Estimation of Time, Cost and Resources

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From the course by Indian School of Business

IT Project Management

251 ratings

Indian School of Business

IT Project Management

251 ratings

Course 4 of 6 in the Specialization Business Technology Management

The concepts and use of project management tools, techniques and methodologies are becoming all pervasive. This course addresses project management in the context of IT projects, including software projects. Using the framework of project life cycle, the course covers various aspects pertaining to (i) project initiation, (ii) project planning and scheduling, (iii) project monitoring and control, and (iv) project termination. For planning and scheduling of projects, the use of project network and estimation of time and cost are covered in detail. Scheduling of projects with resource limitations is covered next. Risk assessment methods including simulation and risk reduction approaches are also be covered. The students will be required to use the software @risk to simulate project completion times. The use of Earned Value Analysis for Project Monitoring and Control is emphasized. For Software Project Management, the Waterfall Model and Agile Project Management are covered in detail.

From the lesson

Project Network Scheduling and Crashing

This module will cover Project Planning which is the second phase of Project Life Cycle. We first look at what Project Scope is and what scope creep refers to. Work Breakdown structure leading to work packages or activities with the associated precedence relationships are treated in detail. The next topic is about scheduling of the activities which requires the estimation of activity durations. The estimation of duration, cost and resource required for the identified activities are covered later as a separate topic. Here, using the same software development project, assuming that the durations of the activities have been estimated and ignoring the resource requirements for the different activities, we show how a schedule for the activities can be arrived at. The next topic is the estimation of durations, cost and resources required for the activities. Three popular estimating procedures are covered. The next topic covers the various reasons, possible benefits and different alternatives for reducing project duration. We then discuss in detail, one approach to reducing project duration viz. by incurring additional incremental direct cost for reducing activity durations and show how we can arrive at the least incremental direct cost for any specified project completion time. While the approach presented is conceptually sound it is difficult to implement for large projects. So, the next topic covers a linear programming approach to solve the same problem even if the project under consideration is large in terms of the number of activities. As in the previous module, towards the end of this module also, we present some practical aspects pertaining to the concepts covered. This again is done through a Q & A format with Mr. Prashun Dutta, Advisor - Gaiga Smart Cities

Work Breakdown Structure and Network Diagram8:58

Network Scheduling11:24

Laddering, Lags and Gantt chart4:39

Estimation of Time, Cost and Resources12:12

Reducing Project Duration7:12

Reducing Project Duration Linear Programming13:54

(Optional Learning) Interview with Prashun Dutta, Gaiga Smart Cities10:47

Meet the Instructors

M Rammohan Rao
Professor Emeritus
Operations Management

[MUSIC]

This module is about estimation of times, costs and resources for activities.

In order to arrive at a schedule for the activities, we need to estimate

the activity durations and the resources required for each activity.

The resources required maybe men, material, equipment and funds, and

men are be in uniformed throughout the duration of an activity.

While we would like accurate estimate should be noted there will be some

uncertainty as how long that the activity would actually take to complete,

especially if the activity is being undertaken for

the first time which is often the case in projects.

One should note that there's a trade off between getting more accurate estimates

and the cost of obtaining increased accuracy.

Time estimates would be better after then doing the work packages are identified.

And for task that are to be done soon.

Long duration projects increase uncertainty and may have only approximate

time and cost estimates for activities that are to be done much later.

Organization structure can also play a role

in estimating the duration of activities.

A dedicated team may take less time for an activity because of focused attention but

the cost of resources or the dedicated team may be more.

Organization culture plays an important role

in more may be refer to as estimating gamesmanship.

If an organization, the project manager has the tendency to cut

the estimates made by say, the person who has to do the task.

The next day I'm around that person may increase his or her estimate more than

normally done so that after the accepted duration is still high.

If the sums of cost or duration are often padded, we would expect most of

the products to be completed in budget and on time, but this always is not the case.

As pointed out by Elijah Goldrat, this may be due to one of several reasons.

We'll briefly summarize these reasons next.

One possibility is Murphy's Law which says that the work expands to

fill the available time may be operating.

Another possibility is the problems that may be refered to as student syndrome,

which is to postpone starting activity until the last minute.

This, of course, would mean that the buffer implied by the inflated

estimates may disappear quickly and any unforeseen events

happening may trigger a delay in the completion time of an activity.

And our inclusion cost, thereby affecting the completion time and

the cost of the project.

Another possibility is that a person completing the task early may not want to

report the early completion of the task, possibly fearing that his or

her colleagues may not approve of such actions,

given their own tardiness in completing the tasks assigned to them.

Even if an early completion of activities is reported.

The person who is responsible for the succeeding activity may not be ready to

start that activity early, due to the other prior commitments made,

concerning the planned start date for the activity.

It's also possible that persons responsible for

performing an activity may be doing excessive multitasking.

Finally, the required resources may not be available as per scheduled.

At the end of the spectrum is the time and cost estimates may be deliberately

made low so as to win the contract in a competitive bidding for the project.

At a later date but month before the completion date of the project

the person of the organization that guard the contract may start negotiating for

additional budget and or delay in completing the project.

All those men already taught of has been analytical.

It is the dark side of competition.

The person of the organization sponsoring the project may stipulate a fixed price

contract which, with penalties for the delay in the completion of the project.

But unfortunately,

at least in India, legally enforcing the contract is a time consuming effort

which is often better avoided, resulting in an out-of-court settlement.

