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.