Project Mgmt CH 5

For top-down approach, estimates usually done by ________________ will often derive estimates from _______________________________________________________________

senior mgmt analogy, group consensus, or mathematical relationships

Peopple can influence the quality and cost estimates; accuracy of estimates depends on the _______________________

skills of the people

Main disadvantage of top-down approaches:

the time and cost for a specific task are not considered **MICRO estimating methods (bottom-up) are usually more accurate then this macro method

Estimating processes are frequently classified as _______________________________

top-down or bottom-up

Range Estimating

works best when work packages have significant uncertainty associated with the time or cost to complete method popular in software and new product projects where up-front requirements are fuzzy and not well known

In software industry, software development projects are frequently estimated using weighted macro variables called __________________ or major parameters such as number of inputs, number of outputs, number of inquiries, number of data files, and number of interfaces

"function points" ---These weighted variables are adjusted for a complexity factor and added ---Total adjusted count provides the basis for estimating the labor effort and cost for a project (usually using a regression formula derived from data of past projects)

Top-down approach methods

1. Consensus Methods 2. Ratio Methods 3. Apportion Method 4. Function Point Methods (for Software and System Projects) 5. Learning Curves

Some reasons why estimates can be so off after spending time on detailed estimates:

1. Interaction costs are hidden in estimates. 2. Normal conditions do not apply. 3. Things go wrong on projects. 4. Changes in project scope and plans. 5. Overly optimistic. 6. Strategic misrepresentation.

7 guidelines to develop useful work package estimates:

1. Responsibility. 2. Use several people to estimate 3. Normal conditions 4. Time units. 5. Independence. 6. Contingencies. 7. Adding risk assessment to the estimate helps to avoid surprises to stakeholders

Bottom-Up Approaches for Estimating Project Times and Costs

1. Template Methods 2. Parametric Procedures Applied to Specific Tasks 3. WBS packages 4. Range Estimating ---A Hybrid: Phase Estimating

In US software industry, one-person month represents on average ________________

5 functions points [Person working one month can generate on average (across all types of software projects) about 5 function points]

Apportion Method

An extension to the ratio method Apportionment is used when projects closely follow past projects in features and costs Given good historical data, estimates can be made quickly with little effort and reasonable accuracy

____________________ is used by some companies that apportion costs to deliverables in the WBS, given average cost percentages from past projects

Analogous process **Figure 5.1 pg 137

Responsibility guideline

At work package level, estimates should be made by the person(s) most familiar with the task. ---These people will give an estimate based on experience and best judgement ---If the people involved in the project are the ones making the estimates, they will hopefully buy in and see that they are held responsible for failure to achieve estimated time ---Also, drawing on expertise of team members helps to build communication channels early

Direct Costs

Clearly chargeable to a specific work package Can be influenced by the project manager, project team, and individuals implementing the work package Represent real cash outflows and must be paid as the project progresses; so they are separated from overhead costs Lower-level project rollups frequently include only direct costs

Things go wrong on projects.

Design flaws, extreme weather conditions, accidents Likelihood and impact of such events should be considered when planning project

Assuming work packages are defined, detailed cost estimates can be made Typical kinds of costs found in a project:

Direct costs: ---Labor ---Materials ---Equipment ---Other Direct project overhead costs General and Administrative overhead costs

Direct Project Overhead Costs

Direct overhead rates more closely pinpoint which resources of the organization are being used in the project These can be tied to project deliverables or work packages ---Ex. salary of the project manager and temporary rental space for the project team Although not a immediate out-of-pocket expense, it is real and must be covered in the long run if the firm is to remain viable These rates usually a ratio of the dollar value of the resources used ---Ex. direct labor burden rate of 20% would add a direct overhead charge of 20% to the direct labor cost estimate Selective direct overhead charges provide a more accurate project cost, rather than using a blanket overhead rate for whole project

Advantages and disadvantages for the customer when using hybrid phase estimating:

Disadvantage for customer: the customer who is paying for the project often perceives phase estimating as a blank check because costs and schedules are not firm over most of the project life cycle Advantage for customer: they have the opportunity to change features, re-evaluate, or even cancel the project in each new phase

Interaction costs are hidden in estimates.

Each task est. is supposed to be done independently but tasks are dependent on prior tasks Also, the time necessary to coordinate activities is typically not reflected in independent estimates ---Time and costs devoted to managing interactions rises as the number of people and different disciplines involved increase

Normal conditions do not apply.

