Métodos de preparación

Planning estimates are normally created for a proposed project before the conceptual design is completed. Planning estimates are used to set cost estimates for early project work involving scope determination and feasibility study efforts and for a preliminary budget estimate of the total project costs.

Planning estimates are based on drawing analogies from past cost experience with similar projects, where available. Rough Order of Magnitude estimates are planning estimates used in the absence of previous cost experience.

Planning estimates are typically only approximations. It is imperative that the estimator fully describe and document the basis of the estimate, including how the estimate was prepared and any items specifically excluded from the estimate.

Budgetary or Conceptual Design Estimates

The fundamental purposes of a budgetary or conceptual design estimate are: • Ensuring that the project offers sufficient benefit for the estimated cost;

• Developing a reliable project cost estimate consistent with the proposed schedule; • At a minimum, establishing baseline project costs at the phase summary level; and • Serving as the basis for project funding

In a software engineering project, the conceptual design estimate tells the customer approximately what it will cost to complete the project within the scope defined in the project scope statement. The conceptual estimate will be based on any available conceptual design information, such as sketches and specifications.

Preliminary Design or System Design Estimates

The preliminary design and system design estimates are intermediate estimates created for these purposes:

• Verifying that the newly available design details still support the conclusion that the revised cost budget remains less than the total project funding; and

• Breaking down the cost budget to the work package level for the upcoming phase, to facilitate more complete and accurate cost monitoring and control.

Upon approval of system design and during subsequent execution phases, system design estimates become definitive estimates. They are updated during project monitoring and control to predict revised project completion dates and costs.

Life Cycle Costing

Rough order of magnitude, budgetary, and definitive estimates are calculated during the project life cycle as the project proceeds through its phases. Life cycle cost estimates evaluate costs estimated to be incurred over the product life cycle that includes the life of a project and its product.

Types of costs estimated during the product life cycle include: • Direct costs - Incurred directly by the project;

• Indirect costs - Incurred as part of the organization's cost of doing business and shared among all current projects;

• Recurring costs - Repetitive elements of development and investment costs that may vary with the quantity being produced during a product life cycle. Recurring costs include items such as engineering required for redesign; maintenance, modification, rework, and replacement; training personnel to operate and maintain a product; and • Non-recurring costs - Elements of development and investment costs that generally

occur only once during the product life cycle. Non-recurring costs include items such as design, development, and testing activities through the first release of a product. Key issues for management when developing and refining product life cycle cost estimates include:

• Ensuring that the project budget encompasses all development and production costs; • Adjusting the project's present value to reflect the future costs;

• Anticipating operations and maintenance costs that are frequently not considered in the decision-making process;

• Understanding that the lowest bid is no longer an acceptable criterion if the lowest bid is defined as the development and production cost, not the total life cost of the product; and

• Ensuring that life cycle cost estimates reflect the time value of money (net present value).

Life cycle costing lets you see the big-picture view of the cost of a product throughout its life cycle. Life cycle costing considers the total cost of ownership, including both the operational and maintenance costs and the development costs of the product.

Project managers should perform a product life cycle cost estimate at the outset of every project when evaluating the needs of the project. A life cycle cost estimate should be required for all programs and projects at each point where a major decision/scope change will affect life cycle cost.

Benefits of Life Cycle Costing

The benefits of life cycle costing include:

• Evaluating the competing options in purchasing; • Improving the awareness of total costs;

• Providing accurate forecasting of cost profiles; • Forecasting future resource needs; and

• Supporting strategic planning and budgeting.

Fundamentally, life cycle costing is important because it helps to ensure that the least expensive alternative that will meet a project's functional requirements is selected. Initial design and development costs may constitute only a fraction of a project's overall life cycle costs.

Setting Expectations about Estimating

Estimating is challenging, especially in the early stages of planning a project. As noted, cost estimating, like all of the planning processes, is iterative. Initial estimates for some tasks may have to suffice until later in the project, when more specific information

becomes available. This new information allows a more detailed estimate to be generated. The evolution of the estimate as the project unfolds mirrors the refinement of the work breakdown structure; initially, WBS components are listed at a relatively high level, and they are further decomposed as the scope is defined.

It is important for project managers to manage senior management and stakeholder expectations regarding estimates. Far from commitments, early in the project estimates may be little more than approximations, but these approximations will become more precise as the team learns more about the details of future work from completing more elements of the definition of the project's product or service.

Rolling Wave Planning

The evolution of estimates is one of the ways in which progressive elaboration takes place on a project. In particular, the first time each phase is estimated, it may be at a very high level due to the lack of detailed information, and because no further detail is needed for the decision-making at that point. However, as the project phase approaches, it becomes necessary to create detailed schedule and budget baselines in order to measure the performance effectively.

