M G M T 4880 chapter 5

Top-Down Estimates

Are usually derived from someone who uses experience and/or information to determine the project duration and total cost. They are made by top managers who have little knowledge of the processes used to complete the project.

Bottom-Up Approach

Can serve as a check on cost elements in the W B S by rolling up the work packages and associated cost accounts to major deliverables at the work package level.

Top-Down Approaches for Estimating Project Times and Costs

Consensus methods, Ratio methods Apportion method, Function point methods, for software and system projects, Learning curves

Direct Project Overhead Costs

Costs incurred that are directly tied to an identifiable project deliverable or work package. Salary, rents, supplies, specialized machinery

Direct Costs

Costs that are clearly chargeable to a specific work package. Labor, materials, equipment, and other

What are the major types of costs? Which costs are controllable by the project manager?

Direct, direct overhead, and general and administrative costs. Direct costs are controllable by the project manager. Direct overhead and general and administrative costs are only controllable in the sense that if the resource or project is finished early or late the costs will continue for the duration of the project.

WHY ARE TIME AND COST ESTIMATES IMPORTANT TO PROJECT MANAGEMENT?

Estimates are key inputs to project planning & control. Estimates support good decisions. Estimates are used to determine project duration and cost. Estimates are used to develop cash flow needs. Estimates are used to develop time-phased budgets and establish the project baseline. Absence of estimates results in inaccuracies which result in time and cost under/overruns.

Estimating Guidelines for Times, Costs, and Resources

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. Treat each task as independent, don't aggregate. Don't make allowances for contingencies. Adding a risk assessment helps avoid surprises to stakeholders.

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.

Level of Detail

Level of detail is different for different levels of management. Level of detail in the W B S 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

Estimating Projects: Preferred Approach

Make rough top-down estimates. Develop the W B S/O B S. Make bottom-up estimates. Develop schedules and budgets. Reconcile differences between top-down and bottom-up estimates

General and Administrative Overhead Costs

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

How does the culture of an organization influence the quality of estimates?

Organization culture can influence project estimates depending on the importance the organization places on estimating. Use of top-down versus bottom-up estimating can influence estimates. How padding is handled strongly influences estimates. How organization politics is tolerated can severely influence estimates.

Bottom-Up Approaches for Estimating Project Times and Costs

Template methods, Parametric procedures applied to specific tasks, Range estimates for the W B S work packages, Phase estimating: A hybrid

Estimating

The process of forecasting or approximating the time and cost of completing project deliverables. The task of balancing expectations of stakeholders and need for control while the project is implemented.

Adjusting Estimates

Time and cost estimates of specific activities are adjusted as the risks, resources, and situation particulars become more clearly defined.

SUMMARY GUIDELINES FOR WORK PACKAGE ESTIMATING

Time and resource estimates should be made by those most familiar with the task. Estimates should be based on "normal" conditions. Time units employed should be consistent. Work task estimates should be treated as independent estimates and not influenced by other project tasks. Contingencies should not be built into estimates. Top management will have a contingency fund to use if necessary. Remember, these are estimates. Errors and mistakes should be allowed and not punished.

Why Estimating Time and Cost Are Important

To support good decisions. To schedule work. To determine how long the project should take and its cost. To determine whether the project is worth doing. To develop cash flow needs. To determine how well the project is progressing. To develop time-phased budgets and establish the project baseline.

What are the differences between bottom-up and top-down estimating approaches? Under what conditions would you prefer one over the other?

Top-down estimates are typically used in the project conceptual phase, and depend on surrogate measures such as weight, square feet, ratios. Top-down methods do not consider individual activity issues and problems. Top-down estimates are good for rough estimates and can help select and prioritize projects. Bottom-up time and cost estimates are usually tied directly to the W B S and a work package. These estimates are made by people familiar with the task, which helps to gain buy-in on the validity of the estimate. Use of several people should improve the accuracy of the estimate. Bottom-up estimates should be preferred if time to estimate is available, estimating cost is reasonable, and accuracy is important.

Types of Estimates

Top-down macro estimates. These are, analogy, group consensus, or mathematical relationships. Bottom-up micro estimates are. estimates of elements of the work breakdown structure.

Why are accurate estimates critical to effective project management?

Without accurate time and cost estimates project control is ineffective. Inaccurate estimates can make the difference between profit or loss.