Chapter 8 Review

The Art and Science of Accurate Estimating


Project are unique and the more unique they are, the harder to accurately estimate. A new team with members unknown to the PM, new technologies on which the project is dependent, and incorrect timing predictions can all  impact the accuracy of an estimate. However there are some "classic" mistake we should take care to avoid:

• Don't make "ballpark" estimates when you're put on the spot. Instead refocus on the complexity of the estimating process and the desire to provide accurate information. If pressed, write down exactly what is being requested and start listing the questions that need to be answered before an accurate estimate can be produced.
• Don't confuse a bid with an estimate. A bid estimates the schedule and budget of a subcontractor with a tidy profit margin built in.
• Don't pad the estimate. Adding time and money to the estimate solely for the purpose of bringing the project in early and under budget unnecessarily ties up company resources and (if discovered) undermines the PM's reputation.

Estimating also have several "Golden Rules" that apply to all projects. These include:

• Have the right people make the estimates. Have people with experience with the work that is being estimated create the estimate. The people who will actually perform the work should also be involved in estimating it because people who have had a voice in estimating their own work are more motivated to achieve. Make sure the estimator understand the goals and techniques of estimating. PMs working independently never create accurate, useful estimation processes.
• Base the estimate on experience. Past performance data is critical to accurate estimation. Compariing actual performance to estimates is essential to refining the estimating model.
• Negotiate the equilibrium (cost-schedule-quality), not the estimate itself. As the estimate should be derived from the product specifications it is a more defensible stance to negotiate the equilibrium.
• It takes time and money to develop accurate estimates.

Estimates have three levels of accuracy that are used at different decision points in a project.

1. Idea evaluation or "ballpark estimate": can be off by as much as 90%, but are useful for initial sizing; the accuracy relies on the estimator's knowledge; the purpose is to determine whether it would be useful to invest in a more accurate estimate.
2. Project selection or order of magnitude (or "ROM" for Rough Order of Magnitude): has a wide variance but is based on extrapolations from other projects; similar to a ballpark estimate but includes a few hours of effort comparing the proposed project to past projects; acceptance of an ROM estimate may initiate a project (the PM will then be assigned and tasked with defining and planning the project and in so doing creating a more detailed estimate).
3. Detailed estimates (bottom-up estimates): include all schedule and resource information and a forecast of a project budget and cash flow; this estimate will be used to measure the project's success and is based on product specifications.

Phased estimating requires cost and schedule commitments for only one phase of the project at a time. The method recognizes that it is impractical to demand a complete estimate at the beginning of the product life cycle, instead breaking down the project into phases which are considered separately as projects. Phase gate development includes decision points at the conclusion of each subproject to determine whether the project will continue to the next phase given the additional information derived from the concluding phase.

Apportioning (or top-down estimating) assigns a total project estimate then assigns a percentage of that total to each of the phases and tasks of the project. Although this is rarely as accurate as bottom-up estimating, it can be useful in determining what projects to pursue. Making useful estimates in this way relies on:

• Historical projects that are very similar to the current project since the apportioning formula is derived from historical data.
• Accurate overall estimates since the pieces are a percentage of a designated total.

Parametric estimates use a basic unit of work to act as a multiplier to size the entire project. It is always based on historical data and requires the estimator to have a solid parametric formula. Parametric models can be used at either the project or task level; greater accuracy is achieved by first estimating low-level tasks using parametric models then combining these work packages to build a project or phase estimate; the variables in the parametric formula almost always require detailed product specifications.

Bottom-up estimating requires the most effort, but is also the most accurate. Detailed tasks are estimated and then "rolled up" to create a project or phase estimate. The accuracy of the entire model is dependent on the accuracy of the work package estimates. Bottom-up estimating works only to build the detailed phase estimates.

The detailed cost estimate becomes the standard for keeping costs in line, and forecasting cash flow enables the project's funding to be planned and available when needed. It is important to consider the following categories of costs when developing a detailed estimate:

1. Internal labor cost (people employed by the company)
2. Burdened labor rate (average cost of an employee including wages, benefits and overhead)
3. Internal equipment cost (special equipment that is not routinely available)
4. Expendable equipment (with consideration that it could be used on multiple project and may only be partially used up on this project)
5. External labor and equipment costs
6. Materials costs (these are estimated primarily from product specifications)

Chapter 7 Review

Realistic Scheduling


A realistic schedule includes a detailed knowledge of the work to be done, has task sequences in the correct order, accounts for external constraints, can be accomplished on time, and takes into consideration the objectives of the project.

A predecessor table and a network diagram are two ways of recording sequence constraints. Two rules when graphing task relationships with a network diagram: define task relationships only between work packages, and task relationships should reflect only sequence constraints between work packages, not resource constraints.

Milestones have zero duration, but are useful to mark significant events in the life of a project such as major progress points.

• Project start and finish milestones are useful anchors for the network.
• Milestones can be used to mark input from one party to another (aka external dependencies).
• Milestones can represent significant events that are not already represented by a work package or summary task.

The finish-to-start relationship indicates that one task must be completed before its successor can begin. This is the most common type of relationship. Start-to-start relationships allow the successor task to begin when its predecessor begins. Finish-to-finish tasks can start independently of each other.