This results in the current phase having detailed estimates and all future phases having coarse estimates, until the current phase nears completion. At that time, the next phase is planned in detail. This cycle repeats each time the current phase nears closure. Because the level of detail spreads into each phase separately, this is known as rolling wave planning.

What is an Estimate?

An estimate is not the same as a random guess or a bid, but is the derivation of an

approximate value based on one or more rational methods. An estimate uses available data for comparable activities, components or events, and extrapolates or interpolates to the current situation being estimated.

In contrast, a guess is a value arrived merely by intuition. A bid may contain one or more estimates, but it is not an estimate and may vary because of factors independent of time, cost, and quality.

Most activity duration and resource requirement values will be estimates. The very

definition of a project implies a unique initiative, one that has never been done before. In a limited number of instances, duration or resource requirement values may be a given. For example, a test procedure may be defined as always running for a set number of hours. Another example is that concrete takes a known amount of time to cure before construction can begin on it, based on the environmental temperature and the mixture used. In these examples, the values are givens, not estimates. Estimates are approximations.

Who is Responsible for Cost Estimates?

In some organizations, the project manager is not responsible for developing the cost estimates. A qualified cost-estimating department may develop these instead. In other circumstances, the costs of certain types of resources, for example, in-house staff labor, are not factored into the project costs.

Within the general practice of project management it remains the responsibility of the project manager to understand and be able to justify the estimated project costs, whether or not he actually developed them.

Prior to the completion of an activity, it is not possible to know what the exact cost, duration, or resource effort will be. The project manager will not be able to account accurately for some factors, such as large changes in requirements that were not factored into a project's original assumptions.

Estimate Accuracy

Estimates will have varying precision over the life of the project. The precision necessary for an estimate depends on its context. For example, the earliest estimate for a project's cost at the concept evaluation stage may be a rough order of magnitude estimate, which is good enough to determine whether the project should be pursued or not. Additional accuracy would not affect the decision, so making the effort to obtain it is not cost- effective.

On the other hand, as an upcoming phase of a project is being planned, the phase's activities are defined at sufficient levels of detail to ensure that estimates of duration will have the necessary accuracy, and that the resulting project baselines will be effective in measuring performance. Without this level of detail, the project management team would not have the ability to detect and correct problems in a timely manner.

As estimates are refined further and at increasing levels of detail, the effect of diminishing returns comes into play. The project management team must determine when the estimate's accuracy is not improving sufficiently to justify further analysis.

Common Estimating Errors

Influence of scope on estimating errors

Perhaps the most significant factor contributing to errors in estimates is the failure to encompass the entire technical scope. This comes primarily from two sources: failure to elicit, analyze, and maintain the requirements properly, and incorrect decomposition of the work breakdown structure. The first is the reason that poor requirements are cited so often as a cause for poor project performance. The second leads to overlooked work, which often appears later as a scope change request when it was actually an error, and the scope did not change.

Influence of assumptions on estimating errors

The assumptions about the estimate must be documented. If significant assumptions are not tested, the estimate may involve substantial error. For example, assumptions regarding productivity, resource availability, vendor capabilities, and technical feasibility should be reflected in the resource and duration estimates and spelled out in the basis of estimate (BOE) for the activity. The BOE describes how the estimates were derived and the information on which they were based.

Influence of risk on estimating errors

When known risks are under- or overestimated, the amount of time or cost allocated to the estimate will be wrong to some degree. Experience can reduce this kind of error, but it cannot eliminate it completely.

Influence of time on estimating errors

Estimates must accommodate the budgeting and funding cycles of the performing organization. When an estimate approaches or spans a boundary between two funding cycles, there is the inherent risk that during the project the activity may slip at least partially out of the cycle in which it was planned. This means the cost for the slipped portion will be incurred in the wrong cycle, and the available funds in both cycles will no longer match the revised cost forecast.

Other factors affecting estimating accuracy

Some other factors that contribute to the error of an estimate include: • Novelty of the activity and lack of experience estimating it; • Novelty of the technology used to carry out the activity; • Unknown skills and productivity rates of the team; • Unexpected impediments to the progress of the activity;

• Mistakes and/or misunderstandings in the inputs to the activity; • Changes in the inputs to the activity, particularly in the requirements; • Uncontrolled changes in working environment that impair productivity; • Effects of geographic location of work;

• Locations of team members relative to the work; • Available methods of team communication; • Quality of support services;

• Availability of appropriate tools; and • Availability of subject matter experts.

Cost Drivers

Cost drivers are project cost elements that heavily impact the overall project costs. They will either inflate or moderate the base cost estimate that resulted from the measure of the project's scope. Small changes in cost drivers result in large changes in the overall project costs.

