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. You already know how to estimate…
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 $?/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. We will focus on this type
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 WBS 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. Budget busts are usually items that we not included
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
Reserve
Mgmt
Contingency
Base Estimate
50% Confidence
90% Confidence
Use if high degree of
certainty is needed

30. Delphi technique is good in a pinch
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