One of the goals of work estimation is to create the most accurate duration, budget, and resource requirement estimate possible. If an estimate is too low, the project will likely not finish on plan, exceed its budget, and suffer from inadequate resources. As a result of this, the project will have a higher level of cancellation as senior management loses confidence in the project. Conversely, if estimates are too high then excessive budgets and HRs will be dedicated to a project where they are not needed. Also, the projected value of the project will be defined at a lower point than it deserves, which then may make the initiative look undesirable. Recognize that estimates are used to evaluate a project’s merit. Errors in these create issues in both directions. Low estimates will cause a negative view later when the plan starts to go awry, whereas high estimates may make the project look nonviable. Both situations are critical from a management viewpoint.
There are several potential reasons why it is difficult to make accurate estimations regarding the cost, duration, and resources of a project. One basic reason lies in the fact that every project has variables that are difficult to anticipate. It is impossible to incorpo- rate every possible scenario into the estimate. The more complex the project, the tougher it will be to make accurate estimates. Size and newness of the project target are the most difficult factors to deal with. Project team members often pad estimate to ensure that they do not overrun the target. In other cases, the result is to tell management what they want to hear or simply to be overly optimistic (Soomers, n.d.). Estimates can also be inaccurate because the specifications for the project are poorly defined (Verzuh, 2005, p. 168). The worst-case scenario results when optimistic estimates are used in order to get the project approved. As indicated above, both situations lead to future management issues when reality surfaces later.
While it is impossible to have estimates that are 100% accurate all the time, there are tips that can be followed before, during, and after estimating to ensure that the estimates are as accurate as possible. These tips include the following (Soomers, n.d.):
1. Create and maintain a database that records the actual time, cost, and resources spent on each task in your project. These data can then be used to make estimations on future projects and to identify the historically accurate buffer time needed to realistically complete the project.
2. Create standard planning documents such as specifications and project plans that are used consistently for all projects.
3. Carry out a detailed requirements analysis of the project’s work requirements.
4. Compare the new estimate to a former project to determine if it is more or less complex, then adjust based on size, technology, the number of groups involved, or other metrics.
5. Apply multiple estimating techniques to arrive at the final estimate. Recognize the potential variability of the estimate and decide if a single time estimate is prudent.
6. When making an estimate, identify the assumptions, constraints, and caveats that were used to produce the value. Monitor these factors through- out the project to ensure that the environment has not changed.
13.2.1 Types of Estimates
There are essentially four levels of accuracy in estimates: ballpark, order of magnitude, definitive, and budget. Generally speaking, this is determined by the time available to make the estimate and the level of detail known about the project. If someone were to ask for a quick estimate with little knowledge, the local expert would respond with a ballpark number. This type of estimate is used for rough evaluation and often contains error rates of 100% or more. These estimates are really only useful in deciding whether or not it is worthwhile to spend more time refining the number (Verzuh, 2005, p. 171). Industry participants call this a WAG—politely stated this is a Wild Guess.
The next level of accuracy occurs in the early planning period and is similar to the ballpark number, except some more level of detail exists at this point. Order of magni- tude estimates are considered calculated guesses based on high-level knowledge of the target. In this case, the estimator reviews the major factors that influence the project’s size and then uses these factors to make an estimate based on these comparisons or some other high-level estimating tool. Order of magnitude estimates are often called SWAGs—a more sophisticated WAG (Baca, 2007, p. 132).
A third level of estimate is the definitive estimate. These are typically derived by reviewing each work unit in the WBS and adding the results, whereas the former two options looked at the issue top-down. Because of the way they are produced, a defini- tive estimate is often described as bottom-up. It is always dangerous to project just how accurate any particular estimate methodology might be, but a bottom-up review of work should be accurate within 25% or better assuming that the project scope is stable.
7. In situations where the estimated budget or duration does not appear ade- quate to complete the project, propose an upward or downward adjust- ment to the design criteria. These criteria can include factors such as quality, risk, functionality features, schedule, and cost.
8. When planning the project, consider simpler and more efficient ways to do the work. The simpler the tasks, the easier it is to make an estimate. 9. To avoid a chaotic scramble of the project rollout at the end, start planning
and estimating the project rollout from the very beginning. This is a key part of the overall plan.
10. When estimating a project characterized by limited information, consider a phase-based approach. In the first phase, the focus should be on refining scope.
11. Categorize the project’s deliverables into the “must-have” and the “nice-to- haves.” This will help the PM to create contingency plans if overruns occur. 12. Create a lessons-learned database for assistance in future projects. Use this
database from past projects to create best practices to apply to the estimat- ing technique being utilized.
13. Make sure that the estimator has experience with the type of work being reviewed and that they understand the estimating technique. The estimator should also consider skill of the individuals who will be performing the work.
Source: Verzuh, E., 2005. The Fast Forward MBA in Project Management. Hoboken,
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If an organization has long experience in the particular project technology and type, then the error rate should be closer to 10%. These types of estimates are considered an accurate measure for a specific project element because they are based on a thorough understanding of the requirements and the availability of resources (Baca, 2007, p. 133). In order to perform this level of estimate, the scope definition needs to be complete and the WBS work units would be used to create the value.
A work unit estimate contains multiple views. The first stage involves an estimate of the amount of work required to complete the defined deliverable. Within this process are assumptions related to the skill of the workers. The resulting value is the work related to the activity. From this, a decision is made as to the level of resource to be allocated the activ- ity, which in turn will impact how long it will take. This process yields the duration of the activity. It is also necessary to make assumptions as to the effective time that the workers have for the task (Baca, 2007, p. 134). It would not be proper to believe that a work task requiring 80 h of work could be completed by a 40 h per week skilled worker in 2 weeks, or in 1 week with two workers. It is common to find that a worker is only 70% productive because of other activities not related to the direct task at hand and this insight is one place where art and experience are required. Given this set of factors, the 80 h work task with one worker assigned would now have duration of approximately 80 divided 0.70 or 2.85 weeks rather than the 2.0 assuming full productivity. The final definitive time estimate is either a calendar or elapsed time. This is simply the number of calendar days needed for task duration. For example, duration of 2.85 weeks would consume in excess of three calendar weeks because of time off for weekends, holidays, or other nonwork periods. Verzuh states that “A detailed estimate includes all schedule and resource information and a time-phased forecast of the project budget, cash, and resources. This represents the approved estimate that will be used to manage the project and evaluate its success” (Verzuh, 2005, p. 172).
The fourth estimate type is called a budget estimate. This term could be related to either the time or the cost for the project or work unit. Additions to the base definitive estimates could include such items as contingency funds, fees, or other nondirect factors (Baca, 2007, p. 134).