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6. 4KF3 Ch. 5 Estimating Project Times and Cost.docx

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Department
Commerce
Course
COMMERCE 4KF3
Professor
Steve Way
Semester
Fall

Description
Chapter 5: Estimating Project Times and Costs 4KF3 Lecture Notes Importance of Estimates  Support good decisions  Schedule work o Make sure your team members can take on added work of project  Determine length of project and costs o Projects can be cancelled because of lack of funds  Determine worth of project  Develop cash flow needs  Determine progress of project  Develop time-based budgets and establish project baseline Factors Influencing Quality of Estimates  Planning horizon o The farther away the deadline, the more uncertainty  Project duration  People o People are hard to predict o The number of people o The skills people have  Project structure and organization  Padding estimates  Organizational culture  Other factors Estimating Guidelines for Times, Costs, and Resources  Responsibility  Use several people to estimate  Normal conditions  Time units  Independence o Plan your projects as if all of the task are separate and independent – regardless of if one might get backed up  Contingencies  Adding risk assessment to avoid surprises o Most likely scenario vs. least likely scenario Page 1 of 10 Chapter 5: Estimating Project Times and Costs 4KF3 Top-Down vs. Bottom-Up Top-Down Approaches  Consensus Methods  Ratio Methods  Apportion Methods  Function Point Methods for Software and System Projects  Learning Curves – See Appendix 5.1 Bottom-Up Approaches  Template approaches  Parametric procedures applied to specific tasks  Range estimating Hybrid Approach  Phase Estimating Types of Costs  Direct Costs  Direct Project Overhead Costs  General and Administrative Overhead Costs Refining Estimates  Interaction costs hidden in estimates  Normal conditions do not apply  Things go wrong on projects  Changes in project scope and plans Learning Curves  Each time the output quantity doubles, the unit labour hours are reduced at a constant rate  Studies have shown that human performance usually improves when a task is repeated Page 2 of 10 Chapter 5: Estimating Project Times and Costs 4KF3  In general, performance improves by a fixed percentage each time production doubles  More specifically, each time the output doubles, the worker hours per unit decrease to a fixed percentage of their previous value  That percentage is called the learning rate  The project manager should take the learning rate into account for any task where labour is significant Reading Notes  Estimating: the process of forecasting or approximating the time and cost of completing project deliverables o Top-down (senior management) or bottom-up (workers)  Project estimating becomes a trade-off, balancing the benefits of better accuracy against the costs for securing increased accuracy Factors Influencing the Quality of Estimates  Past experience is a good starting point for developing time and cost constraints  A typical statement in the field is to have a 95% probability of meeting time and cost estimates a) Planning Horizon  Estimates of current events are close to 100% accurate but are reduced for more distant events Page 3 of 10 Chapter 5: Estimating Project Times and Costs 4KF3 b) Project Duration  Long-duration projects increase the uncertainty in estimates c) People  Skills matching, turnover, employee productivity d) Project Structure and Organization  Efficiency e) Padding Estimates  Increase probability of meeting deadline f) Organization Culture  How companies treat estimating g) Other Factors  Downtime, national holidays, legal limits, etc. Estimating Guidelines for Times, Costs, and Resources a) Responsibility  Estimates should be made by those most familiar with the task o They will have a better idea of what it takes o They will “buy in” to the project b) Use Several People to Estimate c) Normal Conditions  Estimates should be based on normal conditions, efficient methods, and a normal level of resources d) Time Units  All task time estimates need consistent time units e) Independence  Estimates should treat each task as independent of other tasks that might be integrated by the WBS f) Contingencies  Work package estimates should not include allowances for contingencies g) Adding risk assessment to the estimat
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