Project Management InstitutePractice Standard for Project Estimating

Asep Nurul Haq, S.T., PMPProposal Coordinator

© 2010 McDermott International, Inc. All rights reserved.

Month, YearP.T. McDermott Indonesia

Preface

This presentation is prepared as reading notes prepared as backup for PDU claim required to maintain writer’s PMP

Writer also wish that this reading notes be useful to others interested in understanding estimating from PMI’s perspective

Content is extracted from PMI Practice Standard for Project Estimating (here forth referred to as “The Book”). All rights reserved.

The Book’s Table of Content

1. Introduction

2. Principles & Concepts

3. Prepare to Estimate

4. Create Estimate

5. Manage Estimate

6. Improve Estimating Process

1. Introduction - Definition

Estimate – A quantitative assessment of the likely amount or outcome.

Project Estimating – The act of creating a quantitative assessment of the likely amount or outcome. It is usually applied to:. Activity Resource

Activity Duration

Costs

Baseline – An approved plan for a project, will be compared to the actual performance.

Continue improving/ detailing a plan or estimate as more information is received is called “Progressive Elaboration”

2. Principles & Concept

Continue improving/ detailing a plan or estimate as more information is received is called “Progressive Elaboration”

Estimating Life Cycle

Causes of Estimating Variances

Variance is the difference between baseline vsactual cost

The causes are: Evolution of requirements

Approved change request

Operational Problems

Faulty Estimating

Basic Characteristics of a Good Estimate

Clear identification of task

Broad participation in preparing estimates

Availability of valid data

Standardized structure for the estimate

Provision for uncertainties

Recognition of inflation

Recognition of excluded cost

Independent review of estimates

Revision of estimates for significant project changes

3. Prepare to Estimate

1. Inputs:1) Project Documents

Requirements documentation

Scope baseline

Activity list

Risk Register

Resource Calendar

2) Experts

3) Estimating Techniques (analogous/ parametric/ bottom up)

4) Constraints and Assumptions (scope/ duration/ cost)

5) Additional Influences (organization process assets/ enterprise environmental factors)

6) Historical Project Information (past project effort/ schedule/ cost/ resources/ documentation)

3. Prepare to Estimate (Cont..)

2. Activities: Create Project Estimating Approach1) Scope of Estimate

2) Organizational Process Assets

3) Project Work Information

4) Estimating Assumptions

5) Constraints

6) Estimation Techniques

7) Resources Needed to Estimate

8) Estimate Confidence

9) Contingency Reserve Planning

3. Prepare to Estimate (Cont..)

3. Outputs: Estimating Approach & Estimating Information

4. Considerations: Allocate appropriate time to plan

Proper Stakeholder Expectations Management

False perception of level of accuracy (round numbers to avoid this!)

4. Create Estimates

1. Inputs1. Project Estimating Approach

2. Estimating Information

3. Estimators

4. Enterprise Environmental Factors

5. Organizational Process Assets

2. Activities1. Analogous/ top down estimating -> little info, less precise, faster

2. Parametric -> more info, more precise estimate, slower

3. Bottom Up -> complete info, most precise estimate, slowest

3. Outputs: Completed Estimate and Basis of Estimates

4. Create Estimates

4. Considerations1. Optimism in Estimates

best man best day?/ no rework?

2. Progressive elaboration of estimates

fine tune as more detail is available

3. Cost-Schedule interrelationship

change in schedule = change in cost

4. Normalization of historical data

time/ location/ different type of project?

5. Accounting for time

inflation/ escalation?

5. Expert Judgment

consult the expert to validate estimate

Estimating Techniques

1. Analogous EstimateUsually used to develop early and rough estimates of the project, appropriate when there’s significant similarity between proposed project and historical data

1. Ratio Estimating -> project cost = n x cost of deliverable (i.e. material, equipment, manpower, etc)

2. Power-Series Estimating -> project cost = (ratio of deliverable)n x cost

3. Range Estimating -> $$ < project cost < $$$

4. Three-Point Estimating -> cost = (low + 4 x mid estimate + high)/6

2. Parametric Estimate ->

Cost = vol of work x unit rate

3. Bottom Up EstimateEstimating to lowest level element of WBS, known as work package and then rolled up to project level.

5. Manage Estimates

1. Inputs1. Baseline Estimates (project cost, schedule and resource histogram)

2. Approved Changes (approved change order)

3. Resource Plan (human / facilities/ equipment resource plan)

4. Work Performance Information (compare to actual cost)

5. Organizational Process Assets (company project control procedure?)

6. Project Estimating Approach

2. Activities: Manage estimates

3. Outputs1. Updated Estimates

2. Updated Forecast

3. Updated Change Request Log

4. Reporting and Communication

6. Improve Estimating Process

Build up benchmarking from: Competitor’s price

Project historical data

Lessons learned from: Miss bids

Estimating process

Q&A