Planning and

managing
project cost
ITM130

2.0 Planning and Managing Project Cost – Managing Project Co

sts, Risks, Quality and Procurement (bccampus.ca)
Agenda
Test1: July 06, 2023

There are 50 questions with 2 points each. This password

protected. Therefore, those who are in the class will have
access to the password and test. There are multiple
choice, multiple select, true and false, and fill in the
blanks in the test.
Learning objectives
Defin
• Define project estimation
e

Plan
and
• Plan and allocate resources in a project
alloc
ate

Ident
• Identify distinct types of cost
ify

Appl
• Apply appropriate concepts, tools, and techniques for estimating project costs
y

Creat
• Create estimates and budgets (including, resources, duration, schedules, and costs
e

Mana
• Manage estimates including cost in projects and how to budget
ge

Anal
yze
and
• Analyze and evaluate budget and cost estimates
evalu
ate

Appl
• Apply variance analysis and earned value management to manage and track project progress
y

Appl
• Apply strategies to improve estimating process and respond to budget uncertainties.
y
Estimate
“An estimate is a quantitative assessment of the
likely amount or outcome of a variable, such as
project costs, resources, effort or durations and
benefits” (PMBOK 7th Edition).
Estimate
Samia is working on a project involving the upgrading of a
management information system. Samia must balance overall
project cost.

Detailed estimates are crucial to project success; therefore, an

effort should be made to make estimates as detailed as
possible for all projects.

A budget for a project must contain all cost elements that can
be monitored as project progresses and must identify all costs
and contingency to stakeholders.

Detailed cost estimates for a construction company are

prepared from well-developed plans and real quotes.
Why estimating time and cost is important?

Estimates are Estimates are Estimates are Estimates are Estimates are Estimates are
needed to needed to needed to needed to needed to needed to
support good schedule work. determine how determine develop cash determine how
decisions. long the project whether the flow needs. well the project
should take and project is worth is progressing.
its cost. doing.
Project Estimation
Project estimation is the process of analyzing
available data to predict the time, cost, and
resources needed to complete a project.
Typically, project estimation includes scope,
time-frames, budget, and risks (PMBOK 7th
Edition).
Cost Management Plan
This plan is a component of a project or program
management plan that describes how costs will be
planned, structured, and controlled.

(PMBOK 7th Edition).

Cost estimation
Costs are estimated for the first time before the project
starts and the cost estimates may be used to build a
business case.

Cost estimation also takes place at the beginning of a

project and subsequently, the (re-)estimation of the
project cost is repeated on an ongoing basis to account
for more detailed information or changes to the scope or
timelines or budget.
Effective tool
A project’s budget has the potential to impact every facet
of the project, making it one of the most critical
responsibilities of a project manager.
A poorly designed budget leads to improper asset
allocation, unrealistic expectations, and potentially, a
failed project. Thus, the budget must be accurate for a
project to succeed. Estimation is therefore one of the
most effective tools in the project manager’s toolbox for
planning an accurate budget.
Project scheduling steps
Project Scheduling Steps
Creating a serviceable project schedule is an indispensable activity for a project’s successful
completion.

Most of the project managers suffer from poor schedules that lead wrong decisions.

Poorly created project schedules involve an inadequate number of activities and resources required
to complete the tasks.

As a result of this, project performance reporting becomes a serious problem.

Project scheduling process involves tools and techniques that help project teams to develop
effective work schedules.

Here, we discuss the importance of project planning and scheduling, and project scheduling
steps for successful project management.
Practice
Question
 True or false

Q. What is the first process in

planning a project schedule?
Defining Activities

True
False
Click on the
button to
select the
correct
answer!
 MCQ

Q. The _________ method predicts total

project duration?
Good! Tha
t's Right!
Correct An
sw e r :
Defining a
ctivities is
scheduling the first ste
. p of project

lic k h ere to
C
!
continue
The concept of
estimating project
Project estimating directly links to activities and sections
in the PMBOK Guide and other Practice Guides.
Project estimates are classified into categories based on
how well the scope is defined at the time of estimation,
on the types of estimation techniques used, and on the
general accuracy of estimates.
Regarding the general accuracy – accuracy can be
viewed on a range continuum where the range decreases
over time as in Exhibit 2.1
Estimate range decreases over time

Exhibit 2.1
 7 factors that determine the estimation
accuracy
Gray and Larson (2021) identified seven factors that impact estimate accuracy as follows:

Planning horizon
Project complexity
People
Project Structure
Human tendency to pad
Organization culture
Other non-specific project factors
Planning horizon
The quality of the estimate depends on the planning
horizon; estimates of current events are close to 100
percent accurate but are reduced for more distant events.

Tasks to be completed in the distant future are more

difficult to estimate accurately as the future can be very
unpredictable.
Project complexity

Time to implement new technology has a habit of expanding in an

increasing, nonlinear fashion. Sometimes poorly written scope specifications
for new technology result in errors in estimating times and costs.

