRefining estimatesRefining estimates
Some PMs adjust project costs up by 20% because:– Interaction costs are hidden– “Normal conditions” are a starting point, but
seldom reality– Things go wrong on projects– Changes in project scope and plans occur
end
Apportion MethodApportion MethodApportion MethodApportion Method
Return to Slide 3
Phase EstimatingPhase EstimatingPhase EstimatingPhase Estimating
Return to Slide 4
WBS EstimateWBS EstimateWBS EstimateWBS Estimate
Return to Slide 4
Three Views of CostsThree Views of CostsThree Views of CostsThree Views of Costs
Return to Slide 6