Next we will look at some important factors that need to be considered while

making the estimates.

Clearly person's family of the activities should make the estimates.

The estimates should be based on normal conditions and normal user resources and

it is better to avoid including contingencies while making the estimates.

The estimates should be made independently for each task and

aggregation of all packages for estimation should be avoided.

Some of the other factors that should be taken into account are holidays and

vacation pays, if any price and wage increases, wastage and

spoilage, if appropriate.

Maintenance cost of resources such as machinery and equipment, and etc.,

should also be taken into account.

Risk assessment may lead to different estimates for the same activity.

This may sometimes bring out the inherent contradictions and

assumptions made while making the estimates.

Reconciliation of the different assumptions and

contradictions may lead to better estimates.

Estimates made by top or

senior management is often referred to as top down estimates.

While those made by the persons responsible for

work packages are refered to as bottom of estimates.

Presumably, top down estimates are for the project and

may be included in the project chapter.

Top down estimates are typically arrived at by a consensus approach involving

senior and/or middle level managers.

If there are managers who have experience with similar projects,

top down estimates can be reasonably accurate.

Bottom up estimates may form the basis for inclusion in the project scope

after some reconciliation between the top down and bottom up estimates.

Bottom up estimates are presumably more accurate since they are made by

persons responsible for the work packages, and

they may have some experience with similar, if not identical, activities.

Three popular estimating procedures are the ratio or parametric method,

as it is referred to the template method and the apportion method.

The ratio, or the parametric approach is to first identify the different parameters

and their respective impacts on the total cost and/or the duration of the project.

The next step is to estimate the value of these different parameters for

the project under consideration.

Depending upon the values of this parameters and the respective impacts.

The total cost and

time are estimated assuming essentially a linear relationship.

For instance, the project is to build a factory.

The cost may be estimated considering the plant size, the type of the plant, etc.

For a software development project that first required

a base method by parameters such as lines of code, function points,

object points, test points, use case points, etc.

The template method, as the name suggests, uses templates that have been

prepared based on the past data obtained from experience with similar projects.

Differences in the new project is compared to the projects is equal than the past

are noted and

adjustments in cost estimates are made depending upon the differences.

Clearly, this method is useful only if the project under consideration is similar to

the projects executed in the past.

The apportion method can give good estimates if the features and costs of

the project that is being undertaken are similar to projects executed in the past.

First, the total cost of the project is estimated based on past experience

are some knowledge of the cost of similar projects done in the past by

other organizations.

Then the estimated total cost of the project is apportioned to various

deliverables, sub-deliverables, etc., using the work break down structure.

Finally, adjustments in some of the costs including possibly

the total cost of the project are made

If any of the allocated costs are viewed as unreasonable.

For instance in the diagram which is adopted from figure 5.1

in Project Management: The Managerial Process by Clifford Gray,

Erik Larson and Galton Desai,

4th Edition Special Indian Edition Tata McGraw-Hill Education Pvt Ltd in 2010.

The total software development cost is first estimated to be,

let us say $200,000.00.

That’s design verification, software development, testing, and

documentation have an estimated cost $60,000.00,

$80,000.00 $50,000 and $10,000 respectively.

The design specifications are further broken down into three

work packages denoted as D1, D2, and D3 respectively.

Typically work packages D1, D2, and D3 cost 30%, 40%, and

30% respectively of the total cost of design specifications.

D1 is estimated to cost 30% of $60,000,

that is $18,000, while D2 and D3 are estimated to

cost $24,000 and $18,000 respectively.

Software development is further broken down into two work packages denoted as

S1 and S2 respectively.

Typically, work packages S1 and S2 cost 40% and

60% respectively of the total cost of software development.

The S1 is estimated to cost 40% of $80,000.

That is, $32,000 by last two is estimated of course $48,000.

Testing is further broken down into two packages denoted as T1 and

T2 respectively.

Typically, work packages T1 and

T2 cost an equal amount which in this case would be $25,000 each.

Documenting the state of a single work package costing $10,000.

After these estimates are made, an assessment is made as to whether

the cost of any of the work packages is unreasonably high or low.

If so, adjustments are made in the cost of some of the work packages,

which in turn will necessitate a change in one or more of the cost of the four

deliverables, which in turn, may change the estimated total cost of the project.

For software development projects, some models suggest COCOMO, which stands for

constructive cost models.

Neural networks, etc., have been attempted, but

these models have been found to be of limited use,

because of the difficulty of not only getting the appropriate data.

But also getting good estimates of the necessary parameters

which can affect the accuracy of the estimated cost and of the times.

Resources that are required for an activity maybe people,

material, equipment and working capital.

Material and equipment requirements depends on the type of activity and

estimated from experience.

Requirements of people within a set of skills is estimated based on

a type of activity and therefore, it's required.

The working capture requirements are determined from the estimated total cost

and time for the activity.

The total cost for

completing an activity is broken into working capture requirements.

For each unit of time, which may be a day, a week, or

a month, as the case may be, for the duration of the activity.

The working capital requirements when incorporated into the schedule,

that is the start time and date for each activity of the project,

gives that so-called time phased budget for the project.

The time phased budget is used for

monitoring the project while it is in progress.

The monitoring and control of a project uncovered in a subsequent module.

This completes the module on Estimation of Costs, Times and Resources Required.

[MUSIC]

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