1. Project Estimation and Project Cost
Pankaj Sharma

2. Agenda What is a project? What are project costs? What is an estimate?
Why do we need to estimate?
How do we estimate?
When do we estimate?
Improving Estimates through a process

3. What is a project?
A Project is a temporary undertaking to create a unique product or service with a defined start and end point and specific objectives that, when attained, signify completion
Example:
Banner Implementation was a Project
Banner maintenance effort is not a Project but an operational undertaking

4. What are project costs? Costs Onetime Costs Recurring Costs
Costs can be broken down into Onetime costs and Recurring costs
Recurring costs are incurred on a periodic basis (quarterly, biannually or annually) and may be time bound or perpetual in nature.
Onetime costs are for a definite duration and are incurred only once.

5. Typical IT Cost Components
What are project costs?
Typical IT Cost Components
Labor/Time
Material
Overhead
Typically includes labor costs directly related to the work or task
Examples are costs incurred due to the involvement of Software/System/Network Engineers, DBAs, Production Support et al.
Typically includes hardware, software and licensing costs
These costs are not directly related to the work at hand but are an important component in the accomplishment of tasks
Infrastructure costs such as electricity
Management and Administration of the tasks

6. What are project costs? IT Costs Tree Onetime Costs Recurring Costs
Labor/Time
Material
Overhead
Labor/Time
Material
Overhead

7. Project Costs are typically Onetime costs
What are project costs?
IT Costs Tree
Project Costs
Operational Costs
Labor/Time
Labor/Time
Project Costs are typically Onetime costs
Material
Material
Overhead
Overhead

8. What are project costs? Cost Comparison Project Costs
Operational Costs tend to be higher over the product’s or service’s lifetime since they are incurred for multiple years
Cost Comparison
Project Costs
Operational Costs
Cost
Project Start
Project End
Maintenance Start
Maintenance End
Time
Product or Service Lifetime

9. What is an estimate? According to Webster, PMO defines an estimate as,
“the act of appraising or valuing”
“a statement of the cost of work to be done”
PMO defines an estimate as,
a rough calculation of the costs and the amount of work prior to the commencement of work

10. What is an estimate?
When estimating for a project cost we can also estimate ongoing costs
Outputs of an estimation exercise are:
Project Costs Estimate
Ongoing Costs Estimate

11. Why do we need to estimate?
To get an idea of the costs of a project
To get an idea of the time needed to complete the project
Very important from a scheduling and project planning standpoint
To identify resource needs
To identify ongoing costs and resource needs

12. How do we estimate? Three step process Identify the high level tasks
Identify the various groups that need to be involved with each task
Estimate time for each task
Consult a knowledge expert for an estimate. Do not put an estimate for someone else.

13. How do we estimate? Identify groups involved
Typical groups involved in an IT project
Training
Networking
UPC
Enterprise Application Services
DBA’s
Helpdesk
Reporting
Systems Unix/Windows

14. How do we estimate? Estimation techniques
Single Point Estimate
We take a single estimate per task
Three point Estimate
We take three estimates per task
Optimistic Estimate – Best Case Scenario
Pessimistic Estimate – Worst Case Scenario
Most Likely Estimate
Average the three estimates to get a three point estimate

15. How do we estimate? Estimation techniques
Three point Estimate Example:
Optimistic = 6 hours
Pessimistic = 10 hours
Most Likely = 8 hours
The three point estimate is
(6+10+8)/3 = 8 hours

16. How do we estimate? Estimation techniques
Six point Estimation (PERT)
We take three estimates per task
Optimistic Estimate – Best Case Scenario
Pessimistic Estimate – Worst Case Scenario
Most Likely Estimate
Multiply the Most Likely estimate by 4, add to the Optimistic and Pessimistic estimates and divide by 6

17. How do we estimate? Estimation techniques
Six point Estimate Example:
Optimistic = 6 hours
Pessimistic = 10 hours
Most Likely = 8 hours
The three point estimate is
(6+10+6x8)/6 = hours

18. How do we estimate? Estimation techniques
PMO currently uses a single point estimate

19. How do we estimate? Estimation techniques
Examples:
DARS Project
Estimation done after requirements were completed
OFS Enterprise Facilities Project
Estimation done during initiation

20. When do we estimate? An estimate can be calculated during initiation
An estimate can also be calculated during planning but before a schedule or project plan is created
The later the estimate is done the more accurate it is
Initiation
Planning
Execution
Closure
Project Lifecycle
Start of a project
Very Little information is available
Requirements are defined
Tasks are defined
Project Schedule and plan is created
A lot more information is available
Main body of work is performed here
Coding, Testing, Installation et al.
We say Goodbye and Goodluck
Formally change product or service state to “in production” and “in maintenance” mode
Lessons learnt

21. Improving Estimates through a process
Project Initiation or Planning
Execution
Feedback and Improve Estimation
Project Estimate
Request Project Budget
Measure Actual
Estimation Process
Ongoing Maintenance Estimate
Request Ongoing Budget
Measure Actual
Feedback and Improve Estimation

22. Improving Estimates through a process
Estimations are guesses
No two projects are alike and context plays a big part in estimates
Always find a Knowledge Expert for a task and obtain their estimate
With a process our guesses can improve by measuring Actual for every project

23. Improving Estimates through a process
Estimation template is available at