Thursday, 24 March 2011

You Want Me to Estimate What?

You walk into the office one morning, and the Project Manager asks you for a cost estimate for the second phase of your project.  You think, “Wow – there is a lot going on in the second phase!”  Where do you start?  Depending on the size of the program/project – your office may have cost estimators who specialize in helping with this type of request.  Even so, let’s talk about the Work Breakdown Structure (WBS) and how this process will look in reality.  The WBS will give you the scope, or the baseline, of what you are estimating.  You will also need the master schedule for the project to understand in what timeframe the project must be completed and maintained.  For instance, if a project needs to be completed in a timeframe which would require double shifts or serious overtime of key personnel, you can see how this will affect the cost estimate.  The schedule will also allow you to understand how costs will be phased over time (giving you the framework of a budget).  Some other items to consider are resources, how accurate an estimate the Program Manager needs, the level of risk the program manager will accept, and what other inherent “costs of doing business” may exist.

Once you have this information, the best estimates come from the people actually doing the job.  Very early in a project you might use “Parametric” or “Analogy” cost estimating techniques which will give you close, but more general, planning numbers.  As more information is known, and there is a detailed WBS available, you can use “Actual Cost” or “Engineering” (Also called Bottom-Up) cost estimating techniques to arrive at a rather accurate estimation for the project.  In this situation, given that it is phase two of an existing project, we will likely use an “Engineering” cost estimation technique.  Have the subject matter experts for each area of the WBS provide you their real estimate for the cost each line item.  Remember that padding the numbers is technically unprofessional.  Early in a project you should be within 10%-25% of the actual end cost, and later in the project you should be able to estimate with 10% or less error.  These numbers can be laid across the master schedule (Microsoft Project will do this for you) and will give you an estimate of cost per year.  You can then use this information to roll up the entire cost estimation of phase two for the Program Manager along with a proposed budget submission.  Not bad for a day’s work, huh?  (If only it were that easy!)

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