ESTIMATES ❖ Padding Estimates - The practice of deliberately adding extra time or cost to

a project estimate beyond what is realistically expected.

The process of forecasting or approximating the time and cost of completing project
deliverables. ❖ Organization Culture - Can significantly influence project estimates.

Referred as “informed guesses” about the resources (time, money, or people), ❖ Other Factors - Non-project factors can impact time and costs estimates.
required to complete a project.

WHY ESTIMATING TIME AND COST IS IMPORTANT SEVEN (7) ESTIMATING GUIDELINES FOR TIMES, COSTS, AND RESOURCES

● Estimates are needed to support good decisions What is project estimation? - Project estimation is the process of forecasting the
● Estimates are needed to schedule work time, cost, and resources needed to deliver a project. It typically happens during
● Estimates are needed to determine how ling the project should take and its project initiation and/or planning and takes the project’s scope, deadlines, and
cost potential risks into account.
● Estimates are needed to determine whether the project is worth doing
● Estimates are needed to develop cash flow needs 1. Responsibility - At the work package level, estimates should be made by the
● Estimates are needed to determine how well the project is progressing person(s) most familiar with the task. They will give an estimate based on experience
and best judgment. Finally, drawing on the expertise of team members who will be
FACTORS INFLUENCING THE QUALITY OF ESTIMATES responsible helps to build
communication channels early.
❖ Planning Horizon - The specific timeframe considered when creating a
project plan. 2. Use several people to estimate - It is well known that a cost or time estimate
usually has a better chance of being reasonable and realistic when several people
❖ Project Complexity - The degree of difficulty in understanding, planning and with relevant experience and/or knowledge of the task are used (sometimes called
controlling a project. "crowd-sourcing").

❖ People - The most crucial element in the project. 3. Normal conditions - When task time, cost, and resource estimates are
determined, they are based on certain assumptions. Estimates should be based on
❖ Project Structure and Organization - The way a project team is organized normal conditions, efficient methods, and a normal level of resources.
and the reporting lines established to achieve project goals.
4. Time units - Specific time units to use should be selected early in the
development phase of the project network. All task time estimates need consistent

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time units. Estimates of time must consider whether normal time is represented by Bottom-Up Estimation
calendar days, workdays, workweeks, person days, single shifts, hours, minutes, etc.
Bottom-up estimation, on the other hand, starts with a detailed analysis of individual
5. Independence - Estimators should treat each task as independent of other tasks. tasks, components, or work packages that make up the project. These detailed
estimates are then aggregated to arrive at an overall project estimate.
6. Contingencies - Work package estimates should not include allowances for
contingencies. The estimate should assume normal conditions even though every Some key characteristics and benefits of Bottom-Up Estimation:
work package will not materialize as planned. ● Accuracy
● Detailed Planning
7. Adding risk assessment to the estimate helps to avoid surprises to ● Risk Mitigation
stakeholders - It is obvious some tasks carry more time and cost risks than others. ● Resource Allocation
A simple breakdown by optimistic, most likely, and pessimistic for task time could ● Time-Consuming
provide valuable information regarding time and cost. The choice between top-down and bottom-up estimates depends on factors such as
the project's complexity and available information. Early in a project, when detailed
information is limited, top-down estimates may be more appropriate. As the project
progresses and more details become available, bottom-up estimates can be refined
TOP-DOWN VS BOTTOM-UP ESTIMATION for greater accuracy.

Top-Down Estimation
METHODS FOR ESTIMATING PROJECT TIMES AND COSTS
Top-down estimation is a high-level approach where you start with a broad overview
of the project and gradually break it down into smaller components. Top-Down Approaches for Estimating Project Times and Costs
These estimates are sometimes made by top management who have very little
knowledge of the processes used to complete the project. ❖ Consensus Method
This method simply uses the pooled experience of senior and/or middle managers to
Some key characteristics of Top-Down Estimates: estimate the total project duration and cost. It typically involves a meeting where
● Speed experts discuss, argue, and ultimately reach a decision as to their best guesstimate.
● Initial Budgeting
● High-Level Decision Making ❖ Ratio Method
● Less Detail Top-down ratio methods are often used in the concept, or “need,” phase of a project
● Inherent Risks to get an initial duration and cost estimate for the project.

