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.
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