Parametric cost estimating, a technique of the Cost Estimating process discussed further in the course, relies on an understanding of these cost drivers. They result in additional estimating measures that must be used to adjust the cost estimates upward or downward to account for these factors.

Project managers should be concerned about cost drivers because they represent specific elements of the project that could potentially become budget busters. Cost drivers are the areas worth spending extra time on when developing the estimate in order to get more accurate data on quantity required and unit costs.

When reviewing a cost estimate, recognizing and focusing on cost drivers is more productive than trying to accurately forecast cost for all project elements.

Some examples of cost drivers:

• Volume and cost of concrete when building a hydroelectric dam; and

• Effects of development tools and work environment factors on the productivity rates of programmers in software development

• The Cost Estimating process requires the project management team to consider the following enterprise environmental factors:

• Marketplace conditions - This involves the products, services, and results that are available in the marketplace, their sources, and the terms and conditions of their use. These conditions will affect the choice of resources, and their prices will then serve to establish their cost estimates. In addition, if fluctuations in these conditions are expected, prices may change during the project. These price changes will also affect the cost estimates.

• Commercial databases - Resource cost rates are often available from

commercial databases that track skills and human resource costs and standard costs for material and equipment. With adjustments for local variation, these may serve as the base prices for the cost estimates.

• The organizational process assets include policies, procedures, and guidelines about cost estimating. Other process assets include:

• Cost estimating policies - If the organization has established mandatory approaches for cost estimating in various circumstances, the project management team must comply with them;

• Cost estimating templates - Often the finance function or previous project teams have developed templates that are based on previous projects. These templates can be reused and tailored for use on new projects to suit their characteristics;

• Historical information - Often the performing organization maintains a repository of information about work that has been performed in the past that was similar, or that used the same resources planned for the current project. In this case, there may be available historical information that the project

management team can leverage in developing the cost estimates;

• Project files -Records from prior projects that have performed similar work can help with developing cost estimates;

• Team knowledge - Frequently the team members will have been selected because of their previous experience with similar work. This usually provides a base of knowledge about similar efforts that can be used to guide cost

estimates; and

• Lessons learned - If previous cost estimates are available from a previous project that was similar in scope and size, there will often be lessons learned about how to (and how not to) generate and tailor the estimates to be even more accurate than those used on the previous project.

The project scope statement describes the business need, justification, requirements, and boundaries for the project. It also documents constraints, specific factors that can limit cost estimating options. On many projects, a common constraint is a limited project budget. Other constraints can stem from required delivery dates and available resources.

Often the project approach, assumptions, and acceptance criteria that are described in the project scope statement will require that the project team tailor their estimates. For example, if the project is required to use inexperienced in-house resources in order to bolster the development of a performing organization - competitive advantage, this will cause the estimates to be different than if expert resources had been procured.

The work breakdown structure defines the relationship among the components of the project and the project deliverables. In this manner, the work breakdown structure also defines how the cost estimates will be rolled up for summary reporting and control purposes.

The WBS dictionary is the companion document to the WBS. It contains all the details for each component. Each component includes a code or account identifier, statement of work, responsible organization, and a list of milestones. Other information can include a list of associated schedule activities, resources required, and an estimate of cost of the component.

The project management plan is a document that specifies how the project is executed, monitored and controlled, and closed. The project management plan can be a summary level or detailed document, and can contain one or more subsidiary plans or other components.

Other planning outputs that may be used are:

• Schedule management plan - The type and quantity of resources and the amount of time those resources are applied to complete the work of the project are major parts of determining the project cost. The Activity Resource Estimating and

Activity Duration Estimating processes that contribute to the schedule management plan are closely coordinated with Cost Estimating. The schedule management plan also defines how the schedule will be managed, and will influence how cost

estimates will treat the boundaries of fiscal cycles when the activities cannot be funded within the funding cycle in which they were originally expected to occur; • Staffing management plan - This describes the resources with which the project

team will be staffed and when they will be made available. These factors drive both the size of project cost estimate (through the resource rates) and the timing of planned outlays in the cost budget (through information about availability); and • Risk register - This describes the risk response plans for identified project risks.

Each risk response plan has associated activities and may entail contingency reserves. The costs of the activities and reserves are affected by the results of ongoing risk assessment, which may change over the course of the project. • Developing Cost Estimates

There are various methods used to develop cost estimates, including: • Analogous estimating;

• Parametric modeling; and • Bottom-up estimating.

Other tools and techniques used during the Cost Estimating process include: • Project management software;

• Vendor bid analysis; • Reserve analysis; • Cost of quality; and

• Determine resource cost rates.

The project manager should be aware of the estimating methods that were used to develop