The more complex the work, the harder it is to create accurate estimates.
People

The skill and experience levels of the people creating the estimates will have a
big impact on estimate accuracy.

If the individuals involved have skills and experiences from similar past
projects, they are likely to produce estimates with a higher degree of accuracy.
People structure

Dedicated team structures tend to produce the most accurate estimates, assuming the team
members have the required skills and experience.

Since project team members in functional environments must balance the needs of the
project and their day-to-day work, it often is more difficult to find the time and focus
required to produce accurate estimates.
Human tendency to pad

It is human nature to overestimate time and costs in order to increase the

likelihood of being successful. If this is common practice throughout the
organization, estimate quality will suffer as a result of actual duration and cost
being significantly overstated by team members. This is called as …

A better approach is to add contingencies at the project level and base these
contingencies on the degree of risk associated with the change initiative.
Organizational culture
The value placed on accuracy has
a big impact on the level of
accuracy provided.
In some organizational cultures,
accuracy is not viewed as
worthwhile (causing estimates to
be high-level) and in others, it is
seen as an important way of doing
business (causing estimates to be
meticulously calculated).
Non-specific project factors

Many factors are difficult to estimate. For instance, equipment downtime

and staff illness are generally not very predictable. Vacation periods are
generally more predictable and should be considered for duration estimates.
Characteristics of Estimation
Characteristics of Estimation
1. Requestor

10. Context of 2. Target of the

the estimate estimate

9. Unit of 3. Level of
measure confidence

4. Scope of the
8. Version
estimate

5. Assumptions
7. Estimator
used
6. Method
utilized
 Characteristics of Estimation1
Target of the Level of Scope of the Assumptions
Requestor
estimate confidence estimate used
• The person or • That which is • The perceived • What was • What
organization being level of included and information
requesting the estimated confidence is excluded from was assumed
estimate (schedule, the assurance the scope of to be true for
effort, in the the estimate. the purpose of
resource, cost, estimate. deriving the
risk, benefits, estimate.
complexity,
capacity etc.
 Characteristics of Estimation2
Context of the
Method utilized Estimator Version Unit of measure
estimate
• How the • Persons or • As established • The unit of • Organizational
estimate was Persons that in configuration measure (time, capability and
derived, i.e., contributed to management. money, risk). maturity,
top-down, the creation of stability of the
bottom up, estimate or the project context,
expert subsequent such as market
judgment, etc. review thereof. demands,
political
stability,
exchange rates,
industry, and
other context
relevant
characteristics.
Roles and
responsibilities
in project
estimating
Roles and responsibilities in project estimating
Project Sponsor Project Manager
Within organizations, several key roles are
involved in project estimating.

Program and /or Estimators and Subject

portfolio managers matter experts (SME)
It is important that everyone fulfilling a project
role is aware of his or her responsibilities in
project estimating.
Project team members Analysts

Review the key roles, description and

responsibilities in the Practice Standards for Senior management Customers of estimate
Estimating on Table 2-1. Key roles include:
Development
approaches
and life
cycles
Development approaches and life cycles
Every project must pass through a series of phases from its start to its completion.

The type of project deliverables determines how it can be developed.

The type of deliverables and the development approach influence the number and cadence
for project deliverables.

The deliverable approach and the desired delivery cadences determine the project life cycle,
and it phases.

PMI identifies three development approaches – predictive, hybrid and adaptive. The choice
of each approach is influenced by the following:
 Development approaches and life cycles
The type and number of project phases in a project life cycle depends upon many
variables including delivery cadence (whether a single delivery, multiple deliveries
or periodic deliveries) and developmental approaches.
• The phases in a typical project life cycle for creating a project may include:

2. 4. Ease of 8.
Requirements 6. Risk
1. Degree of change Regulations
certainty 3. Scope 5. Delivery 7. Safety
innovation stability options requirements
Waterfall (Predictive Life Cycle)
Agile (Adaptive Life Cycle)
Stages in the
Project
Estimating
Life Cycle
Stages in the Project Estimating Life Cycle
Projects are unique and therefore each business will have
a slightly different approach to how to do project
estimating. In some organizations it could be the Project
Management Office (PMO) setting the methodology or
the Finance Department setting out how estimates for
budgeting are to be calculated.

• According to the Practice Standards for Estimating, there are four stages
in the project estimating life cycle:
Stages in the Project Estimating Life Cycle

4. Improve
1. Prepare to
the Estimating
Estimates
Process

3. Manage 2. Create
Estimates Estimates
Stage 1: Prepare to estimate
The purpose of this step is to establish an
estimating plan.
Before a project estimate can be created it is
important to plan how you will obtain all
relevant information to understand the
context of what is being estimated as
information becomes available.
This requires the identification
documentation about estimation
approaches, company’s policies and
processes, PMO Standards,
estimation techniques, estimation
team etc.
Some of these relevant information
includes project documentation,
experts, estimating techniques,
constraints and assumptions,
additional influences and historical
project information.
Stage 2: Create the estimates
This step estimates are created using information, documentations,
techniques identified in prepare to estimate step.

