Effective project estimating is a key contributor to the successful planning and delivery of proejct objectives. A project uses the cost, resource and duration estimates along with the expected benefits to build the business case for the project. The initial estimates are used to baseline the project against the ongoing actual cost, resource and duration estimates. Accuracy is the key here. Project sponsors need to be able to trust that their project managers can deliver accurate and objective estimates for their projects. This is achieved using widely recognized and consistenly applied estimation standards.
There are several common characteristics of a good estimates. They are:
- Clear identification of task - the estimator need to be provided with the description, ground rules, assumptions and technical/performance characteristics of each task
- Broad participation in preparing estimates - all stakeholders should be involved, and data should be independently verified for accuracy and reliability
- Availability of valid data - numerous sources of suitable and relevant data should be used when coming up with the estimates
- Standardized structure for the estimate - a standard work breakdown structure should be used, which will result in easier comparisons to similar projects
- Provisions for uncertainties - uncertainties need to be identified and contingencies need to be incorporated in the estimate in order to cover the effect of the known and unknown
- Independent review of estimates - this is critical in establishing confidence in the estimate
- Revision of estimates for significant changes - large changes that affect costs can significantly influence project decisions & therefore re-estimation should take place when large scale changes in the project occur
There are a number of methods in which a project manager may go about providing estimates:
- Analogous estimation - a top down estimation technique, which uses similar projects as a basis for developing estimates for the current project
- Historical analysis - a bottom up estimation technique, which uses similar projects as a basis for developing estimates for the current project
- Parametric estimation - the use of parameters, multiplied by the number of hours for each parameter, to create a total estimation for the project
- Bottom-up estimation - gathering all the low level deliverables, activities, tasks and estimates and rolling them up to get a total for the project
- 3 point estimation - a weighted average estimate based on the optimistic, pessimistic and most likely estimate
- Rolling wave estimation - an iterative approach whereby the estimator refines his/her estimate as details for the activities become more available
- Expert Judgement - relying on the expertise of those who have performed similar work in the past
- Delphi estimation - a combination of expert judgement and history, whereby experts share their estimates with each other until a consensus is reached
Project estimation standards occur throughout the life of the project in the following life cycle stages:
- Prepare the estimate - this stage is the creation of the estimating approach, which includes the identification of activities, determining the techniques to be used to estimate, identifying the estimating team, preparing estimating inputs, and documenting any constraints to the estimates
- Create the estimate - this is the stage when estimating activity resources, activity durations, and costs are performed for the project
- Manage estimates - this stage involves many activities that are used to manage the estimate, including the change control process, calibrating the forecast and comparing actual results to the baseline
- Improve estimating process - as the project progresses, lessons learned are applied to the standard project estimation life cycle so that improvements can be utilized in future project estimations
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