Budget and Scheduling

Factors Influencing the Quality of Estimates

Acquired experience is the best guide in predicting costs.

Common Factors to Consider:

Project Structure and Organization

• The advantages of a dedicated project team is the speed gained from concentrated focus and localized project decisions.

• Projects operating in a matrix environment may reduce costs by efficiently sharing personnel across projects, but may take longer to complete since attention is divided and coordination demands are higher.

Which project structure is chosen to manage the project will influence time and cost estimates.

Common Factors to Consider:

The Planning Horizon

• Estimates of current events are close to 100 percent accurate but are reduced for more distant events.

• Accuracy of time and cost estimates should improve as you move from the conceptual to the point where individual work packages are defined.

Early stages of the planning process generate multiple hypotheticals and questions, but as the process is refined and project implementation draws near, nearly all issues should be resolved.

Common Factors to Consider:

Project Duration

• Poorly written scope specifications for new technology result in errors in estimating times and costs.

• Long-duration projects increase the uncertainty in estimates.

Time to implement new technology has a habit of expanding in an increasing, nonlinear fashion.

Common Factors to Consider:

People

• A close match of people skills to the task will influence productivity and learning time.

• Team members who have worked together before will influence the time it takes to form an effective team.

• Increasing new people to a project increases time spent communicating.

Accuracy depends on the skills of the people making the estimates

Common Factors to Consider:

Padding Estimates

• If everyone at all levels of a project adds a little padding to reduce risk, the project duration and cost are seriously overstated.

• In a competitive environment cost padding is counterproductive to gaining project acceptance.

However…• As a project manager, it is prudent to calculate an

overall safety margin of 10% to account for unexpected variations in project execution.

Most of us are inclined to add a little padding to increase the probability of success and reduce the risk of being over budget.

Common Factors to Consider:

Organizational Culture

• In some organizations padding estimates is tolerated and even privately encouraged.

• Other organizations place a premium on accuracy and strongly discourage estimating gamesmanship.

Organizational culture can significantly influence project estimates.

Common Factors to Consider:

Other Factors

• Equipment downtime• Local and national holidays • Vacations and sick leave• Legal work limits• Municipal and utility delays• Contractual interruptions

Non-project factors can impact time and cost estimates.

Estimating Project Time an Cost

Detailed Estimates for the WBS Work PackagesProbably the most reliable method for estimating time and cost is to use the WBS and to ask the people responsible for the work package to make the estimates.

Estimate accuracy improves with more detailed planning. The extent of this improvement varies by type of project.

As the project progresses through its life cycle and moreinformation is available, the reliability of the estimates should improve.

Detailed Planning—The Arguments

• Arguments for:– Detailed estimates result in better low-cost efficient

methods that can be utilized down the road. – We were burned once. We need a detailed estimate of

every task by the people responsible.

• Arguments against:– Rough order of magnitude is good enough. Detailed

estimates wastes time and money.– The project is internal. We don’t need to worry about

cost.– The uncertainty is so great, spending time and money

on estimates is a waste.

The more you know the more you can anticipate.

Cost estimates are not a budgetTime-Phased Budgeting

For most sizable projects, money is dispensed as the project is implemented. A time-phased budget determines when the money must be available. Three elements must be known in order to establish a realistic budget:

• Project duration• Completion of a work breakdown structure• Identification of individual work packages

Work packages usually consist of:

• Direct costs: labor, materials, equipment, etc.• Project overhead costs: Salaries, space, storage, etc.• General and administrative overhead costs:

Advertising, accounting, and senior management

Estimating GuidelinesPoor estimates are a major contributor to projects that have failed.

1. Identify who is responsibleThe individual responsible for a work package should generate the estimate for that work package.

2. Use several people to estimateFind other people with similar experiences to generate comparative estimates.

3. Define your “normal” conditionsConsider the prevalent work culture, availability of resources, seasonal considerations, etc.

4. Be consistent with time unitsAll task time units need to be the same.

Estimating Guidelines(continued)

5. Treat each project independent of other projectsAlthough experience is a major influence, pay attention to the potential differences present in individual projects.

6. Account for interaction costsIdentify task dependencies and the time and coordination required for a smooth project execution.

7. Add a risk assessmentIdentify the degree of risk so that stakeholders can consider alternative process decisions.

Common Culprits of Project Difficulty• Conditions turn out to be not so “normal.”

Availability of resources are often the first to go when conditions change. Having to bring in outside contractors/help introduces uncertainty.

• Things just go wrong on the project.Design flaws, accidents, theft, personality conflicts, etc.

• Abrupt change in project scope or plans.Unstable project scopes are a major source of cost overruns. The farther into a project, the more costly the change.

• Inaccurate assumptions Avoid making assumptions regarding cost and scheduling. Document your assumptions during the planning phase.

• Once work gets behind, it tends to stay behind.If times represent average time, we should expect that 50 percent will be less than the estimate and 50 percent will exceed the estimate.

Quality time and cost estimates are the bedrock of project control. Past experience is the best starting point for these estimates.

Elements of a Budget

• TimePlays an important role in determining the need for funds availability.

• Direct CostsDetermines the costs for the “nuts and bolts” of a specific project.

• Indirect CostsDetermined by the business environment, working conditions, etc.

Defining Direct and Indirect Costs

Direct Costs: Those costs (labor, material, equipment, etc.) that can be consistently related to work performed on a particular project. Direct costs are best contrasted with indirect costs that cannot be identified to a specific project.

Examples: Labor, equipment, materials, etc.

Indirect Costs: Expenses that have been incurred by the operation in general, but which cannot be identified and charged directly to a specific project without an inordinate amount of tracking and accounting. Often referred to as overhead.

Examples: Electricity, water, sewer, bookkeeping, etc.

Direct Costs

Count Position Hours Hourly Rate Amount

1 Vice-President of Instruction 12 48 576.00

1 Director of Assessment 49 39 1,911.00

1 Project Manager 202 32 6,464.00

1 DB Administrator 180 32 5,760.00

1 Programmer 358 27 9,666.00

10 Department Chairs 19 340 6,460.00

Total: 820 30,837.00

Indirect Costs

Category Amount

Administration and clerical salaries and fringe @ $21/hr Total hours: 812 17,052

General office supplies 1,980

Computer supplies and general-purpose software 1,200

Postage and delivery charges 200

Telephone charges 150

Printing production and photocopying 150

Total Indirect Costs $ 20,732

Per hour indirect costs: $25.53

Example Time-Phased Budget

Potter - WBS and Budget.xls

• Time-Phased Budget Establishes the specific allocation of resources, time and cost throughout the duration of the project.

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