Team collaboration is extremely important to get all the input and

support from critical stakeholders.

Appropriate resources, budget and time will need to be identified

and the application of techniques, so different opinions make a
difference to the estimates.
Stage 3: Manage the estimating
This step requires the team to manage the estimates created for
example the budget or schedule for the project.

It is important to maintained and managed as the project progresses

– revising them appropriately as the team do the work to ensure
they accurately reflect the initial estimates.

Comparing estimated figures against actual figures to determine

any differences (variances) is on going as the project progresses.
Stage 4: Improve estimating
This step requires the application of continuous improvement principles to the estimates in the
project.

Calibrating models, tweaking techniques and making changes as a result of new information and
what has been learned on the project are activities performed at this stage.

Providing feedback to PMO or Finance department to improve templates, models and processes
for future improvements are good practices.

The project estimation life cycle and the various phases of a project shows an overlap of the
progressive elaboration which involves the continuous improvement and detailing of the
project’s estimates as more accurate and precise information becomes available.
Start-up Cost
estimation
Plan
approach
Development
applied to a
typical
Test and deploy project with a
specific life
Close
cycle
Start-up (Prepare, Create and Manage Estimates)
The primary goal of the project team is to define the project in its broadest terms.

For project cost estimating, the team will identify resources that will be required to produce the estimates, then begin
preparing the estimate and identify any known constraints, such as funding or resources.

The requirements of the business case will lead to the development of the project charter and project initiation document.

These documents will include the information necessary to begin the creation of the project cost estimate, including business
needs and a stakeholder registrar that will identify who will be responsible for the management of the budget and who will be
approving the budget.

Often during the initiation phase, the project team will create a rough order magnitude budget to determine if the project is
achievable and if it should move forward.

This estimate serves as a quantitative assessment of the likely costs for the project.

As the project moves forward, the estimate will become more definitive in nature.
Plan (Continue to Prepare, Create and Refine, Manage Estimates)
The project team will consider the cost estimation techniques and approach they will use to create and maintain the budget.

Often this is heavily reliant on environmental factors such as market conditions and exchange rates, and organizational process assets such
as policies, templates, and lessons learned.

Once a project management team has assessed these factors, they will continue the progressive elaboration of the cost estimate using one or
more estimation techniques – analogous estimation, parametric estimation, bottom-up estimation etc.

The process of elaboration will continue and will result in the establishment of a project cost baseline that can be used to gauge a project’s
success.

It is important to clearly document the basis of the cost estimation by clearly stating any assumptions, known constraints, identified risks,
the estimate range, and the level of accuracy of the estimate in the project plan to ensure stakeholders understand that the project estimates
may change if the factors documented change.

The project manager should update the assumptions log and risk register regularly to ensure that cost estimate information is accurately
captured and effectively communicated.
Development (Create and Refine, Manage, Improve Estimates)

During the development phase of the project, the project manager will oversee multiple phases of the cost
estimation process. It is during this phase that required resources will be procured. This will result in
more specific cost estimates from vendors, which will allow the project manager to continue the
progressive elaboration of the budget.

As work is completed, the project manager will update the project forecast with the actual expenditures.
This will allow the project manager to better manage stakeholder expectations and facilitate transparent
communication about the project costs. As resources are used, they can be compared to the original
assumptions made during the planning phase of the estimation process.
Test and Deploy (Manage and improve estimates)
During the test and deploy phase of the project team and project manager will continue the management
and improvement of project cost estimates. Key performance indicators (KPIs) will be used to measure the
success of the project. These KPIs can include a measurement of project objectives, effort, and cost
tracking, and project performance.

Managing and monitoring change request is an important activity to prevent unauthorized changes from
moving forward. Monitoring cost variances to the approved cost baseline can assist the project manager in
isolating the cause of variances. This is typically done by performing an Earned Value Analysis, which
compares the data from the planned value, the earned value, and cost actuals.

Cost estimates will be reviewed using lessons learned through the life of the project, and by updating
methods and forms used for the cost estimation process.
Close

When the entire project is completed, lessons learned will be

completed and an evaluation will be conducted.

The project charter and business case will be reviewed to

determine if the deliverables achieved the intended benefits
and value.
Reference
Larson, E. W., & Gray, C. (2021). Project management: The managerial process. (8th ed.).
McGraw Hill Education.

Jones, E. F. (2009). Scheduling 101—the basic of best practices. Paper presented at PMI®
Global Congress 2009—North America, Orlando, FL. Newtown Square, PA: Project
Management Institute.

Managing Projects Costs, risks, quality and procurement, (2023). BCampus

The Concept of Estimation in Projects – Managing Project Costs, Risks, Quality and Procuremen
t (bccampus.ca)

Project Management Institute. (2017). A guide to the project management body of knowledge
(PMBOK guide) (6th ed). Project Management Institute.

Project Management Institute. (2021). A guide to the project management body of knowledge
(PMBOK guide) (7th ed). Project Management Institute.