Estimating

Table of Contents
Table of Contents .................................................................................................................................................... 1
Overview .................................................................................................................................................................. 1
Keep These Points In Mind: ................................................................................................................................... 1
Assumptions and Senarios .................................................................................................................................. !
"o #our $omewor% ................................................................................................................................................. !
&ottom'up (stimatin) ............................................................................................................................................ !
&ud)et ..................................................................................................................................................................... !
Staffin) ................................................................................................................................................................ *
(+uipment, resoures and materials ................................................................................................................ *
Other .................................................................................................................................................................... *
Mana)ement -eserve ............................................................................................................................................. .
Contin)en/ -eserve ............................................................................................................................................. .
Parametri (stimatin) ............................................................................................................................................ .
Top'down (stimatin) ............................................................................................................................................. .
Performane &aseline ............................................................................................................................................ .
Overview
Estimates must be based on reality. Anyone can come up with an estimate that satisfies the Client's
desires for a product within some time and cost constraints, as long as they don't have to actualize the
estimate. If you want to have an estimate that satisfies the Client's desires and is likely to be actualized,
then you have to negotiate based on reality
emember! Estimates are not "##$ accurate. It is better to e%press estimates in ranges that recognize
the degree of e%pected variance than to stand by and watch a 'set&in&stone' estimate crumble in the face
of a harder reality.
'o determine how long the pro(ect will take and how much it will cost, it is often necessary to negotiate
with the Client to come up with a plan that satisfies business re)uirements and can be successfully
adhered to.
Keep These Points In Mind:
It is impossible to do the impossible.
'he earlier bad news is known, the better it is better to know early in the pro(ect whether the
target date can be met or whether the budget is big enough.
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*ou can negotiate a win+win solution.
Avoid haggling! negotiate instead, haggling is changing your position without a rational basis.
-ake your plan on the basis of rational assumptions.
Assumptions and Senarios
Estimates are based on assumptions about the nature of the product, the workers, the tools and
techni)ues to be used, and the work environment. -ake realistic assumptions and vary them to come up
with different scenarios. .enerally, you want an optimistic, a most likely, and a pessimistic scenario.
'hese scenarios become the starting points for your negotiation.
!o "our #omewor$
/o your homework&come e)uipped with your plan, your assumptions and (ustification for your
assumptions, in writing.
'op&down estimates look at the pro(ect as a whole, at ma(or phases, to decide 0on the basis of past
e%perience1 how much and how long the pro(ect will take. 2sually these are done early in the life of a
pro(ect.
A bottom&up estimate is made by estimating tasks at a relatively detailed level of the 345 and then
rolling up the estimates to obtain estimates for the higher levels.
.enerally, top&down estimates are made in the early stages of the pro(ect and bottom&up estimates are
made for the work to be performed in the ne%t phase of the pro(ect, what we call short&term estimating.
%ottom&up Estimating
Estimate at a detailed task level! the smaller the task the easier it is to estimate the effort and time
re)uired.
6erformers or e%perts should provide task estimates.
/o not overlook indirect costs 0overhead1.
/etailed estimating re)uires effort! task analysis, individual estimates, etc.
2se standard estimates 0based on past e%perience on similar tasks1 as much as possible.
%udget
A %udget is the sum of the funds allotted for the pro(ect. It represents the estimate of planned
e%penditures and income. 'he budget may be e%pressed in terms of money or resource units 0effort1.
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'he budget describes the pro(ect costs and the e%pected e%penditures across the pro(ect schedule. 3hen
appropriate, payment 0cash flow1 schedules should be included. 7ften the resource budget is e%pressed
in units of resource time instead of dollars.
Consider the following in developing the budget!
Staffing
/irect labor 0in&house and consultants1
Client effort
5upport 0in&house and consultants1
-anagement
ecruitment and training
E'uipment( resoures and materials
E)uipment and software
2se of system resources 0for computing, E&mail, phone, etc.1
5upplies
6hysical 5pace
Other
'ravel and living e%penses
Administrative 0deliveries and mail, manuals and books, etc.1
Celebrations
'he total effort re)uired to perform the pro(ect is determined in the estimating and scheduling process.
2ntil the final schedule has been decided upon, you haven't completed the estimating because as you
schedule, you will reassign resources and that may change effort estimates for individual tasks.
'he effort is multiplied by the rate0s1 for the resources to obtain the human resource costs. 'hese are
allocated over the pro(ect duration based on where in the schedule the resources are e%pected to e%pend
their effort.
'hen, capital costs or costs that are associated with non&human resource elements, like e)uipment
purchase, software license costs, etc., are added. And costs of supplies and facilities directly charged to
the pro(ect are added. Add overhead 0any kind of indirect costs of management, facilities and
administration1 to get the total cost estimate.
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'his total cost estimate is spread across the pro(ect duration, based on when the e%penditures are
e%pected to be made, to form the 4udget 4aseline for the pro(ect.
emember that the pro(ect's 4aseline 6lan is composed of three parts! the 6roduct 4aseline, the
5chedule 4aseline and the 4udget 4aseline. 'he 4udget 4aseline is used during the pro(ect's life to
assess whether the budget estimates are on track for a realistic completion of the pro(ect. 8ike the other
baselines, it must be reassessed from time to time and changed if variances 0differences between the
budget and actual e%penditures1 are significant enough to warrant it.
Management )eserve
A Management )eserve is a designated amount of time and+or budget to account for parts of the pro(ect
that cannot be predicted. 'hese are sometimes called 9unknown unknowns.9 :or e%ample, ma(or
disruptions in the pro(ect caused by serious weather conditions, accidents, etc. 2se of the management
reserve generally re)uires a baseline change.
Contingen* )eserve
A Contingen* )eserve is a designated amount of time and+or budget to account for parts of the pro(ect
that cannot be fully predicted. :or e%ample, it is relatively certain that there will be some rework, but the
amount of rework and where it will occur in the pro(ect 0or phase1 are not known. 'hese assumptions are
sometimes called 9known unknowns9.
'he purpose of the contingency reserve is to provide a more accurate sense of the e%pected completion
date and cost of the pro(ect 0or phase1.
5ome pro(ect managers separate contingency reserves from management reserves while others combine
the two into a single reserve. eserves for changes and issues may be part of the contingency reserve or
separate reserves.
Parametri Estimating
Parametri Estimating is appro%imating using an algorithm in which parameters that represent different
attributes of the pro(ect are used to calculate pro(ect effort, cost, and+or duration. 6arametric estimating
is usually used in 'op&down Estimating.
Top&down Estimating
Top&!own Estimating is appro%imating the size 0duration and cost1 and risk of a pro(ect 0or phase1 by
looking at the pro(ect as a whole and comparing it to previously performed similar pro(ects. 'he
comparison may be made directly using 9analogous estimating,9 through an algorithm as in 9parametric
estimating9, or from the memory of estimating e%perts.
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Performane %aseline
'he Performane %aseline results from the planning. It is made up of the scope 0product1 definition,
schedule and budget. All three are used in controlling the pro(ect and are the 4aseline plan that will be
followed to e%ecute the pro(ect.
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