Bottom-up estimating builds a cost and schedule estimate from the summation of cost and schedule estimates for each work package. Cost estimates come from three sources: labor estimates, equipment estimates, and materials estimates (materials costs should be estimated from product specifications, not bottom up estimates). These three cost sources can be replaced by fixed-cost bids.

Labor and duration are not always related in an intuitive way,  you need to consider productivity. Adding people to simple tasks always reduces the duration. However, for tasks involving knowledge workers, adding more workers does not always result in greater productivity or a shorter duration of the task. Also people who spend all their time on a project tend to be more productive than people who are spread across multiple projects.

Calculating an initial schedule is key to establishing realistic schedules and meeting them. It provides detailed schedule data for every work package including early start (earliest begin date for a task), early finish (earliest finish date), late start (latest date a task can start without delaying the project), late finish (the latest date a task can finish without delaying the project).  Calculating these dates is a three step process:

1. Forward Pass: works through the network diagram from start to finish to determine the early start and early finish for each task.
2. Backward Pass: works through the network diagram from finish to start to determine the late start and late finish dates for every task.
3. Calculate the float: determine which tasks have schedule flexibility and which define the critical path (the task progression that has zero or negative float and must be completed on schedule to keep the project on schedule). 

Gantt charts are the most common way to display a project schedule. The time scaled network can also be used when it is important to condense the network onto less paper. The completed initial schedule has not yet taken into account  people and equipment limitations which must be assigned and leveled. It is most productive to have consistent, continuous use of the fewest resources possible.

Resource leveling begins with the initial schedule and work package resource requirements then follows a four step process:

1. Forecast the resource requirements throughout the project for the initial schedule
2. Identify resource peaks
3. At each peak, delay noncritical tasks within their float
4. Eliminate the remaining peaks by reevaluating the work package estimates

If the resource leveled plan is unrealistic, the PM should restimate work packages and look at delaying tasks within their float to remove the worst resource peaks and valleys. Failing that the next option is to accept a later project completion date.

Chapter 6 Review

Work Breakdown Structure: Break Your Project into Manageable Units of Work


The work breakdown structure (WBS) is a tool for breaking down a project into its component parts, the foundation of project management, and one of the most important techniques of PM. The WBS can take either a graphical or outline form, though the outline is more scalable for large projects.  The WBS helps to:

• Provide a detailed illustration of project scope
• Monitor progress
• Create accurate cost and schedule estimates
• Build project teams

The WBS takes the deliverables listed in the Statement of Work as the high level task which are then broken down into levels of summary tasks culminating in work packages that are assigned time and cost estimates. Work packages should include the Project Management activities under a Project Management summary task, and all work packages should sum to the total cost and time estimate for the full project. Ideally, work packages should be no smaller than 8 hours or longer than 80 hours, or longer than the time between two status points. This will help make the work packages easier to manage. Work packages should also be parsed and named according to activities that produce a product.

The WBS can be the most detailed and time consuming portion of project planning, however, done correctly it can save immense time and money be averting changes to scope later in the project.

Chapter 5 Review

Risk Management: Minimize the Threats to Your Project

All activities of the project manager can be reasonably viewed as risk management. Risk management is the means by which uncertainty is systematically managed to increase the likelihood of meeting project schedule, cost and quality objectives. Two types of risk impact a project: known unknowns (which can be prepared for) and unknown unknowns (which cannot reasonably be predicted). Project risk is the responsibility of the PM, while business risk responsibility lies with the project owner.
To successfully manage risk throughout a project, risk planning must be an ongoing process. As follows:

1. Identify risks through a systematic search for all factors that threaten project objectives
• Engage stakeholders in risk planning through brainstorming sessions and more structured interviews
• Use a risk profile to apply lessons learned from previous, similar projects and document the lessons learned on this project for future similar projects
• Continue to identify risks during detailed planning, scheduling and budgeting
2. Analyze and prioritize these identified risks based on the possible damage and probability of occurrence
• Define the risk with condition and consequence statements
• Prioritize using "expected value = probability x impact" formula
3. Develop response strategies to reduce the possible damage and/or the likelihood of each risk
• For any risk there are several possible response strategies:
• Accept the risk and choose to do nothing about it (low impact or low probability)
• Avoid the risk by chosing not to do that part of the project or doing a lower-risk alternative to meet project objectives
• Develop contingency plans 
• Transfer the risk (subcontract that portion)
• Mitigate the risk
• Record risk management strategies in a risk log
• Make sure someone is responsible for each risk
• Rank by risk severity and probability
• Remove risks that do not materialize
4. Establish reserve funding for these response strategies based on the probability and magnitude of the risk
5. Implement continuous risk management by reanalyzing and reprioritizing (and reevaluating responses) given new and revised information as the project progresses
• Monitor known risks on the risk log
• Check for new risks at regular status meetings (raises risk awareness of the team)
• Repeat major risk identification activities at preplanned milestones within the project
• When new risks are identified, prepare response plans and ensure sufficient reserves exist

Risk management is one of the most important skills in project management draws its power (like many other PM tools) from a systematic and methodical approach to identifying, measuring, prioritizing and responding to potential risks to achieving project goals.