Estimating, scheduling and budgeting Chapter 9 Estimating, scheduling and budgeting

Learning objectives After reading this chapter, you should be able to: explain the importance of project scheduling and budgeting describe the main techniques used in estimating the duration and cost of activities construct and analyse project networks draw Gantt charts and comment on their value for project control use simple techniques to help optimise a schedule explain the differences between top-down, bottom-up and iterative budgeting construct a cost breakdown structure from a knowledge of the work breakdown structure and organisation breakdown structure construct a time-phased project budget from a knowledge of the project schedule, cost estimates and the cost breakdown structure draw S-curves to graphically illustrate project cash flows

The project schedule About sequencing project activities and milestones into a sensible and logical order to aid project execution and control

Estimating activity durations There are three ways to estimate activity durations: Use historical data Time the activity Use a probabilistic method

Weighted average technique Based on three estimates of the duration of an activity, often arrived at by expert judgment: Most optimistic (a) – the minimum time this activity would take to complete if everything went exactly as expected without any difficulties or problems whatsoever. Most likely (m) – the most likely duration assuming normal conditions. Most pessimistic (b) – the expected duration if major difficulties are encountered.

Defining activity dependencies and creating a project network Sequencing activities in parallel or in a series

The network diagram A network diagram not only shows the relationships between activities but can be used to reveal which activities are time-critical, and so warrant greater management attention

Activity boxes Each activity has seven attributes: The activity code and name (middle row) The estimated duration of the activity (top row, middle) Earliest start and finish times (top row, left and right respectively) Latest start and finish times (bottom row, left and right respectively) Float or slack (bottom row, middle)

Activity relationships There are four basic relationships that can be expressed between two activities (A and B): Finish-to-start Start-to-start Finish-to-finish Start-to-finish

Creating a network The most challenging aspect of creating a network is getting the relationships between the activities defined correctly To begin, write out the activities on cards of Post-it notes and start arranging them to reflect the logical relationships Or, if you have planned similar projects before, you may have historical records that contain information about the activities you will need to perform and how they should relate to each other

A network is a special chart to show the relationships between project activities.

The logical relationships in a project can also be expressed in the form of a dependency table.

Analysing the network to determine the critical path The critical path is defined as the path through the network having the longest duration The critical path defines the expected duration of a project If a critical activity overruns, the project will also overrun (unless special action is taken)

Activity floats Activities that are not critical are said to have float (or slack) Float = LFT – EFT or Float = LST – EST Critical activities have zero float

Importance of network analysis Knowing which activities lie on the critical path is important for the project manager and other stakeholders These are the activities that are most likely to cause a delay to the project schedule Identifying the critical path helps the project manager concentrate his or her time on areas of the project that are most likely to cause delays The critical path is also used to help plan and schedule resources for the project

Gantt charts Another way of representing scheduling information Intuitively easier to interpret than networks Note that: activities are arranged from top to bottom time is plotted to scale from left to right activity bars begin at their earliest start time critical activities are highlighted

Milestones Special events in the life of a project to which you want to draw added attention to Events rather than activities, so they take up no time Normally represented on Gantt charts as a diamond and in network diagrams as elements with zero duration

Methods available for shortening the duration of a project: Project crashing Network re-evaluation Fast tracking Rescoping Increased procurement Lean thinking

Project budgeting Used by managers to fix in advance the resources that a project will use Budgets represent the planned cost of a project at inception Is all about allocating resources to a project How much money (or other resources, e.g. labour) How much detail The progress status of a project cannot be determined without reference to both schedule and budget

The building blocks of a budget Expenditures Revenues Cash flow A time-phased plan

Approaches to budgeting Top-down budgeting Bottom-up budgeting Iterative budgeting Risk and management reserve

Tools and techniques for cost estimating Analogous estimating (or top-down estimating) Parametric estimating Definitive estimating (or bottom-up estimating)

Cost budgeting Relating cost estimates to schedule and producing time-phased cost and cash flow projections Payment milestones can be used to produce projections of cash flow The WBS and OBS can be combined to form a cost breakdown structure (CBS) The CBS forms the basis of the cost reporting structure for the project The building blocks for the CBS are called ‘control accounts’

The cost breakdown structure (CBS)

S-curves Show cumulative project cost against time

Cash flow projections With the creation of project S-curves, cash flow analysis can be performed and the feasibility of the budget tested If the resulting cash flow is not acceptable, it is possible to modify the schedule For example: by delaying or bringing forward activities that have float