Estimating Project Schedule Time and Cost - psau.edu.sa · 6/21/2014 3 5–5 Estimating Projects •Estimating –The process of forecasting or approximating the time and cost of

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Chapter 5

Estimating Project

Schedule-Time and Cost

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5–2

Where We Are Now

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Seminar Agenda

• Overview

–What is involved in schedule and cost management?

• In-depth

–Determining the sequence of activities

–Determining the project schedule

–Determining the critical path

–Handling uncertainties in time estimates

• Wrap up

5–4

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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) relationships

–Bottom-up (micro) estimates: estimates of elements

of the work breakdown structure

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Why Estimating Time and Cost Are Important

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.

• To develop time-phased budgets and establish the

project baseline.

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Factors Influencing the Quality of Estimates

Quality of

Estimates

Project

Duration

People

Project Structure

and Organization

Padding

Estimates

Organization

Culture

Other

(Nonproject)

Factors

Planning Horizon

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Estimating Guidelines for Times,

Costs, and Resources

1. Have people familiar with the tasks make the estimate.

2. Use several people to make estimates.

3. Base estimates on normal conditions, efficient methods,

and a normal level of resources.

4. Use consistent time units in estimating task times.

5. Treat each task as independent, don’t aggregate.

6. Don’t make allowances for contingencies/incidents.

7. Adding a risk assessment helps avoid surprises

to stakeholders.

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Top-Down versus Bottom-Up Estimating

• Top-Down Estimates

–Are usually are derived from someone who uses

experience and/or information to determine the project

duration and total cost.

–Are 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.

5–10

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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 an identifiable

project deliverable or work package.

• Salary, rents, supplies, specialized machinery

• General and Administrative Overhead Costs

–Organization costs indirectly linked to a specific

package that are apportioned to the project

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Topic 1

PROJECT TIME

MANAGEMENT

(Schedules)

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A) Project Schedule (Time) Management

• “Project Time Management includes the

processes required to manage timely completion

of the project. These processes interact with

each other and with processes in the other

Knowledge Areas (of project management).

Each proces occurs at least once in every

project and occurs in one or more of the project

phases, if the project is divided into phases.”…

PMI, PMBOK 4th Ed, 2008, pg 130

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Project Schedule (Time) Management –

in Summary

Schwalbe, 2011, pg 214

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Project Schedule Management Processes

• Activity Definition – Identifying the specific activities that the project team members and

stakeholders must perform to produce the project deliverables.

• Activity Sequencing – Identifying and documenting the relationships between project activities.

• Activity Resource Estimating – Estimating how many resources a project team should use to perform project

activities.

• Activity Duration Estimating – Estimating the number of work periods that are needed to complete

individual activities.

• Schedule Development – Analyzing activity sequences, activity resource estimates, and activity

duration estimates to create the project schedule.

• Schedule Control – Controlling and managing changes to the project schedule.

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Activity Definition - Activity Lists and

Attributes

• An activity list is a tabulation of activities to be included on a project schedule. The list should include: –The activity name

–An activity identifier or number

–A brief description of the activity

• Activity attributes provide more information about each activity, such as predecessors, successors, logical relationships, leads and lags, resource requirements, constraints, imposed dates, and assumptions related to the activity.

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Activity Definition - Milestones

• A milestone (on a Project) is a significant event

that normally has no duration.

• It often takes several activities and a lot of work

to complete a milestone.

• Milestones are useful tools for setting schedule

goals and monitoring progress.

• Examples include completion and customer

sign-off on key documents and completion of

specific products.

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Activity Sequencing

• Involves reviewing activities and determining

dependencies.

• A dependency or relationship relates to the

sequencing of project activities or tasks.

• You must determine dependencies in order to

use critical path analysis.

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Activity Sequencing - Network Diagrams

• Network Diagrams are the preferred technique

for showing activity sequencing.

• A network diagram is a schematic display of the

logical relationships among, or sequencing of,

project activities.

• Two main formats are the arrow and

Precedence Diagramming methods.

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Sample Activity-on-Arrow (AOA) Network

Diagram for Project X

Schwalbe, Figure 6.2, page 218.

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Arrow Diagramming Method (ADM)

• Also called Activity-on-Arrow (AOA) network

diagram.

• Activities are represented by arrows.

• Nodes or circles are the starting and ending

points of activities.

• Can only show finish-to-start dependencies.

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Precedence Diagramming Method (PDM)

• Activities are represented by boxes.

• Arrows show relationships between activities.

• More popular than ADM method and used by

project management software.

• Better at showing different types of

dependencies.

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Sample PDM Network Diagram

Schwalbe, Figure 6.4, page 221

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Task Dependency Types

Schwalbe, Figure 6.3, page 219

The types of dependencies that could occur among project activities after you determine

the reason for a dependency between activities (mandatory, discretionary, or external), you

must determine the type of dependency….for example…

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Activity Resource Estimating

• Before estimating activity durations, you must have

a good idea of the quantity and type of resources

that will be assigned to each activity.

• Consider important issues in estimating resources:

–How difficult will it be to complete specific activities on this

project?

–What is the organisation’s history in doing similar activities?

–Are the required resources available?

–Are specialised resources available?

–Are resources required that need to come from overseas

locations?

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Activity Duration Estimating

• Duration includes the actual amount of time

worked on an activity plus the elapsed time.

• Effort is the number of workdays or work hours

required to complete a task.

• Effort does not normally equal duration.

• People doing the work should help create

estimates, and an expert should review them.