Estimates are supposed to be based on normal conditions but that is not always the case. Availability of resources is usually the problem ---Shortages can extend original estimates The decision to outsource certain tasks can increase costs and extend task durations

Normal conditions guideline

Estimates should be based on normal conditions, efficient methods, and a normal level of resources. ---Ex. Possible conflicts in demand for resources on concurrent activities should not be considered at this stage

Independence guideline Estimators should treat each task as independent of other tasks that might be integrated by the WBS. a. Use of first-time managers usually results in considering task independently; top management is prone to aggregate many tasks into one time estimate. b. If tasks are in a chain and performed by the same group/department, it is best not to ask for all the time estimates in the sequence at once to avoid the tendency for a planner/supervisor to look at the whole path and try to adjust individual task times in the sequence to meet an imposed schedule or some rough "guesstimate" of the total time for the whole path or segment of the project

Estimators should treat each task as independent of other tasks that might be integrated by the WBS. ---Use of first-time managers usually results in considering task independently; top management is prone to aggregate many tasks into one time estimate. ---If tasks are in a chain and performed by the same group/department, it is best not to ask for all the time estimates in the sequence at once to avoid the tendency for a planner/supervisor to look at the whole path and try to adjust individual task times in the sequence to meet an imposed schedule or some rough "guesstimate" of the total time for the whole path or segment of the project

***Summary of top-down and bottom-up estimates

Figure 5.4 pg 143

Changes in project scope and plans.

Getting further into a project, a manager obtains a better understanding of what needs to be done to accomplish the project ---may lead to major changes Also, if project is a commercial project, changes often have to be made midstream to respond to new demands by the customer and/or competition Unstable project scopes are a major source of cost overruns

Adding risk assessment to the estimates helps to avoid surprises to stakeholders guideline

Identifying the degree of risk lets stakeholders consider alternative methods and alter process decisions

Bottom-up estimates

If possible, you want to push the estimating process down to work package level Estimates should come from those most knowledgeable of the process Also provides customers with an opportunity to compare low-cost, efficient method approach with any imposed restrictions ---Ex. if a project completion duration is imposed at two years and your bottom-up analysis tells you the project will take 2 ½ years, the client can now consider the trade-off of the low-cost method versus compressing the project to 2 years

WBS can aggregate network info so each level of mgmt. can have the kind of info necessary to make decisions Level of detail is the WBS varies with the complexity of the project; the need for control; the project size, cost, and duration; and other factors What if the WBS's structure reflects excessive detail? What can this cause?

If structure reflects excessive detail, there is a tendency to break the work effort into department assignments ----The tendency can become a barrier to success, since the emphasis will be on departmental outcomes rather than on deliverable outcomes ----Excessive detail also means more unproductive paperwork

Padding estimates what is the problem with adding these?

In work situations where you are asked for time and cost estimates, most will add a little padding to increase probability and reduce risk of being late If everyone at all level of project add a little padding, the project duration and cost are overstated

Learning Curves

Managers know that the time to perform a task improves with repetition ---This pattern of improvement phenomenon can be used to predict the reduction in time to perform the task Learning curve: each time the output quantity doubles, the unit labor hours are reduced at a constant rate --- this rate may vary from 60%, representing very large improvement, to 100% representing no improvement at all

Examples of other factors that can influence the quality of estimates:

Non project factors can influence time and cost estimates Equipment down-time, national holidays, vacations

A Hybrid: Phase Estimating

Often used with phase estimating Begins with a top-down estimate for the project and then refines estimates for phases of the project as it is implemented Used when an unusual amount of uncertainty surrounds a project and it is impractical to estimate times and costs for the entire project Preferred by those working on projects where the final product is not known

General and Administrative Overhead Costs

Organization costs that are not directly linked to a specific project Carried for the duration of the project Ex. organization costs across all products and projects such as advertising, accounting, and senior mgmt. above project level

_________________________ are a good starting point for developing time and cost estimates

Past experiences but these must always be refined to reach the wanted probability level (95%) of meeting time and cost estimates

Factors Influencing the Quality of Estimates

Planning Horizon Project Duration People Project Structure and Organization Padding estimates Organization Culture Other Factors

Conditions for preferring top-down or bottom-up time and cost estimates:

Prefer top down: --for strategic decision making --when high uncertainty --for internal, small project --when scope is unstable Prefer bottom up: --when cost and time is important --for fixed-price contracts --when customer wants details

Planning Horizon

Quality of estimate depends on this Estimates of current events are close to 100% accurate but are reduced for more distant events Ex. cost estimates for a party you are organizing this weekend should be much more accurate than the estimates for a wedding that well take place in a year

Ratio method

Ratios used to estimate the project time and cost Ex. contractors frequently use number of square feet to estimate the cost and time to build a house

Organizations vary in the importance they attach to estimates

Some organ believe that detailed estimating takes too long and is not worth the effort; while others believe accurate estimates are crucial

Strategic misrepresentation.

