Project Estimates

1. Project Estimates 2/11/2008 By Mark Lutgen

2. Why is estimating important to a PM? • Establishes trust and credibility in YOU • Sets and manages expectations • Project funding depends on the estimates • Projects rarely have an open check book • Project contacts depend on the estimates • Project profitability is at risk Estimates define probable outcomes for future activities

3. Estimating Includes: • Project costs • Project schedule • Project resources You already know how to estimate…

4. Our project – Ski Trip • Scope • 7 skiers / riders and their families • 3 days (departure to return) • Location TBD • Project Manager is responsible for organizing and paying for transportation, lodging, lift tickets and lessons (no meals, entertainment or equipment)

5. Our project – Ski Trip • Objectives (determined through interviews) • Want to learn how to ride (get down a green run without falling) • Want to have a luxurious spa experience (like the spa at the St. Julien) • Want to get a break from the project and not talk about work for three days • Want child-care for my young kids while my wife and I ski together • Budget is $12,000

6. How much will it cost? • Transportation $? 1 @ $? ea way + gratuity • Lift tickets $? ? @ $200 for 3 day pass • Lodging $? ? rooms (2 per room) @ $?/night • Lessons $? ? @ $90/day for group lessons • Subtotal $? • Total $?range +/- 20%

7. How long will the trip take? • Load Bus 0.5 hr • Drive time 3-5 hrs • Rest break 0.5 hr • Unload / check-in 1 hr • Sub total 5-7 hrs • Reserve 1 hr • Total 6 – 8 hrs each way

8. You already know how to estimate • What you may still need… • Process / methodology • Organization and format • Effective use of estimates • Nuisances • Industry specific information • Practice and experience • Delegate where appropriate

9. Types of estimates • Analogous / Benchmarks • Similar projects • Scale to fit (e.g., 100.6) • S.W.A.G’s • Very common when Rough Order of Magnitude is ok • Parametric • $ per unit • hr per unit • Bottoms up • Detailed • WBS driven • Greatest $$ to develop We will focus on this type Each method has a time and place

10. Understand the estimate accuracy • State estimate as a range • Use contingency or reserve to increase confidence of single point estimates (Monte Carlo) Accuracy is proportional to time / effort invested

11. Where to start… • Scope definition • Deliverables • Work required to achieve business objective • WBS • Define the activities and deliverables • Decompose to a level needed for the estimate • Bottom’s up estimates vs Analogous estimates

12. Time & Resource Estimates

13. For bottoms-up-1st - define the activities • Identifies deliverables at lowest level of the WBS • If WBS is not available… brainstorm w/ team • Decomposed to schedule activities • Basis for estimating, scheduling, and controlling • Rolling Wave Planning • Near term – activities detailed • Far term – activities high level • Decomposition • Breaking work into smaller more manageable pieces

14. Use a Work Breakdown Structure

15. 2nd - define sequence • Identifying logical relationships between activities • Precedence Diagramming Methods (PDM) • Activity on Node (AON) • Arrow Diagramming Method (ADM) • a.k.a. Activity on Arrow (AOA) • Start / Finish relationships • Finish to Start (most common) • Start to Start • Start to Finish • Finish to Finish • Lead = Starts earlier • Lag = Starts later / delayed start For small projects, identification, sequence, and development may be concurrent

16. Model Activity Sequences Activity on Node B E A C D Arrow Diagramming Method - Dummy Activities B A C D E

17. 3rd - estimate resources • What resources required • Amount of each resource required • Resources • People • Equipment • Materials

18. Activity Resource Estimating • For each activity… • How many resources are needed • How long • Expert judgment / experience • Use team members • Use Functional managers • Published estimating data • Bottoms up estimate • Break it down into smaller and smaller pieces until you can establish a ‘good enough’ estimate • Benchmarks / similar projects

19. 4th - estimate duration • The goal is to determine the duration of each activity • Number of resources • Elapsed time • Expert judgment (Delphi technique) • Analogous – (similar projects) • Parametric – (regression, scaled, time/unit) • Three point estimate • Program Evaluation and Review Technique • PERT = 1/6[Pessimistic + 4(Most Likely) + Optimistic] • Std Dev = (P-O)/ 6

20. 5th - build / develop schedule • Iterative process to develop start / finish dates • Monte Carlo Analysis • Resource Leveling • Moves resources from non-critical to critical path • Schedule Compression • Crashing (Increase $$ to reduce duration of CP) • Fast Tracking (Overlapping phases) • Critical Path Method • Float (a.k.a. Slack) - Total Float, Free Float • Early Start/Finish • Late Start/Finish • Forward / Backward paths Consider schedule reserves on the critical path

21. Schedule Development – CPM Examples…

23. 6th – Compile resources • Roll up resources across entire project • List resources by time period • Scheduling software does this for you 

24. Cost Estimates

25. Cost estimating • Break into smaller and smaller pieces until you have a benchmark or basis that provides an acceptable level accuracy or confidence • Benchmarks • Usually high level (parametric) • Basis • Usually itemized or based on deliverables • Use basis and adjust for your specific requirements • Organize budget in alignment with WBS • Activity based • Resource based *

26. Where do you get the information? • Historical projects • Experience • Project Database • Vendors • Literature / Trade Journals • Internet • Catalogs • Experts / Consultants Build your own data base / file

27. Be thorough…. • State assumptions • Helps others review • Helps PM manage changes • Identify your biggest budget risks and mitigate • State exclusions • Include all applicable costs • Travel, training, taxes, freight • Include project benefits (savings) too!!! Budget busts are usually items that we not included

28. How to use contingency… • Always use it (contingency) • Use contingency to cover uncertainty in approved scope • Get additional funding for new scope • Line item vs. bottom line contingency • Percentage depends on level of certainty • Rule of thumb – use 10% if scope is defined • Learn your industry norms • Engineering projects • 50-100% with ROM • 10-30% after 20-30% design • 5-15% after 60-90% design

29. How to use contingency… • Use Monte Carlo for more robust method • Develop nominal estimate (50% confidence interval) • Develop risk register • List risks • Best / probable / worst case $$ impact • Run Monte Carlo simulation • Contingency / Mgmt Res = 90% interval – 50% interval Mgmt Reserve Contingency Base Estimate 50% Confidence 90% Confidence Use if high degree of certainty is needed

30. Delphi technique is good in a pinch • Delphi • Process to converge expert opinions • Information is not available elsewhere (i.e., 1st of a kind) • Information is costly to develop • Real example of program cost estimates… • Delphi took < 5 hours • 5% Eng required over 1000 hours • Which is better?

31. Estimating is simple, doing it well is the challenge! • Project costs • Project schedule • Project resources