Project Estimation and Project Cost

Pankaj Sharma

Agenda

• What is a project?

• What are project costs?

• What is an estimate?

• Why do we need to estimate?

• How do we estimate?

• When do we estimate?

• Improving Estimates through a process

What is a project?

• A Project is a temporary undertaking to create a unique product or service with a defined start and end point and specific objectives that, when attained, signify completion

• Example:– Banner Implementation was a Project– Banner maintenance effort is not a Project but an

operational undertaking

What are project costs?

Costs

Onetime Costs Recurring Costs

– Costs can be broken down into Onetime costs and Recurring costs– Recurring costs are incurred on a periodic basis (quarterly, biannually

or annually) and may be time bound or perpetual in nature.– Onetime costs are for a definite duration and are incurred only once.

What are project costs?

Typical IT Cost Components

Labor/Time Material

•Typically includes labor costs directly related to the work or task•Examples are costs incurred due to the involvement of Software/System/Network Engineers, DBAs, Production Support et al.

Overhead

•Typically includes hardware, software and licensing costs

•These costs are not directly related to the work at hand but are an important component in the accomplishment of tasks•Infrastructure costs such as electricity•Management and Administration of the tasks

What are project costs?

IT Costs Tree

Onetime Costs Recurring Costs

Labor/Time

Material

Overhead

Labor/Time

Material

Overhead

What are project costs?

IT Costs Tree

Project Costs Operational Costs

Labor/Time

Material

Overhead

Labor/Time

Material

Overhead

Project Costs are typically Onetime

costs

What are project costs?

Project Costs Operational Costs

Cost Comparison

Product or Service Lifetime

Operational Costs tend to be higher over the product’s or service’s lifetime since they are incurred for multiple years

Project Start Project EndMaintenance Start Maintenance End

Co

stT

ime

What is an estimate?

• According to Webster,– “the act of appraising or valuing”– “a statement of the cost of work to be done”

• PMO defines an estimate as,– a rough calculation of the costs and the amount

of work prior to the commencement of work

What is an estimate?

• When estimating for a project cost we can also estimate ongoing costs

• Outputs of an estimation exercise are:– Project Costs Estimate– Ongoing Costs Estimate

Why do we need to estimate?

• To get an idea of the costs of a project

• To get an idea of the time needed to complete the project– Very important from a scheduling and project

planning standpoint

• To identify resource needs

• To identify ongoing costs and resource needs

How do we estimate?

• Three step process– Identify the high level tasks– Identify the various groups that need to be

involved with each task– Estimate time for each task

• Consult a knowledge expert for an estimate. Do not put an estimate for someone else.

How do we estimate?Identify groups involved• Typical groups involved in an IT project

Enterprise Application Services

SystemsUnix/

Windows

DBA’s

TrainingNetworking

Helpdesk

UPC

Reporting

How do we estimate?Estimation techniques

• Single Point Estimate– We take a single estimate per task

• Three point Estimate– We take three estimates per task

• Optimistic Estimate – Best Case Scenario• Pessimistic Estimate – Worst Case Scenario• Most Likely Estimate

– Average the three estimates to get a three point estimate

How do we estimate?Estimation techniques

• Three point Estimate Example:– Optimistic = 6 hours– Pessimistic = 10 hours– Most Likely = 8 hours

• The three point estimate is(6+10+8)/3 = 8 hours

How do we estimate?Estimation techniques

• Six point Estimation (PERT)– We take three estimates per task

• Optimistic Estimate – Best Case Scenario• Pessimistic Estimate – Worst Case Scenario• Most Likely Estimate

– Multiply the Most Likely estimate by 4, add to the Optimistic and Pessimistic estimates and divide by 6

How do we estimate?Estimation techniques

• Six point Estimate Example:– Optimistic = 6 hours– Pessimistic = 10 hours– Most Likely = 8 hours

• The three point estimate is(6+10+6x8)/6 = 10.66 hours

How do we estimate?Estimation techniques

PMO currently uses a single point estimate

How do we estimate?Estimation techniques

• Examples:– DARS Project

• Estimation done after requirements were completed

– OFS Enterprise Facilities Project• Estimation done during initiation

When do we estimate?

Initiation Planning Execution Closure

•Start of a project•Very Little information is available

•Requirements are defined•Tasks are defined•Project Schedule and plan is created•A lot more information is available

•Main body of work is performed here•Coding, Testing, Installation et al.

•We say Goodbye and Goodluck•Formally change product or service state to “in production” and “in maintenance” mode•Lessons learnt

•An estimate can be calculated during initiation•An estimate can also be calculated during planning but before a schedule or project plan is created

Project Lifecycle

•The later the estimate is done the more accurate it is

Improving Estimates through a process

Estimation Process

Project Estimate

Ongoing Maintenance

Estimate

Measure ActualRequest

Project Budget

Request Ongoing Budget

Feedback and Improve Estimation

Measure Actual

Feedback and Improve Estimation

Project Initiation or Planning Execution

Improving Estimates through a process

• Estimations are guesses

• No two projects are alike and context plays a big part in estimates

• Always find a Knowledge Expert for a task and obtain their estimate

• With a process our guesses can improve by measuring Actual for every project

Improving Estimates through a process

• Estimation template is available at

http://pmo.nmsu.edu/documents/estimates_templatev1.0.xls