Project Cost Estimation

Project Cost Estimation

In this presentation is published all the necessary steps and elements that should be included in the costs of a Project.

The Problem

  • The Program Manager’s Job
  • Plan the Project
  • Estimate the Cost and Establish the Budget
  • Identify and Acquire Necessary Resources (People, Equipment, etc.)
  • Manage it (to the schedule, within budget)
  • The Manager’s Dilemma
  • Cost is Usually the Boundary that Cannot be Crossed
  • Cost is a Determined by How Much (labor, materials, etc.) and How Long (Schedule)
  • So How Do You Figure Out What it Will Take Before You’ve Done It?

Understanding “What’s in the Cost”

  • Elements of Costs
  • Direct Costs – Attributable to the Project:

Salaries and Associated Benefits, Materials, Payments to Subcontractors or Consultants, Project Related Travel

  • Indirect (Overhead) Costs – Necessary Business Expenses:

General Administrative Costs, Facility (Space, Utilities, Insurance), Marketing, Ongoing Research and Development

  • Basic Equation:
  • Cost = Labor x Time + Other Direct Costs + Indirect Costs

Note: Indirect Costs are Usually Allocated on Some Proportional Basis Each project a Business is Executing

The Process (Figuring out What it Takes)

  • Step 1 – Break the Project Down into a Set of Definable Tasks
  • Iterative, Top Down Process
    • Identify Major Activities (Design, Development, Integration, Test, Production)
    • Break Down Further into “Self Contained” tasks (Design User Interface, Develop Database Software, Develop Prototype xyz Board)
    • Take it Down One or More Steps Depending on Size and Complexity (Layout All Display Formats, Determine Operator Action/Entry Sequences, Define Limit Tests and Error Notifications)
  • Too Little Breakdown is Bad, Too Much is Bad – it takes a Balance
  • Tools – Logic, Analysis, Experience

The Process – Estimating Each Task

  • Determine What it Takes to Address Each Task in the WBS
  • Usually Focused on Labor
  • What Type (Programmer, Engineer, Network Administrator, Writer/Illustrator)
  • Experience Mix
    • May Look Like Mini Project Teams (Some Guidance from a Senior Type + 2 Juniors doing details and a Writer)
  • Estimate How Long the Task Should Take
  • Very Subjective
    • Historical Performance Metrics and/or or Personal Experience Helps
    • Capabilities/Limitations of Candidate Project Team Members Must be Considered
  • Cover the Gaps (the Team is usually Fixed and Finite)
    • Plan for Continuous Tasking for each member Until No Longer needed

The Process – Preparing the Schedule

  • Schedule the Tasks
  • Assess Start Point for Each (Possibly Relative to Progress of Others)
  • Assumes Some Sequence/Dependency Analysis Has Been Conducted
  • Insert Milestones
  • Key Review/Delivery/Test Points
  • Evaluate the Result
  • Staff Profile (is it Reasonable)
  • Make Necessary Adjustments (Schedule, Resource Mix, etc.)

The Process – Calculating the Cost

  • Labor
  • Schedule and Staff Profile Summarizes Labor Types and How Much of Each (Total Hours, Days Weeks etc.)
  • Labor Hour Costs Normally are Salary + Fringe Multiplier
  • Materials
  • Delivered or Consumed as Part of Project
    • Computers, Software Licenses, Peripherals, etc. Delivered to Customer
    • Usually a “Firm Number” Supported by Vendor Quotes
    • Paper, Special Materials to be Used During Job for Books, Pictures, Etc.
    • Typically, a “Best Estimate” and Minor Relative to Materials and Labor
  • Consultants and Subcontractors Costs
  • Consultants Costs Predicted Based on Hourly Quote and Usage Estimate
  • Subcontractors Based on Firm Quote for Services
  • Other (Travel, Etc.)
  • Estimates Based on Job Requirements
  • Add it Up:
  • Cost =Labor (w/Fringe) + Materials +Consultants/Subs +Other + Indirect

We Have a WBS, Schedule Cost

Now what..?

A Final Look

  • Prepare to Track It
  • Set Up a Total Cost Profile (How the Project Flows Financially)
  • Set Up a Labor Profile (Either by Hours, Labor Cost – or Both)
  • During Execution
  • Account for Expenses Against WBS items
  • Review “Progress” Against Cost Profile Regularly
  • If behind Schedule, Ahead of Cost Profile, must be problems
  • Another Dilemma
  • “If You Can’t Measure It – You Can’t Track It.”
  • “If You Don’t Know Where You’re Going – You Might End Up Somewhere Else”

 These are all the steps for the calculation of cost of a project.

Share this post

Leave a Reply