Wk 1 - Project Selection and Estimating Technique Paper

August 17, 2020

Dr. Tony J. Taylor

Project Selection and Estimating Technique

As an action, Merriam-Webster.com defines estimating as “to produce a statement of the approximate cost of” and, an item, also defines an estimate as “a statement of the cost of work to be done”. When incorporated into the project environment, the action of estimating costs is seen as a process of developing an approximation of the monetary resources need to complete project activities (Project Management Institute, Inc., 2013).

With the above definitions in mind, the following report defines two estimating methods, along with their potential for use within the project setting. These estimating methods, known as Top-Down Estimating and Bottom-Up Estimating, provide a forecast of costs to separate aspects of the project.

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Top-Down Estimating

Top-Down estimating is a project estimating method that estimates the entire project initially, followed by separate tasks within the project scope. Being not as specific as Bottom-Up Estimating, the intent of Top-Down Estimating is to provide an overall estimate for the assessment and analyzation of whether the project will coincide within the budget allocated for the project itself. In simpler terms, Top-Down Estimating is performed before the project team has been developed, to provide the authorizing stakeholders an evaluation tool in which to determine if the project will proceed.

Bottom-Up Estimating

Bottom-Up Estimating is a method in which to determine an estimated cost by starting with individual tasks, thereby ending with the overall project cost last. Being detailed in nature, this method is more commonly used throughout the various project budget aspects. Bottom-Up Estimating is typically performed later in the project phases than Top-Down, and in many cases depends on the work breakdown structure in which to complete. With the performance of this method being later in the project, it allows a more specific input from those taking part in the actual project itself.

Estimating Methods

The Project Management Institute offers us several techniques in which to assist the above methods, as follows:

· Analogous Estimating – Utilizing data from organizational assets in the way of lessons learned, Analogous Estimating “uses the values such as scope, cost, budget, and duration or measures of scale such as size, weight, and complexity from a previous, similar project as the basis for estimating the same parameter or measurement for a current project” (Project Management Institute, Inc., 2013).

· Expert Judgement – As with the other various project management groups, the use of expertise judgement can be utilized, providing the project manager a more factual estimate. Expert Judgment is just that, and individual (or group) that is experienced in the field requiring an estimated cost, with their experience not only in the assumed installation labor hours, but of the material/associated costs, as well.

· Parametric Estimating – Utilizing data from organizational assets as well, Parametric Estimating calculates project (or activity) cost by using the statistical data offered by a project (or activity) similar in scope and calculating based on the parameters of the project being estimated. A common method of Parametric Estimating is to obtain the square footage cost of a typical (typical in this case meaning one of many) project and using the cost as a multiplier or unit. This unit would be used to calculate the new projects cost by determining the its total square footage and multiplying it by the unit.

· Three-Point Estimating – Three-Point Estimating is a method in which to determine three separate activity scenarios (Most likely, Optimistic, Pessimistic) and calculating an average of their sum, respectively. Before discussing the two separate averaging calculations, it is first necessary to define the three activity scenarios:

· Most Likely – If looking at the scenarios as a low, middle, and high, Most Likely would be the middle. As it is titled, most likely is the determination of an activity cost as it would “most likely” be performed, with an obvious level of contingency.

· Optimistic – As its name implies, Optimistic is the low value scenario, meaning an activity cost based on prime conditions, with no level of contingency.

· Pessimistic – Being the worst-case scenario for activity cost, this looks at all the possibilities of risk and supplies cost for the high end of the calculation.

Moving forward, the two averaging calculations are known as the Triangular Distribution and the Beta Distribution. The Triangular Distribution is quite simple, with the sum of the scenarios being divided by 3, thereby giving an overall average cost of the activity. The Beta Distribution is somewhat different in its ability to supply an average that carries the overall weight of the Most Likely scenario. Beta Distribution is calculated by obtaining multiplying Most Likely by 4, and then adding Optimistic and Pessimistic. Being this is the sum of 6 data inputs, it is averaged by dividing by 6, thereby providing a weighted average cost of the activity.

Conclusion

Though many means and methods can be determined in estimating projects, as project managers we must utilize proven techniques in which to provide accurate estimates, tailored to meet the various project demanded scenarios, all the while in a direct and productive manner. Within Top-Down and Bottom-Up Estimating, and the various techniques given above, these means and methods should provide just that, a tool in which the project manager can ensure a successfully performed project.

References