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FA - Chapter 5

BUSI 2550

10/01/2018

Estimating Project Times and Costs

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Estimating – process of forecasting time and cost of completing project
Quality of estimates are influenced by the following factors
o Planning horizon
o Project complexity
o People
o Project structure and organization
o Padding estimates
o Organization culture
o Non-project factors
 Holidays, vacations, legal limits, etc
...
Bottom up Estimating
o Top-Down estimating (macro-method)
 Uses experience/information to determine project duration and total cost
 These estimates are sometimes made by top managers who have little
knowledge of project components/activities
o Bottom-Up Estimating (micro method)
 Detailed estimates of work packages made by those who are most familiar with
task
 Low-cost, efficient method
 Cost elements and resource requirements can be checked at work package level
 Client can compare low-cost efficient method approach with restrictions and
consider trade-offs

Methods for estimating project times and costs
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Top-down approaches
 Does not consider time/costs for specific tasks and grouping tasks into a
common basket leads to errors of omission and imposed times/costs
o Consensus Methods
 Meeting where experts (senior/middle managers) discuss, argue and decide on
best guess estimate
 Helpful in determining if project needs more formal planning
o Ratio Methods
 Contractors use this to build houses, new plants estimated by capacity size,
software product by features/complexity
 EX: house of 2700 square feet costs $160/square foot
...
100 days to complete a 2700 square foot house
o Apportion methods
 Cost is allocated to specific segments based on a percentage of total cost
 EX: framing house = 25% of total cost, coding a new software = 40% of cost
 This method is common in standard projects with minor
variations/customization
o Function point methods for software and system projects
 Function points are points derived from past soft
...

 These weighted variables are adjusted for their
complexity and added
 Total count is a basis for estimating labour effect
and cost of project
o Learning Curves
 A curve used to predict a pattern of time
reduction as a task is repeated again and again
 Time to perform a task improves with repetition
 Learning curve/improvement curve/experience
curve/industrial progress curve = Each time
output quantity doubles, unit labour hours are
reduced at constant rate
Bottom-Up Approaches
o Template Methods
 Cost of past projects can be used as a starting point for new project
...
On average, one person
can convert 3 workstations per day
...

o Range Estimating
 Multiple estimating points are given based on
some logic (high/average/low, best/most
likely/worst case, etc
...
Often aerospace, IT, new technology,
construction projects where design is incomplete
o Uses two-estimate system
 Detailed estimate for immediate phase, macro estimate for
remaining phases
o Advantage for customer is that they are able to change, re-evaluate
or cancel project in each new phase

3

FA - Chapter 5

BUSI 2550

10/01/2018

Types of Costs
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Typical costs found in a project
o Direct costs
 Labor, materials, equipment, other
 Clearly chargeable to a specific work package
 Real cash outflows, must be paid as project
progresses
o Direct project overhead costs
 Pinpoint resources being used in the project
...
Work on one
task is dependent upon prior tasks and hand-offs require time/attention
o Normal conditions do not apply
 Resource shortages (people, equipment, materials) can extend original
estimates
o Things go wrong
 Design flaws, extreme weather conditions, accidents, etc
...
estimated times/costs of work packages over numerous projects

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