Project Estimation and Project Cost

1. Project Estimation and Project Cost Pankaj Sharma

2. Agenda What is a project? What are project costs? What is an estimate? Why do we need to estimate? How do we estimate? When do we estimate? Improving Estimates through a process

3. What is a project? • A Project is a temporary undertaking to create a unique product or service with a defined start and end point and specific objectives that, when attained, signify completion • Example: • Banner Implementation was a Project • Banner maintenance effort is not a Project but an operational undertaking

4. What are project costs? Costs Onetime Costs Recurring Costs • Costs can be broken down into Onetime costs and Recurring costs • Recurring costs are incurred on a periodic basis (quarterly, biannually or annually) and may be time bound or perpetual in nature. • Onetime costs are for a definite duration and are incurred only once.

5. What are project costs? Typical IT Cost Components Labor/Time Material Overhead • These costs are not directly related to the work at hand but are an important component in the accomplishment of tasks • Infrastructure costs such as electricity • Management and Administration of the tasks • Typically includes labor costs directly related to the work or task • Examples are costs incurred due to the involvement of Software/System/Network Engineers, DBAs, Production Support et al. • Typically includes hardware, software and licensing costs

6. What are project costs? IT Costs Tree Onetime Costs Recurring Costs Labor/Time Labor/Time Material Material Overhead Overhead

7. What are project costs? IT Costs Tree Project Costs Operational Costs Labor/Time Labor/Time Project Costs are typically Onetime costs Material Material Overhead Overhead

8. What are project costs? Operational Costs tend to be higher over the product’s or service’s lifetime since they are incurred for multiple years Cost Comparison Project Costs Operational Costs Cost Time Project End Project Start Maintenance End Maintenance Start Product or Service Lifetime

9. What is an estimate? • According to Webster, • “the act of appraising or valuing” • “a statement of the cost of work to be done” • PMO defines an estimate as, • a rough calculation of the costs and the amount of work prior to the commencement of work

10. What is an estimate? • When estimating for a project cost we can also estimate ongoing costs • Outputs of an estimation exercise are: • Project Costs Estimate • Ongoing Costs Estimate

11. Why do we need to estimate? • To get an idea of the costs of a project • To get an idea of the time needed to complete the project • Very important from a scheduling and project planning standpoint • To identify resource needs • To identify ongoing costs and resource needs

12. How do we estimate? • Three step process • Identify the high level tasks • Identify the various groups that need to be involved with each task • Estimate time for each task • Consult a knowledge expert for an estimate. Do not put an estimate for someone else.

13. How do we estimate?Identify groups involved Training Networking UPC Enterprise Application Services DBA’s Helpdesk Reporting SystemsUnix/Windows Typical groups involved in an IT project

14. How do we estimate?Estimation techniques • Single Point Estimate • We take a single estimate per task • Three point Estimate • We take three estimates per task • Optimistic Estimate – Best Case Scenario • Pessimistic Estimate – Worst Case Scenario • Most Likely Estimate • Average the three estimates to get a three point estimate

15. How do we estimate?Estimation techniques • Three point Estimate Example: • Optimistic = 6 hours • Pessimistic = 10 hours • Most Likely = 8 hours • The three point estimate is (6+10+8)/3 = 8 hours

16. How do we estimate?Estimation techniques • Six point Estimation (PERT) • We take three estimates per task • Optimistic Estimate – Best Case Scenario • Pessimistic Estimate – Worst Case Scenario • Most Likely Estimate • Multiply the Most Likely estimate by 4, add to the Optimistic and Pessimistic estimates and divide by 6

17. How do we estimate?Estimation techniques • Six point Estimate Example: • Optimistic = 6 hours • Pessimistic = 10 hours • Most Likely = 8 hours • The three point estimate is (6+10+6x8)/6 = 10.66 hours

18. How do we estimate?Estimation techniques PMO currently uses a single point estimate

19. How do we estimate?Estimation techniques • Examples: • DARS Project • Estimation done after requirements were completed • OFS Enterprise Facilities Project • Estimation done during initiation

20. When do we estimate? • An estimate can be calculated during initiation • An estimate can also be calculated during planning but before a schedule or project plan is created • The later the estimate is done the more accurate it is Initiation Planning Execution Closure Project Lifecycle • Requirements are defined • Tasks are defined • Project Schedule and plan is created • A lot more information is available • We say Goodbye and Goodluck • Formally change product or service state to “in production” and “in maintenance” mode • Lessons learnt • Start of a project • Very Little information is available • Main body of work is performed here • Coding, Testing, Installation et al.

21. Improving Estimates through a process Project Initiation or Planning Execution Feedback and Improve Estimation Project Estimate Request Project Budget Measure Actual Estimation Process Request Ongoing Budget Ongoing Maintenance Estimate Measure Actual Feedback and Improve Estimation

22. Improving Estimates through a process Estimations are guesses No two projects are alike and context plays a big part in estimates Always find a Knowledge Expert for a task and obtain their estimate With a process our guesses can improve by measuring Actual for every project

23. Improving Estimates through a process • Estimation template is available athttp://pmo.nmsu.edu/documents/estimates_templatev1.0.xls