Reflection and Discussion Forum Week 5
Reflection and Discussion Forum Week 5Assigned Readings:Chapter. 5 Estimating Project Times and CostsInitial Postings: Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding in each assigned textbook chapter.Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion.Also, provide a graduate-level response to each of the following questions:
- Why is it difficult to estimate mega project (i.e., costs and benefits (i.e. airports, stadiums, etc.) costs and benefits?.
- Define what a “white elephant” is in project management? Provide a real life example.
[Your post must be substantive and demonstrate insight gained from the course material. Postings must be in the student’s own words – do not provide quotes!] [Your initial post should be at least 450+ words and in APA format (including Times New Roman with font size 12 and double spaced). Post the actual body of your paper in the discussion thread then attach a Word version of the paper for APA review]
Chapter Five
Estimating Project Times and Costs
5–1
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5–2
Where We Are Now
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-2
Learning Objectives
Understand estimating project times and costs are the foundation for project planning and control
Describe guidelines for estimating time, cost, and resources
Describe the methods, uses, and advantages and disadvantages of top-down and bottom-up estimating methods
Distinguish different kinds of costs associated with a project
Suggest a scheme for developing an estimating database for future projects
Understand the challenge of estimating mega projects and describe steps that lead to better informed decisions
Define a “white elephant” in project management and provide examples
5–3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter Outline
5.1 Factors Influencing the Quality of Estimates
5.2 Estimating Guidelines for Times, Costs, and
Resources
5.3 Top-Down versus Bottom-Up Estimating
5.4 Methods for Estimating Project Times and
Costs
5.5 Level of Detail
5.6 Types of Costs
5.7 Refining Estimates
5.8 Creating a Database for Estimating
5.9 Mega Projects: A Special Case
5–4
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5–5
Estimating Projects
Estimating
The process of forecasting or approximating the time and cost of completing project deliverables
The task of balancing expectations of stakeholders and need for control while the project is implemented
Types of Estimates
Top-down (macro) estimates: analogy, group consensus, or mathematical relationships
Bottom-up (micro) estimates: estimates of elements
of the work breakdown structure
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-5
5–6
EXHIBIT 5.1
To support good decisions
To schedule work
To determine how long the project should take and its cost
To determine whether the project is worth doing
To develop cash flow needs
To determine how well the project is progressing
Why Estimating Time and Cost Is Important
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-6
5–7
Factors Influencing the Quality of Estimates
Quality of Estimates
Project
Complexity
People
Project Structure and Organization
Padding
Estimates
Organization
Culture
Other (Nonproject)
Factors
Planning Horizon
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-7
5–8
Estimating Guidelines for Times,
Costs, and Resources
Have people familiar with the tasks make the estimate
Use several people to make estimates
Base estimates on normal conditions, efficient methods, and a normal level of resources
Use consistent time units in estimating task times
Treat each task as independent, don’t aggregate
Do not make allowances for contingencies.
Add a risk assessment to avoid surprises to stakeholders
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-8
5–9
Developing Work Package Estimates
Preparing Initial Estimates
Use several people to make estimates
Assume normal conditions
Use consistent time units
Assume tasks are independent
Make no allowance for contingencies
Include a risk assessment
Use people familiar with
the tasks
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-9
5–10
Top-Down versus Bottom-Up Estimating
Top-Down Estimates
Are usually derived from someone who uses experience and/or information to determine the project duration and total cost.
Are sometimes made by top managers who have little knowledge of the processes used to complete the project.
