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QLDA - Chapter 5-Estimating Project Times and Costs
QLDA - Chapter 5-Estimating Project Times and Costs
CHAPTER 5: ESTIMATING
UNIVERSITY OF FINANCE - MARKETING
FACULTY OF BUSINESS ADMINISTRATION PROJECT TIMES AND COSTS
CHAPTER 5:
ESTIMATING PROJECT TIMES
AND COSTS
1. Understand estimating project times and costs are the 1. Factors Influencing the Quality of Estimates
foundation for project planning and control. 2. Estimating Guidelines for Times, Costs, and Resources
2. Describe guidelines for estimating time, costs, and
resources. 3. Top-Down versus Bottom-Up Estimating
3. Describe the methods, uses, and advantages and 4. Methods for Estimating Project Times and Costs
disadvantages of top-down and bottom-up estimating
methods. 5. Level of Detail
4. Distinguish different kinds of costs associated with a project. 6. Types of Costs
5. Suggest a scheme for developing an estimating database
for future projects. 7. Refining Estimates
6. Understand the challenge of estimating mega projects and 8. Creating a Database for Estimating
describe steps that lead to better informed decisions.
7. Define a “white elephant” in project management and 9. Mega Projects: A Special Case
provide examples. 10. Summary
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Project priority
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Condition Top-Down Bottom-Up Top-Down Approaches for Estimating Project Times and
Estimates Estimates Costs:
Strategic decision X
1. Consensus Methods
making
Cost and time X 2. Ratio Methods
important
3. Apportion Methods
High uncertainty X
Internal, small project X 4. Function Point Methods for Software and System
Projects
Fixed-price contract X
Customer wants X 5. Learning Curves
details
Unstable scope X
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Top-Down Approaches: Function Point Methods for Top-Down Approaches: Learning Curves
Software and System Projects
Some projects require that the same task, group of
tasks, or product be repeated several times. Managers
know intuitively that the time to perform a task improves
with repetition.
The pattern of this improvement has been quantified in
the learning curve (also known as improvement curve,
experience curve, and industrial progress curve), which
is described by the following relationship: Each time the
output quantity doubles, the unit labor hours are
reduced at a constant rate.
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Bottom-Up Approaches for Estimating Project Times and Bottom-Up Approaches: Template Methods
Costs: If the project is similar to past projects, the costs from
1. Template Methods past projects can be used as a starting point for the
new project. Differences in the new project can be
2. Parametric Procedures Applied to Specific Tasks noted and past times and costs adjusted to reflect
3. Range Estimating these differences
For example: a ship repair drydock firm has a set of
standard repair projects (i.e., templates for overhaul,
electrical, mechanical)
This approach enables the firm to develop a potential
schedule, estimate costs, and develop a budget in a
very short time span.
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3. First-line managers’ interests may be limited to one 3. General and administrative (G&A) overhead costs
task or work package
Level of management can have the kind of information
necessary to make decisions.
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1. Interaction costs are hidden in estimates Creating an estimating database is a “best practice”
among leading project management organizations.
2. Normal conditions do not apply
3. Things go wrong on projects
4. Changes in project scope and plans
5. Overly optimistic
6. Strategic misrepresentation
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Mega projects are large-scale, complex ventures that 1. Past experience is the best starting point for these
typically cost $1 billion or more, take many years to estimates. The quality of estimates is influenced by other
complete, and involve multiple private and public factors such as people, technology, and downtimes.
stakeholders. They are often transformational, and impact 2. Using top-down estimates is good for initial and strategic
decision making or in situations where the costs associated
millions of people.
with developing better estimates have little benefit.
Examples include high-speed rail lines, airports, 3. Estimating time and costs for each work package facilitates
healthcare reform, the Olympics, development of new development of the project schedule and a time-phased
aircraft, and so forth. budget, which are needed to control the project as it is
implemented.
A “white elephant” suggests a valuable, but burdensome, 4. Establishing a time and cost estimating database fits well
possession which the owner cannot easily dispose of and with the learning project management organization.
whose cost (particularly upkeep) is out of proportion with 5. The level of time and cost detail should follow “no more than
its usefulness. is necessary and sufficient”
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