PJM6025 TEAMWORK PART 1.3

PJM6025:

Project Scheduling & Cost Plan

Mimi Y. Wan, PhD, PMP

Instructor

Estimating Costs & Durations

• What does estimating involve?  Numerous Knowledge Areas

 Scope Management

 Time Management

 Cost Management

 Quality Management

 Human Resource Management

 Communications Management

 Risk Management

 Procurement Management

Estimation Lifecycle

• Prepare estimates

• Create estimates

• Manage estimates

• Improving estimating methods

Estimating & the Project Lifecycle

Prepare to Estimate

• Gather necessary documents

• Choose estimating method(s)

• Assign responsibilities

Estimating Methods

• Top-down estimate

• Bottom-up estimate

• Parametric estimate

• 3-point estimate (PERT)

Top Down Estimation

• Used with indeterminate activities (IT Project)

• Early method

• Analogous (compare to past projects)

• Learning curve

Bottom-up Estimation

• Start with most detailed activity

• Aggregate costs and durations as we move up theWBS

• More accurate method

• May require SMEs

Parametric Estimation

• Ratio method

• Uses historical data & variables to calculate estimate

• Accuracy depends on underlying data

• Ex. Price per Square Foot

Three Point Estimation (PERT)

Project Evaluation and Review Techniques

• 3 Points  Optimistic (3 days)

 Most likely (4 days)

 Pessimistic (7 days)

 Expected Time (ET) = (O + 4M + P) / 6

 ET = (3 + 4(4) + 7) / 6 = 4.33

• Can be used to estimate duration and costs

What is the Best Method?

It depends!

• Which estimating method is most helpful for accomplishing this project successfully?

• So, which is most helpful?

• Many times a combination of methods.

• Apply team’s collective experience and judgment to your project

Create the Estimates

• Create estimating schedule

• Collect & review estimates

• Aggregate estimates

• Approve estimates

• Create draft schedule baseline

Final Steps

• Manage the Estimates

• Improve the Estimate Methods

Specific Estimating Considerations

• Managing uncertainty

• Effort & duration

• Realistic estimates

• What is good enough?

Managing Uncertainty in Estimating

• Poor methods  Re-baselining

 Over-estimating

 Padding & slack

• Better methods  Contingency

 Tolerance

Estimating Terms & Concepts

• Duration – elapsed time between start and finish

• Effort – actual amount of time to complete the task

• Easily confused

Duration & Effort in MS Project

• Example Activity: Submit Permit Application

• Duration: 5 days

• Effort: 8 hours

• Solution: Insert ‘Type’ & ‘Work’ field into Gantt Chart

• Change ‘Type’ to Fixed Duration

• Change ‘Work’ to 8 hours

MS Project Example

• Launch MS Project

• Copy in these rows

• Add in Work and

• Type

Realistic Duration Estimates

• Don’t succumb to pressure

• Use realistic estimates

• Unrealistic estimates usually means longer durations

• Avoid padding

• Create reserves

• Provide a tolerance

What is Good Enough?

• Consider importance of cost, project complexity

• Too much detail is costly

• Too little detail is costly

An Example

• Overview process for estimating a construction project

• Start with high level estimate

• Develop Bottom-up estimate where necessary

• Provide Example of PERT

The Sample Project

Estimation Process

• Initiation Phase:  Phase 1: High level commitment from sponsor

 Phase 2: Develop detailed scope document & top down estimate

• Planning Phase:  Develop detailed blueprints & spec sheets

 Create detailed project estimate using a combination of parametric, bottom-up & PERT

High Level Commitment

• Overview of proposed project • Style of home

• Major features

• Proposed location

• Business case • Supports company’s objective

• Market analysis data

• Estimated ROI

Detailed Charter or Scope

• Statement of Purpose

• Deliverables

• Milestones

• Market projections

• Constraints & assumptions

• Resource requirements (i.e. funding estimate)

Phase 2: Planning

• Blueprints created / amended

• Detailed spec sheet created / amended

• Detailed estimate created  Parametric method

 Bottom up

 PERT Analysis

Building the House—Details

• Overview  4 beds

 4.5 baths

 2 gas fireplaces

 1 wet bar

 3,600 heated sq. ft.

 Engineered septic system

 Engineered foundation walls due to elevation

Building the House—Details

• Features  Granite countertops

 Tile showers

 Hardwoods or tile throughout (no carpet)

 800 sq. ft. covered deck

 600 sq. ft. uncovered deck

 Custom kitchen cabinets

 Custom entertainment center

Parametric Estimating

• Average project features  3 bed 2.5 baths

 Custom cabinets

 Granite counters

 Combo of hardwood, tile, & carpet

 1 fireplace

 500 sq. ft. decking

 $120 / sq. ft.

• Current project

 3,600 sq. ft.

 $120 / sq. ft.

 Estimated Cost = $432,000

• Base Estimate: $432,000

Parametric Estimating

• Average project features  3 bed 2.5 baths

 Custom cabinets

 Granite counters

 Combo of hardwood, tile, & carpet

 1 fireplace

 500 sq. ft. decking

 $120 / sq. ft.

• Current project

 3,600 sq. ft.

 $120 / sq. ft.

 Estimated Cost = $432,000

Base Estimate: $432,000

Bottom Up Estimating

Additional Features

1. +1 fireplace

2. Wet bar

3. Entertainment center

4. All hardwoods & tile

5. Engineered septic system

6. Engineered foundation

7. 800 sq. ft. covered deck

8. +2 bathrooms

Estimated cost $76,200

1. $5,200

2. $3,500

3. $2,500

4. $8,600

5. $12,000

6. $8,200

7. $14,000

8. $22,200

Total Estimate

Base estimate: $432,000

Additional features: $76,200

Total Project Estimate: $508,200

PERT Analysis

Formulae: PERT Mean = (O + 4M + P)/6

Std. Dev = (P – O)/6

Variance = (Std. Dev)2

Compute Probability of Final Cost being less than $515,000

(Desired Outcome – Sum of PERT Mean)/SQRT(Var) = Z

(515000 – 509350)/SQRT(19,578,611) = 1.27

Lookup Z value: 1.27

www.vassarstats.net/tabs.html#z

Probability = 79.6% Probability Cost is less than $522,500? 99.7%

PERT Analysis—Critical Path

Formulae: PERT Mean = (O + 4M + P)/6

Std. Dev = (P – O)/6

Variance = (Std. Dev)2

Probability less than 155 days

(Desired Outcome – Sum of PERT Mean)/SQRT(Var) = Z

(155 – 148)/SQRT(7.58) =2.54

Lookup Z value: 2.54

www.vassarstats.net/tabs.html#z

Probability = 98.9%

PERT Analysis Informs Reserves

Time Buffer

• 8 days

• 99.6% certain

Cost Buffer

• $13,000

• 99.7% certain