Estimating Project Times and Resource Costs

1. Estimating Project Times and Resource Costs

2. Learning Objectives • Describe various Methods of estimating times and costs • Calculate and interpret Learning curves • Recall different Types of costs • Describe resource allocation • Describe leveling resources

3. Estimating Projects • 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.

4. Types of Costs • 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.

5. Why Estimating Time and Cost Are Important • 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.

6. Factors Influencing the Quality of Estimates Planning Horizon Other (Nonproject)Factors ProjectDuration Quality of Estimates OrganizationCulture People PaddingEstimates Project Structure and Organization

7. Estimating Guidelines for Times, Costs, and Resources • Have people familiar with the tasks make the estimate. • Use several people to make estimates. • Base estimates on normal conditions, efficient methods, and a normal level of resources. • Use consistent time units in estimating task times. • Treat each task as independent, don’t aggregate. • Don’t make allowances for contingencies. • Adding a risk assessment helps avoid surprises to stakeholders.

8. Types of Estimates • 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

9. Cont. • 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

10. Cost Estimating Approaches • 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.

11. Project Estimate Times Costs Cost Estimating Approaches • Macro (Top-down) Approaches • Consensus methods • Expert judgment • Apportion method • Learning curves

12. Refining Estimates • 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.

13. Estimate duration times • 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 • When considering the time commitment to a particular project, realistically, personnel (a resource) has 80% of their personnel time available, which is 4-6 hours of actual labor time (sometimes one can only get 4-5 hrs per day) while the rest of their time is involved with non-project related issues.

14. Resources

15. Estimate Resources • 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?

16. Resource Planning • Resource planning is the process by which the project manager decides which resources to obtain, from what source, when to obtain them, and how to use them. • Resource planning is mainly concerned with the trade-off analysis between: • 1. cost of alternative schedules designed to accommodate resources shortages, and • 2. cost of using alternative resources; for example, overtime to meet a schedule or subcontracting to accommodate a schedule change. • Resource planning is a continuous process that takes place throughout the life cycle of the project. In a multi project environment the specific resource alternative selected also affects other ongoing projects. It is common wisdom to start the planning process by assuming that each activity is performed by the minimum cost resource alternative.

17. Project Resource Tools • WBS • Resource Matrix • Gantt chart

18. Resource Availability • Renewable resources are resources that are available at the same level every time period. (e.g., a fixed workforce) • Depletable resources are resources that come in a lump sum at the beginning of the project and are used up over time, such as materials or computer time on a super computer. • Doubly constrained resources are resources available in limited quantities each period. However, their total availability throughout the project is also circumscribed. The cash available for a project is a typical example of a doubly constrained resource. • Nonconstrained resources are resources available in unlimited quantities for a cost. A typical example is untrained labor or general-purpose equipment.

19. Schedule Load – tasks and resources • HEURISTICS (rule of thumb) • As soon as possible • As late as possible • Shortest task time first - what takes the least amount of time to do • Most resources first - which needs the most people, equipment, material to get done • Minimum Slack first • Most critical followers-the tasks that follow are critical and must start on time or the project will be delayed. • Most successors • Factors to Consider in Assigning Work (Loading Resources): • Don't always pick the same people for the toughest assignments. • Choose people with an eye to fostering their development through participation on the project. • Pick people with compatible work habits and personalities but who complement each other. • Team-up veterans with new hires to share experience and socialize newcomers into the organization. • Select people who may need to learn work together on later stages of the project or other projects.

20. Resource Leveling You might decide to use resource leveling when you look at your schedule and see that you have one or more resources that are allocated at more than their Max Units values for a given time period (or periods). • Leveling within slack The Level Only Within Available Slack option looks at the Slack value of a task and delays tasks only within that amount of slack. For example, if a task is five days long and has 15 days of slack, leveling with this option turned on will delay this task only 10 days, even if this means leaving some overallocations unresolved. But does not extend the project. • Leveling outside slack Using Leveling outside slack, we can delay or extend a tasks for when we have resources available. Unfortunately, this extends the project total time. • Do note that leveling either way does not always solved the resource overallocations. So one may have to: • Hire more help • Reevaluate the task time • Look at secondary skills of existing resources.

21. Learning Curves

22. Learning Curve • Past experience indicates that individuals learn by experience (i.e., get better and better at the job by carrying out the tasks more and more).

23. Learning curve This phenomenon was first reported by T. P. Wright in 1936.But, the learning curve theory is based on assumptions such as those listed next Chase, R B., 1981

24. Underlying Principles of Learning Curves 1. Each time you perform a task it takes less time than the last time you performed the same task 2. The extent of task time decreases over time 3. The reduction in time will follow a predictable pattern

25. Yesterday Cost or price per unit Today Tomorrow Total accumulated production of units As plants produce more products, they gain experience in the best production methods and reduce their costs per unit The Experience Curve

26. Learning Curve assumptions • The learning curve may vary one product to another and from one organization to another. The rate of learning depends on factors such as the quality of management and the potential of the process and products

27. Moreover, it may be said that any change in personnel, process, or product disrupts the learning curve. Consequently, there is a need for the utmost care in assuming that a learning curve is continual and permanent.

28. The learning curves are found to be quite useful in a variety of applications, including strategic evaluation of company and industry performance, internal labor forecasting, establishing costs and budgets, production planning, external purchasing, and subcontracting of items

29. Formulas • To determine Learning Curve rate: T2/T1 = T4/T2=T6/T3=T8/T4 • To determine time to produce nth or n units:

30. Learning Curves

31. Examples

32. Example Problems: 1. Beth Zion hospital has received initial certification from the state of California to become a center for liver transplants. The hospital, however, must complete its first 18 transplants under great scrutiny and at no cost to the patients. The very first transplant, just completed, required 30 hours. On the basis of research at the hospital, Beth Zion estimates that it will have an 80% learning curve. a. How long will it take to complete the 5th transplant?  b. How long will it take for all of the first 5 transplants?  c. How long will it take to do the last 13 transplants? 2. A student at Winona State University bought six (6) bookcases for her dorm room. Each required unpacking of parts and assembly, which included some nailing and bolting. She completed the first bookcase in five (5) hours and the second in four (4) hours. a. What is the learning rate?  b. Assuming the same rate continues, how long will the 3rd bookcase take?  c. How long will it take to do all 6 bookcases?

33. Any Questions?