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 ❖ Apportion Method ❖ Range Estimating
This method is an extension to the ratio method. Apportionment is used when Range estimating works best when work packages have significant uncertainty
projects closely follow past projects in features and costs. Given good historical data, associated with the time or cost to complete. If the work package is routine and
estimates can be made quickly with little effort and reasonable accuracy. This carries little uncertainty, using a person most familiar with the work package is
method is very common in projects that are relatively standard but have some small usually the best approach.
variation or customization.
A Hybrid: Phase Estimating
❖ Function Point Methods for Software and System Projects
In the software industry, software development projects are frequently estimated This approach begins with a top-down estimate for the project and then refines
using weighted macro variables called function points or maker parameters such as estimates for phases of the project as it is implemented. Some projects by their
number of inputs, number of outputs, number of inquiries, number of data files, and nature cannot be rigorously defined because of the uncertainty of design or the final
number of interfaces. product. These projects are often found in aerospace projects, IT projects, new
technology projects, and construction projects where design is incomplete. In these
❖ Learning Curves projects, phase or life-cycle estimating is frequently used.
Some projects require that the same task, group of tasks, or product be repeated Phase estimating is used when an unusual amount of uncertainty surrounds a
several times. Managers know intuitively that the time to perform a task improves project and it is impractical to estimate times and costs for the entire project..
with repetition. This phenomenon is especially true of tasks that are labor intensive.
In these circumstances the pattern of improvement phenomenon can be used to
predict the reduction in time to perform the task. From empirical evidence across all
industries, the pattern of this improvement has been quantified in the learning curve.
LEVEL OF DETAIL AND TYPES OF COSTS
Bottom-Up Approaches for Estimating Project Times and Costs
Level of Detail
❖ Template Method
If the project is similar to past projects, then template methods can be used as a ● Level of detail is different for different levels of management.
starting point for the new project. Templates are created based on the costs of
previous, similar projects. Differences in the new project can be noted and past times ● Level of detail in the WBS varies with the complexity of the project.
and costs adjusted to reflect these differences.
● Excessive detail is costly.
❖ Parametric Procedures Applied to Specific Tasks - Fosters a focus on departmental outcomes
Just as parametric techniques such as cost per square foot can be the source of top- - Creates unproductive paperwork
down estimates, the same technique can be applied to specific tasks.

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 ● Insufficient detail is costly. • Things go wrong on projects – Design flaws are revealed after the fact, extreme
- Lack of focus on goals weather conditions occur, accidents happen, and so forth. Although you shouldn’t
- Wasted effort on nonessential activities plan for these risks to happen when estimating a particular task, the likelihood and
impact of such events need to be considered.
Types of Cost
• Project scope and plans change – As one gets further and further into the
● Direct Cost project, a manager obtains a better understanding of what needs to be done to
- Cost that are clearly chargeable to a specific work package. accomplish the project. This may lead to major changes in project plans and costs.
Likewise, if the project is a commercial project, changes often have to be made
● Direct (Project) Overhead Cost midstream to respond to new demands by the customer and/or competition.
- Costs incurred that are directly tied to an identifiable project
deliverable or work package. • People are overly optimistic – There is solid research indicating that people tend
to overestimate how quickly they can get things done.
● General and Administrative Overhead Costs
- Organization costs indirectly linked to a specific package that are • People engage in strategic misrepresentation – There is growing evidence that
apportioned to the project. some project promoters underestimate the costs of projects and overestimate project
benefits in order to win approval. This appears to be particularly true for large-scale
public works projects, which have a notorious habit of coming in way over budget
REFINING ESTIMATES

Reasons to estimates: CREATING A DATABASE FOR ESTIMATING

• Interaction costs are hidden in estimates - According to the guidelines, each The best way to improve estimates is to collect and archive data on past project
task estimate is supposed to be done independently. However, tasks are rarely estimates and actuals. Saving historical data—estimates and actuals—provides a
completed in a vacuum. Work on one task is dependent upon prior tasks, and the knowledge base for improving project time and cost estimating. Creating an
hand-offs between tasks require time and attention. estimating database is a “best practice” among leading project management
organizations.
• Normal conditions do not apply – Estimates are supposed to be based on
normal conditions. While this is a good starting point, it rarely holds true in real life,
especially when it comes to the availability of resources. Resource shortages,
whether in the form of people, equipment, or materials, can extend original
estimates.

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