Chapter 5. Methods of estimating times and costs Using Learning curves Types of costs.
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Transcript of Chapter 5. Methods of estimating times and costs Using Learning curves Types of costs.
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Chapter 5
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• Methods of estimating times and costs• Using Learning curves• Types of costs
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• Direct Costs– Costs that are clearly
chargeable to a specific work package.
• Indirect Costs– Costs incurred that are
not directly tied to an identifiable project deliverable or work package.
• Special Case Costs– “estimated costs”
usually assigned to task that has been done over and over.
• Sunk Costs – Those costs that are
unrecoverable.• Capital Costs
– Assets that have a useful life, year or more.
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5–4
• 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.
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5–5EXHIBIT 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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5–6
Quality of Estimates
Quality of Estimates
ProjectDuration
ProjectDuration
PeoplePeople
Project Structure and Organization
Project Structure and Organization
PaddingEstimates
PaddingEstimates
OrganizationCulture
OrganizationCulture
Other (Nonproject)
Factors
Other (Nonproject)
Factors
Planning HorizonPlanning Horizon
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5–7
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.
7. Adding a risk assessment helps avoid surprises to stakeholders.
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• Order of Magnitude– “seat of your pants” estimate with very little thought or
preparation– Before it is stated, stress it is very rough and limited in
accuracy
• Budget Estimate– More accurate and requires some research– Can use historical data
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• Definitive Estimate– Most accurate– Use the WBS completed and tested for accuracy– Include contingency allowances – lump sum amt.– Includes: training, testing, travel, monitoring, etc.
• Pro Forma Assessments– Initial profile of project costs– Can be order of magnitude, budget, or definitive
estimates– Are refined until there is a particular level of comfort
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• Bottom- up
– Most time consuming and most expensive
– Uses WBS where each task is estimated and then added together as reverse upward.
– Tendency to “pad” as one goes
• Parametric Procedures Applied to Specific Tasks
– Using Industrial Engineering standards and analysis
– Involves cost per sq. ft., linear foot, etc.
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• Macro (Top-down) Approaches
– Consensus methods
– Expert judgment
– Apportion method
– Learning curves
Project EstimateTimesCosts
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• Fairly certain if done before in other projects– derive average duration from historical data
• Some projects books available containing mean tables for typical activities
• Ask around
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• Four categories of resources– Money– Materials– Machines– People
• Questions to ask?– Who and what are
needed?– Who and what can do
the work?– Who and what are
available?– What level and
competence is required?
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5–14
• 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.
• Adjusting Estimates– Time and cost estimates of specific activities are adjusted
as the risks, resources, and situation particulars become more clearly defined.
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• WBS• Resource Matrix• Gantt chart: a bar chart showing both the
amount of time involved and the sequence in which activities can be performed
LO 3LO 3
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Activity 1Activity 2Activity 3Activity 4Activity 5Activity 6
Time
Vertical Axis: Always Activities or Jobs
Vertical Axis: Always Activities or Jobs
Horizontal Axis: Always TimeHorizontal Axis: Always Time
Horizontal bars used to denote length of time for each activity or job.
Horizontal bars used to denote length of time for each activity or job.
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• A person engaged in a repetitive task will improve his/her performance over time.
• Airline industry was first industry to use Learning curves
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• To determine Learning Curve rate:T2/T1 = T4/T2=T6/T3=T8/T4
• To determine time to produce nth or n units:
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5–19TABLE A5.1
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5–20TABLE A5.2
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