CHAPTER 1 Introduction

Estimating is the art and science of using historical data, personal expertise, institutional memory, and the project scope statement to predict the resource expenditures, total cost, and duration of a project. A typical statement of project objectives will outline the attributes of a new physical deliverable, the details of performance enhancements to a system, or the purpose of a specific service. To estimate the project cost, the project manager must identify the various constituent physical elements and related activities necessary to meet the project objectives. Next, the project manager develops the estimate by summing the estimate of resources for these elements. Then, by extension, the project manager computes the elemental and project costs.

When the project is conceived, the estimate is extremely inaccurate because very little information is available about the expected deliverables, the project team, and the project environment. But, as the project evolves and more information becomes available, the estimate can be fine-tuned to a higher level of precision. Details of the objective, scope, quality, and desired delivery date are necessary for a comprehensive and accurate estimate. As these details become available, they in turn trigger enhancements in the work breakdown structure (WBS), the estimate, the schedule, and other planning documents. Further, the evolving planning documents could also include increasing details about the procedures that will be used in implementing the project.

The initial cost estimates of the elements and the project form the baseline budget for measuring the cost performance of the project during the implementation phase. This cost estimate, and therefore the budget, are initially very rough and inaccurate. When establishing the project budget on the basis of the project estimate, it is necessary to note whether the estimate was developed using a rough conceptual estimate technique or a detailed bottom-up estimate. If the budget was established during the early stages of project planning, the budget development process should allow some modification flexibility, primarily because early estimates are inaccurate.

Likewise, during the implementation phase, the project estimate serves as the base of reference for developing quantitative indicators of the project cost performance. Accordingly, depending on the accuracy and limitations of the estimate, appropriate contingencies, reserves, and flexibilities should also be incorporated into the budget. It is important to remember the degree of accuracy of the baseline estimate when making commitments, comparisons, and judgments during the budget development and project progress monitoring phases. In progressive organizations, the amount of budgeted funds for the project will go through several modifications as the details develop.

The credibility, accuracy, and completeness of the estimate are enhanced by the estimator’s skills in the areas of business, finance, engineering, technology, information systems, manufacturing, assembly, marketing, management, production planning, and all facets of project management activities. Since it is somewhat unrealistic to expect one person to have expertise in all these areas, organizations sometimes form estimating committees or estimating boards. The board members contribute their expertise from all technical disciplines impacted by the project such as business development, purchasing, contracting, financial management, and of course, project management.

The project’s cost estimate is derived by summing the resource expenditures and, consequently, the cost of the project’s individual component parts of the WBS. Likewise, with the hopeful expectation that estimating and scheduling processes use the same WBS, the estimate of the duration of the project’s component WBS elements is used in the development of the schedule network, which in turn formulates a time management structure. Therefore, there is an interdependent relationship between the project’s cost and the schedule. This interdependence must be taken into account during project implementation, when the changes in scope and specifications cause changes in the project’s cost and/or schedule. Furthermore, this relationship between cost and schedule must be continually reviewed as the project matures, detailed project plans are formulated, more definitive baselines are established, and finally, the inevitable tradeoffs are made during the implementation phase.