Some project promoters underestimate the costs of the projects and overestimate project benefits in order to win approval

Use several people to estimate guideline

Sometimes called crowdsourcing Discussion of individual differences in their estimates leads to consensus and tends to eliminate extreme estimate errors

Time units guideline

Specific time units to use should be selected early in the development phase of the project network. ---all tasks estimates need consistent time units. ---Are estimates by calendar days, workweeks, person days, single shift, etc? Network analysis requires a standard unit of time.

How are top-down approaches helpful?

The fact that estimates come from the top can influence people responsible to do what it takes to make the estimate Helpful in initial development of a complete plan; also in determining whether the project warrants more formal planning

Overly optimistic.

There is a tendency for people to overestimate how quickly they can get things done and underestimate how long it will take them to complete tasks especially true in organizations where padding is not the norm

Advantage of hybrid phase estimating:

This progressive macro/micro method provides a stronger basis for using schedule and cost estimates to manage progress during the next phase

Project Duration (relating to new technologies)

Time to implement a new technology has a habit of expanding in an increasing, nonlinear pattern Sometimes poorly written scope specifications for new technology result in errors in estimating times and costs

Consenus Method

Uses the pooled experience of senior and/or middle managers to estimate the total project duration and cost

Allocation of general and administrative overhead costs vary from organ to organ How are they usually allocated?

Usually allocated as a % of total direct cost, or a % of the total of a specific direct cost such as labor, materials, or equipment

Top-down estimates

Usually derived from someone who uses experience and/or info to determine the project duration and total costs ---However, these estimates are sometimes made by top managers who have very little knowledge of the component activities used to complete the project At this level, individual work items are not identified

Project Structure and Organization Choosing a project structure influences what? What if a dedicated project team is chosen? What if project is operating in a matrix environment?

Which project structure is chosen to manage the project will influence time and cost estimates Dedicated project team members mean project getting done faster; but speed comes at an additional cost of tying up personnel full time Projects operating in a matrix environment may reduce costs by more efficiently sharing personnel across projects but may take longer to complete since attention is divided and coordination demands are higher

Contingencies guideline

Work package estimates should not include allowances for contingencies. ---Estimate should assume normal average conditions even though every work package will not materialize as planned. ---Top mgmt. needs to create an extra fund for contingencies that can be used to cover unforeseen events.

Hybrid Phase Estimating uses a two-estimate system over the life of the project:

a detailed estimate is developed for the immediate phase and a macro estimate is made for the remaining phases of the project **figure 5.3 pg 141

Although function point metrics are useful, their accuracy depends on ______________________________________________________________

adequate historical data , currency of data, and relevancy of the project/deliverable to past averages

Detailed work package estimates are ___________________________ to estimate the total direct cost of the project; similarly, estimated durations are entered into the project network to _______________________________________________________________

aggregated and rolled up by deliverable establish the project schedule and determine the overall duration of the project

In order to compensate for the problem of actual costs and schedule exceeding estimates, some project managers adjust total costs ________________________________

by some multiplier (ex. total est. costs x 1.20) --even after investing so much time into estimations, they can still be very far off so this is why some project managers adjust the total estimated cost

Best way to improve estimates is to ____________________________________________________________________

collect and archive data on past projects estimates and actuals This approach allows the project estimator to select a specific work package item from the database for inclusion ---Estimator then makes any necessary adjustments concerning the materials, labor, and equipment

Bottom-up estimates are usually based on ___________________________________________________________________

estimates of elements found in the work breakdown structure

Since the range estimating works best for work packages that have significant uncertainty, having a __________ determine the low, average, and high cost or duration gives best results

group **group range estimating gives the project manager and owner an opportunity to assess the confidence associated with project times (and/or costs)

Benefits of range estimating:

helps to reduce surprises as the project progresses provides a basis for assessing risk, managing resources, and determining the project contingency fund

Regarding learning curves, lower % of improvement can occur only in operations with ________________

high labor content ---if a lot of the work is machined based, a machine does not get faster at making a product as it makes more of them

Template Methods

if the project is similar to past projects, the costs from past projects can be used as a starting point for the new project this approach enables the firm to develop a potential schedule, estimate costs, and develop a budget in a very short time span ---development of such templates in a database can quickly reduce estimate errors

Parametric Procedures Applied to Specific Tasks

just as parametric techniques such as cost per square foot can be the source of top-down estimates, the same technique can be applied to specific tasks

For range estimating, need 3 time estimates:

low, average, and high --the low to high give a range within which the average estimate will fall --determining the low to high estimates for the activity is influenced by factors such as complexity, technology, newness, familiarity

Preferred approach for estimating projects?

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