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Schedule Development

• Uses the results of the other time management processes to determine the start and end dates of the project.

• Ultimate goal is to create a realistic project schedule that provides a basis for monitoring project progress for the time dimension of the project.

• Important tools and techniques include Gantt charts, critical path analysis, critical chain scheduling, and PERT analysis.

Schedule Development - Gantt Charts

• Gantt charts provide a standard format for

displaying project schedule information by listing

project activities and their corresponding start

and finish dates in a calendar format.

• Symbols include:

–Black diamonds: Milestones

–Thick black bars: Summary tasks

–Lighter horizontal bars: Durations of tasks

–Arrows: Dependencies between tasks

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Gantt Chart for Software Launch Project

Schwalbe,

Figure 6.6,

page 225

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Sample Tracking Gantt Chart

Schwalbe, Figure 6-7, page 218

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Schedule Development - Critical Path

Method (CPM)

• CPM is a network diagramming technique used to predict total project duration.

• A critical path for a project is the series of activities that determines the earliest time by which the project can be completed.

• The critical path is the longest path through the network diagram and has the least amount of slack or float.

• Slack or float is the amount of time an activity can be delayed without delaying a succeeding activity or the project finish date.

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Calculating the Critical Path

• Develop a good network diagram.

• Add the duration estimates for all activities on

each path through the network diagram.

• The longest path is the critical path.

• If one or more of the activities on the critical path

takes longer than planned, the whole project

schedule will slip unless the Project Manager

takes corrective action.

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Determining the Critical Path for Project X

Schwalbe, Figure 6.8, page 229

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Using Critical Path Analysis to Make

Schedule Trade-offs

• Free slack or free float is the amount of time an

activity can be delayed without delaying the early

start of any immediately following activities.

• Total slack or total float is the amount of time an

activity can be delayed from its early start without

delaying the planned project finish date.

• A forward pass through the network diagram

determines the early start and finish dates.

• A backward pass determines the late start and finish

dates.

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Schedule Development - Buffers

• Buffers are additional time (???) that is added to a task or a project to accommodate the PM’s uncertainty as to how long (???) the task will take to complete (??? = contingency)

• Buffers can be added to: –individual tasks

–overall phases

–overall projects

• Each approach as own advantages and disadvantages

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Topic Summary

• Project time management is often cited as the

main source of conflict on projects, and most IT

projects exceed time estimates.

• Main processes include:

–Activity definition

–Activity sequencing

–Activity resource estimating

–Activity duration estimating

–Schedule development

–Schedule control

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Topic 2

PROJECT COST

MANAGEMENT

• Project Cost Management includes the

processes required to ensure that a project team

completes a project within an approved budget.

Notice two crucial phrases in this definition: “a

project” and “approved budget”.

Project Cost Management – a definition

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Notion of Cost

• What is Cost?

A resource sacrificed or foregone to achieve a

specific objective, or something given up in

exchange.

– usually measured in monetary units, such as

dollars.

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Project Cost Management – in Summary

Schwalbe, 2011, pg 257

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Project Cost Management Processes

• Includes the processes required to ensure that the project is completed

within an approved budget.

• Processes are:

–Cost Estimating

• Developing an approximation or estimate of the costs of the resources needed to complete a project.

–Cost Budgeting

• Allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.

–Cost Control

• Controlling changes to the project budget.

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Project Cost Management System – an Example

http://www.todolistsoft.com/images/todolistsoft/templates/ProjectQualityManagement

Checklist_800.jpg Accessed 31 March 2013

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Basic Principles of Cost Management

Reserves (see page 260 of textbook)

• Amounts included in a cost estimate to mitigate

cost risk by allowing for future situations that are

difficult to predict.

–Contingency Reserves

• allow for future situations that may be partially planned for (sometimes called known unknowns) and are included in the project cost baseline.

–Management Reserves

• allow for future situations that are unpredictable (sometimes called unknown unknowns).

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Basic Principles of Cost Management

Class Exercise – Buffers and Reserves

• Consider the following questions

–what are the differences between a buffer and a

contingency reserve?

• When do we use one over the other?

• What would be an example of a buffer?

• What would be an example of a reserve?

–if we include both buffers and contingency reserves in

our project plan are we double counting the costs?

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Project Cost Management Processes -

Cost Estimating

• Project Managers must take cost estimates

seriously if they want to complete projects within

budget constraints.

• It’s important to know the types of cost estimates,

how to prepare cost estimates, and typical

problems associated with IT cost estimates.

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Types of Cost Estimates (see page 261 of textbook)

46 Schwalbe, Table 7.2, page 262

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Cost Management Plan

• A cost management plan

–a document that describes how the organisation will

manage cost variances on the project.

• A large percentage of total project costs are often

labour costs (i.e. resources), so Project

Managers must develop and track estimates for

labour.

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Cost Estimation Tools

• Computerized tools

–spreadsheets

–project management software

• used to construct cost estimates.

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Costing Example

49 Schwalbe Figure 7.2. page 269

Costing Example

50 Schwalbe, Figure 7.3, page 270

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Summary

• Project Cost Management is traditionally a weak area in IT projects, and Project Managers must work to improve their ability to deliver projects within approved budgets.

• Main processes include: –Cost Estimating

–Cost Budgeting

–Cost Control

• EVM is the main means by which the cost performance of a project is understood.

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Key Terms

Apportionment methods

Bottom-up estimates

Contingency funds

Delphi method

Direct costs

Function points

Learning curves

Overhead costs

Padding estimates

Phase estimating

Range estimating

Ratio methods

Template method

Time and cost databases