jeff sestokas estimating the budget and cost (part 2) project management for ara engineers and...
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Jeff Sestokas
Estimating the Estimating the Budget and Cost Budget and Cost
(Part 2)(Part 2)
Project Management for ARA Engineers and Scientists
Developing an Estimate from Developing an Estimate from the Top Downthe Top Down
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IntroductionIntroduction Another approach to developing a budget is to start
from the “total” and allocate effort (“top down”)• Understanding customer budget and priority is generally critical
to determining “total”
• Allocation based on difficulty, duration and amount of ODCs required
Most appropriate for:• ROM estimates
• Vaguely defined tasks/requirements
Effectiveness can improve with experience
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Desired Learning ObjectivesDesired Learning Objectives How to construct a simplified estimate or budget Importance of understanding customer budget and
priorities to accuracy of estimate Know when a ROM estimate is most appropriate Importance of continuing evaluation
• Requires measurable milestones
• Allows early adjustment
• Improves subsequent estimates
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Significant ConsiderationsSignificant Considerations Procurement Requirements
• What do we have to deliver and when?
Evaluation Criteria• Customer emphasis should be basis of cost strategy
Critical Personnel, Facilities or Equipment Customer Cost Expectations
• For government contracts – government estimated level of effort
Schedule1 Quality, Cost
• Cost is proportional to quality and (often) inversely proportional to required delivery time• Generally, specifying any two will determine the third
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Step 1 – Organize the ProjectStep 1 – Organize the Project Define the major tasks to be accomplished
• Clearly define the milestones and deliverables
associated with each task (analogous to WBS and IMS steps)
Determine leader, type of personnel required, materials and ODCs for each major task (analogous to RLN step)
Task 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter DeliverableProject Management & Reporting Progress ReportsProgram Planing Project PlanExperiments & Data Analysis Data Analysis BriefingComputer Model Development Modeling BriefingFinal Report Final report
Task StaffingProject Management & Reporting PM, Admin. Staff, Copies, Computer, PhoneProgram Planing PM, Task Leaders, Admin. Staff, Computer CopiesExperiments & Data Analysis Sr. Eng, St Eng., 2 Tech., 25k ODCComputer Model Development Sr. Sci., St Sci., ComputerFinal Report Sr. Eng., Sr. Sci., Tech Ed., St. Sci., St. Eng.
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Step 2 – Allocate ResourcesStep 2 – Allocate Resources
Allocate a percentage of total resources
to each major task• If a price objective is established (such as
Government Estimate), this defines total resources
• Otherwise, build to total based on effort in each major task
Task % BudgetProject Management & Reporting 15%Program Planning 10%Experiments & Data Analysis 35%Computer Model Development 25%Final Report 15%
What is missing from allocation?What is missing from allocation?
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Step 3 – Refine ResourcesStep 3 – Refine Resources Allocate hours (or dollars) within
resources assigned to each task Check for reasonableness and adjust
Determine task milestones and percent of task effort to reach each milestone
Check for reasonableness and adjust
TaskProject Management & Reporting Labor Cat. % Labor $Program Planning Sr. Engineer 25%Experiments & Data Analysis St. Engineer 35%Computer Model Development Technicians 40%Final Report
Don’t forget ODCs if significant
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Labor Fringe& OH
Fringe• Holiday and Leave• Retirement & Bonus• Insurance
OH - Sector & Division Operations• Marketing• Recruiting & Relocation• Training• Offices & Utilities• Field & Office Supplies
Determine CostDetermine Cost Individual Elements of cost must be
appropriately loaded, then accumulatedNew! Add G&A on
Purchase Load(+PLODC*P&S*G&A)
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Aligning your budget with DeltekAligning your budget with Deltek Understanding the Deltek database structure:
• Up to 5 levels, each level has 5 alphanumeric characters• Typically only 3 levels used• Only one item at level 2 – this is the invoice level
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Building a Cost EstimateBuilding a Cost Estimate
Direct Labor
Labor Overhead
Travel
Other ODCs
Purchasing & Subcontracts
Load with G&A
Load with P&S and G&A on
P&S load
Load with Fee
Taxes (If Applicable)
See H
ando
ut
Escalation discussed on next chart
Fringe
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Escalation of Current RatesEscalation of Current Rates Particularly important for
long duration contracts Adjust rates to the
midpoint of the contract• Accounts for inflation, salary
increases and promotions
Allowable rate may be set in procurement • Otherwise, use 4% (Resc = .04)
or as directed
Cesc ddelay dduration
2
365 *Resc
Rescalated Rbase * 1Cesc where,
Cesc Escalation rate
ddelay Number of days from proposal to award
dduration Contract duration (days)
Resc Annual escalation rate (decimal)
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Step 4 – Continuing EvaluationStep 4 – Continuing Evaluation
As project proceeds, evaluate budget estimation • What was expected cost at milestone?
▪ Milestones may be set by customer or PM∙ Define measurable accomplishments
∙ Should be frequent enough to allow easy adjustment
▪ You must determine budget to reach milestone
If variance is unfavorable:• Use management reserve?
• Adjust other task budgets?
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SummarySummary Top Down budget estimate is most appropriate when:
• A ROM estimate is required• Tasking is vague and difficult to price
Allocate percent of total tasks, then refine to resources Must organize project in a similar fashion to Bottoms Up
approach • Generally in much less detail• Still requires “frequent” milestones for continuing assessment
Continuing assessment important for:• Manageable adjustment• Improved subsequent estimation