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This article is based on information from “The Project Management Question and Answer Book,” by Michael Newell and Marina Grashina.
As part of your project management responsibilities, estimating the effort and cost on the project is going to be something you’ll have to do from time to time. Sometimes that will all be decided up front by sales and the customer and there won’t be much you can do about it. However, there will be times…hopefully…where you’ll get some solid input to the estimation process – especially on change orders.
In order to run the project you first need to know how long things take, how much they will cost, and what kind of resources will be required. The only way you can get this data is by doing good estimates. Without good estimates you really have no way of knowing where you are at any point in the project, and you have no way of predicting how much the project will cost or how long it is going to take to do it.
A project estimate is the determination of the effort it will take to achieve a desired result. There are two major things that we estimate in a project; one is the cost of the project or the money that will have to be spent to produce it. The second is the time that the project will take to be completed. Whenever we are doing project estimates, we will not only be estimating the cost of doing the work but also the time that it will take to complete it.
No one said project management is easy – and likewise there are many pitfalls in producing a good estimate for a project. The deliverables may not all be identified, key project supports change their minds, project team members may be optimistic or pessimistic, time may be limited, and so forth. If the project is poorly defined, there is not much of a possibility that the cost and schedule estimates are going to come out anywhere near what the actual cost and schedule time for the project will be.
Project management is about realistic expectations. Therefore, overly optimistic schedules can cause problems in estimating as well. Stakeholders or management frequently shorten schedules without adding budget to the project. Generally we can look for increases in cost when schedules are shortened. An inaccurate work breakdown structure causes work tasks to be missed. When the individual estimates for the tasks are added up to make a bottom-up estimate for the project, missed work tasks cause underestimation which can severely affect the budget. Understating risks underestimates our cost and schedule estimates as well. Risks that are not identified and identified risks that have the wrong value for their estimated probability or impact cause management reserves and contingency budgets to be misstated. Cost inflation and failure to include appropriate overheads cause erroneous estimates. It is important to recognize wage and price increases that will occur during the project and adjust estimates accordingly.
Project estimation is a skill that comes from experience. However, even the most inexperienced project manager can produce good estimates. Look to your skilled team resources and management to assist and make estimates with confidence. And don’t be afraid to adjust estimates as your project moves along and you gain more knowledge – your project budget will be healthier for it.