week6b

Factors Influencing EstimatesFactors Influencing EstimatesFactors Influencing EstimatesFactors Influencing Estimates

• Planning horizon – accuracies close to 100% when events are current.

• Project duration – long duration project increase uncertainty, technology tends to increase exponentially

• People – close match of people and skills improves accuracy

• Project management structure – dedicated project teams save time and money

• Padding estimates – PMs tend to pad in order to increase probability and reduce risk

• Organization culture – sometimes padding encouraged, other organizations might place premium on accuracy

Macro vs. Micro EstimatingMacro vs. Micro EstimatingMacro vs. Micro EstimatingMacro vs. Micro Estimating

Macro (top-down) Micro (bottom-up)

Strategic decision-making

XX

Cost/time important XX

High uncertainty XX

Internal, small project

XX

Fixed price XX

Customer wants detail

XX

Unstable scope XX

Best approach is to do bothBest approach is to do both

Estimating Time and CostsEstimating Time and CostsEstimating Time and CostsEstimating Time and Costs

Macro Approaches1) Ratio methods – e.g., 2,700 sq ft @ $100

2) Apportion methods – historical dependency, time/costs apportioned to deliverables (e.g., slide 10)

3) Function point methods – software industry, # inputs, # outputs, # inquiries, # files, # interfaces

4) Learning curves – repeated tasks weighted more heavily when initially completed (see table learning curve values)

See learning curve tablesSee learning curve tablesSee learning curve tablesSee learning curve tables

$50 to manufacture flying pig (5 pigs = $250)

60% learning curve

5th = .3054 x $50=$15.27

Cost to manufacture five flying pigs =

$50 x 2.71=$135.50

Norwegian Satellite Development CompanyNorwegian Satellite Development CompanyNorwegian Satellite Development CompanyNorwegian Satellite Development Company

Cost estimates for World Satellite Telephone Exchange Project

NSDC has a contract to produce eight satellites to support a worldwide telephone system ( for Alaska Telecom, Inc.) that allows individuals to use a single, portable telephone in any location on earth to call in and out. NSDC will develop and produced the eight units. NSDC has estimated that the R&D costs will be $12,000. Material costs are expected to be $6,000. They have estimated the design and production of the first satellite will require 1,000 labor hours and an 80% improvement curve is expected. Skilled labor cost is $30 per hour. Desired profit for all projects is 25% of total costs. 

A. How many labor hours should the eighth satellite require?

 B. How many labor hours for the whole project of eight satellites?

  C. What should NSCD estimate as the total cost for this project?

 1000 labor hours x.512 = 512 labor hours for the 8th unit

 1000 labor hours for per unit x 5.346 = 5346 total for 8 units

R&D $12,000

Materials $6,000

Labor 5346x$30 = $160,380

COSTS=$178,380

25% PROFIT=$44,595

TOTAL PROJECT ESTIMATE: $222,975

Estimating Time and CostsEstimating Time and CostsEstimating Time and CostsEstimating Time and Costs

Micro approaches1) Template method – use when project is similar to past

project

2) Parametric procedures applied to specific tasks – like the macro ratio method, but applied to individual tasks

3) Detailed estimates for the WBS – most reliable method (e.g., slide 12)

4) Phase estimating – begins with macro approach then refines as phases of project completed (e.g., slide 11)

Level of detailLevel of detailLevel of detailLevel of detail

• Different for various levels of managementTop – total project & milestonesMiddle – one segment or one milestoneFirst-line – one task

• Excessive detail means unnecessary paperwork

What are ways to determine level of detail needed for a project?

Developing budgetsDeveloping budgetsDeveloping budgetsDeveloping budgets

• Cost estimates are not a budget!

• Time-phased budget determine when money will be needed

• Schedule is developed to mirror WBS• Three views of costs (to slide 13)

Types of costs Types of costs Types of costs Types of costs

• Direct costs (vary by project)

– Labor– Materials– Equipment– Other

• Project overhead costs

• General & administrative overhead costs

Estimating guidelinesEstimating guidelinesEstimating guidelinesEstimating guidelines

Responsibility – At the WBS event level, the most expert person should estimate

Use several people – Time estimates are more accurate with different perspectives

Normal conditions – Estimates should be made assuming normal conditions

Time units – consistent time units should be applied throughout

Independence – estimates should assume independence regardless of WBS dependencies

Contingencies – WBS events should not incorporate contingencies, a separate category should be created

Add risk estimate – optimistic, most likely, pessimistic

Refining estimatesRefining estimatesRefining estimatesRefining estimates

Some PMs adjust project costs up by 20% because:– Interaction costs are hidden– “Normal conditions” are a starting point, but

seldom reality– Things go wrong on projects– Changes in project scope and plans occur

end

Apportion MethodApportion MethodApportion MethodApportion Method

Return to Slide 3

Phase EstimatingPhase EstimatingPhase EstimatingPhase Estimating

Return to Slide 4

WBS EstimateWBS EstimateWBS EstimateWBS Estimate

Return to Slide 4

Three Views of CostsThree Views of CostsThree Views of CostsThree Views of Costs

Return to Slide 6