Bottom-Up Approach
Can serve as a check on cost elements in the WBS
by rolling up the work packages and associated cost accounts to major deliverables at the work package level.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-10
5–11
Top-Down versus Bottom-Up Estimating
TABLE 5.1
Conditions for Preferring Top-Down or
Bottom-up Time and Cost Estimates
Top-down Bottom-up
Condition Estimates Estimates
– Strategic decision making X
– Cost and time important X
– High uncertainty X
– Internal, small project X
– Fixed-price contract X
– Customer wants details X
– Unstable scope X
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-11
5–12
Estimating Projects: Preferred Approach
Make rough top-down estimates
Develop the WBS/OBS
Make bottom-up estimates
Develop schedules and budgets
Reconcile differences between top-down
and bottom-up estimates
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-12
5–13
Top-Down Approaches for Estimating Project Times and Costs
Consensus methods
Ratio methods (sometimes called parametric)
Apportion method
Function point methods for software and system projects
Learning curves
Project Estimate
Times
Costs
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-13
5–14
Apportion Method of Allocating Project Costs Using the Work Breakdown Structure
FIGURE 5.1
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-14
5–15
Simplified Basic Function Point Count Process
for a Prospective Project or Deliverable
TABLE 5.2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-15
5–16
Example: Function Point Count Method
TABLE 5.3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-16
5–17
Bottom-Up Approaches for Estimating Project Times and Costs
Template methods
Parametric procedures applied to specific tasks
Range estimates for
the WBS work packages
Phase estimating: A hybrid
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-17
5–18
Range Estimating Template
FIGURE 5.2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-18
5–19
Phase Estimating over Product Life Cycle
FIGURE 5.3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-19
5–20
Top-Down and Bottom-Up Estimates
FIGURE 5.4
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-20
5–21
Level of Detail
Level of detail in the WBS varies with the complexity of the project, the need for control, the project size, cost, duration, and other factors.
Excessive detail is costly.
Fosters a focus on departmental outcomes rather than on deliverable outcomes
Creates unproductive paperwork
Insufficient detail is costly.
Lack of focus on goals
Wasted effort on nonessential activities
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-21
5–22
Types of Costs
Direct Costs
Costs that are clearly chargeable to a specific work package.
Labor, materials, equipment, and other
Direct (Project) Overhead Costs
Costs incurred that are directly tied to project deliverables or work packages.
Salary, rents, supplies, specialized machinery
General and Administrative Overhead Costs
Organization costs indirectly linked to a specific package that are apportioned to the project.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-22
5–23
Contract Bid Summary Costs
FIGURE 5.5
| Direct costs | $80,000 |
| Direct overhead | $20,000 |
| Total direct costs | $100,000 |
| G&A overhead (20%) | $20,000 |
| Total costs | $120,000 |
| Profit (20%) | $24,000 |
| Total bid | $144,000 |
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-23
5–24
Three Views of Cost
FIGURE 5.6
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-24
5–25
Refining Estimates
Reasons for Adjusting Estimates
Interaction costs are hidden in estimates.
Normal conditions do not apply.
Things go wrong on projects.
Changes in project scope and plans
Overly optimistic
Strategic misrepresentation
Adjusting Estimates
Time and cost estimates of specific activities are adjusted as the risks, resources, and situation particulars become more clearly defined.
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-25
5–26
Estimating Database Templates
FIGURE 5.7
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-26
Mega Projects: A Special Case
Mega Projects
Are large-scale, complex ventures that typically cost $1 billion or more, take many years to complete, and involve multiple private and public stakeholders.
High-speed rail lines, airports, healthcare reform, the Olympics, development of new aircraft
Often involve a double whammy.
Cost much more than expected but underdelivered on benefits they were to provide.
Are sometimes called “White Elephants”
Over budget, under value, high cost of maintaining (exceeds the benefits received)
5–27
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Three Steps of the Reference Class Forecasting (RCF) Process
Select a reference class of projects similar to your potential projects.
Collect and arrange outcome data as a distribution. Create a distribution of cost overruns as a percentage of the original project estimate.
Use the distribution data to arrive at a realistic forecast. Compare the original cost estimate for the project with the reference class projects.
5–28
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5–29
Key Terms
Apportionment
Bottom-up estimates
Delphi method
Direct costs
Function points
Learning curves
Overhead costs
Padding estimates
Phase estimating
Range estimating
Ratio methods
Reference class forecasting (RCF)
Template method
Time and cost databases
Top-down estimates
White elephant
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-29
5–30
WBS Figure
Exercise Figure 5.1
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-30
5–31
Learning Curves Unit Values
TABLE A5.1
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-31
5–32
Learning Curves Cumulative Values
TABLE A5.2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Project Management 6e.
5-32
