Jeff Sestokas Estimating the Budget and Cost (Part 2) Project Management for ARA Engineers and Scientists Developing an Estimate from the Top Down.

Jeff Sestokas

Estimating the Estimating the Budget and Cost Budget and Cost

(Part 2)(Part 2)

Project Management for ARA Engineers and Scientists

Developing an Estimate from Developing an Estimate from the Top Downthe Top Down

2

IntroductionIntroduction Another approach to developing a budget is to start

from the “total” and allocate effort (“top down”)• Understanding customer budget and priority is generally critical

to determining “total”

• Allocation based on difficulty, duration and amount of ODCs required

Most appropriate for:• ROM estimates

• Vaguely defined tasks/requirements

Effectiveness can improve with experience

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Desired Learning ObjectivesDesired Learning Objectives How to construct a simplified estimate or budget Importance of understanding customer budget and

priorities to accuracy of estimate Know when a ROM estimate is most appropriate Importance of continuing evaluation

• Requires measurable milestones

• Allows early adjustment

• Improves subsequent estimates

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Significant ConsiderationsSignificant Considerations Procurement Requirements

• What do we have to deliver and when?

Evaluation Criteria• Customer emphasis should be basis of cost strategy

Critical Personnel, Facilities or Equipment Customer Cost Expectations

• For government contracts – government estimated level of effort

Schedule1 Quality, Cost

• Cost is proportional to quality and (often) inversely proportional to required delivery time• Generally, specifying any two will determine the third

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Step 1 – Organize the ProjectStep 1 – Organize the Project Define the major tasks to be accomplished

• Clearly define the milestones and deliverables

associated with each task (analogous to WBS and IMS steps)

Determine leader, type of personnel required, materials and ODCs for each major task (analogous to RLN step)

Task 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter DeliverableProject Management & Reporting Progress ReportsProgram Planing Project PlanExperiments & Data Analysis Data Analysis BriefingComputer Model Development Modeling BriefingFinal Report Final report

Task StaffingProject Management & Reporting PM, Admin. Staff, Copies, Computer, PhoneProgram Planing PM, Task Leaders, Admin. Staff, Computer CopiesExperiments & Data Analysis Sr. Eng, St Eng., 2 Tech., 25k ODCComputer Model Development Sr. Sci., St Sci., ComputerFinal Report Sr. Eng., Sr. Sci., Tech Ed., St. Sci., St. Eng.

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Step 2 – Allocate ResourcesStep 2 – Allocate Resources

Allocate a percentage of total resources

to each major task• If a price objective is established (such as

Government Estimate), this defines total resources

• Otherwise, build to total based on effort in each major task

Task % BudgetProject Management & Reporting 15%Program Planning 10%Experiments & Data Analysis 35%Computer Model Development 25%Final Report 15%

What is missing from allocation?What is missing from allocation?

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Step 3 – Refine ResourcesStep 3 – Refine Resources Allocate hours (or dollars) within

resources assigned to each task Check for reasonableness and adjust

Determine task milestones and percent of task effort to reach each milestone

Check for reasonableness and adjust

TaskProject Management & Reporting Labor Cat. % Labor $Program Planning Sr. Engineer 25%Experiments & Data Analysis St. Engineer 35%Computer Model Development Technicians 40%Final Report

Don’t forget ODCs if significant

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Labor Fringe& OH

Fringe• Holiday and Leave• Retirement & Bonus• Insurance

OH - Sector & Division Operations• Marketing• Recruiting & Relocation• Training• Offices & Utilities• Field & Office Supplies

Determine CostDetermine Cost Individual Elements of cost must be

appropriately loaded, then accumulatedNew! Add G&A on

Purchase Load(+PLODC*P&S*G&A)

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Aligning your budget with DeltekAligning your budget with Deltek Understanding the Deltek database structure:

• Up to 5 levels, each level has 5 alphanumeric characters• Typically only 3 levels used• Only one item at level 2 – this is the invoice level

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Building a Cost EstimateBuilding a Cost Estimate

Direct Labor

Labor Overhead

Travel

Other ODCs

Purchasing & Subcontracts

Load with G&A

Load with P&S and G&A on

P&S load

Load with Fee

Taxes (If Applicable)

See H

ando

ut

Escalation discussed on next chart

Fringe

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Escalation of Current RatesEscalation of Current Rates Particularly important for

long duration contracts Adjust rates to the

midpoint of the contract• Accounts for inflation, salary

increases and promotions

Allowable rate may be set in procurement • Otherwise, use 4% (Resc = .04)

or as directed

Cesc ddelay dduration

2

365 *Resc

Rescalated Rbase * 1Cesc where,

Cesc Escalation rate

ddelay Number of days from proposal to award

dduration Contract duration (days)

Resc Annual escalation rate (decimal)

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Step 4 – Continuing EvaluationStep 4 – Continuing Evaluation

As project proceeds, evaluate budget estimation • What was expected cost at milestone?

▪ Milestones may be set by customer or PM∙ Define measurable accomplishments

∙ Should be frequent enough to allow easy adjustment

▪ You must determine budget to reach milestone

If variance is unfavorable:• Use management reserve?

• Adjust other task budgets?

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SummarySummary Top Down budget estimate is most appropriate when:

• A ROM estimate is required• Tasking is vague and difficult to price

Allocate percent of total tasks, then refine to resources Must organize project in a similar fashion to Bottoms Up

approach • Generally in much less detail• Still requires “frequent” milestones for continuing assessment

Continuing assessment important for:• Manageable adjustment• Improved subsequent estimation