Tag: project manager

How to Estimate Project Cost?

If you are a project manager, you would be more competent in the planning and managing aspects of a project. However, it is equally important that you are able to estimate costs so as to successfully close projects within a specified budget. The stakeholders and investors in your project have certain expectations of making profits. A project manager’s task would be to determine ways to get the maximum returns on investments. If you estimate project costs accurately, you will be in a better position to manage within the budget.

The following are the main benefits of estimating project cost:

  • It helps to gauge the feasibility of the project while comparing the anticipated benefits versus the anticipated costs.
  • It helps to analyze whether sufficient funds are available to run the project.
  • It serves as a benchmark to ensure that financial resources are utilized in the best possible manner.

Must Read: How to Give Time Estimation in a Project?

Project Budget will include direct costs as well as indirect costs. Direct costs can take the form of salaries of team members, travel expenses, machinery and equipments for the project, raw materials and sub-contracts supporting the project. Indirect costs involve employee benefits, rent, furniture and fixtures and administrative costs.

The 4 major techniques of project cost estimation are mentioned below:-

Analogous Estimation:-

This method is used to estimate project costs when you have very little detail about the project. Therefore, this technique may not give a reliable and accurate estimate. It is also called as Top-Down Estimation. In the Analogous Estimation, the project cost is estimated by comparing it with similar projects previously completed within the organization. You will have to select a project which is the most similar to your project and use sound judgment to determine the cost estimate of your current project. This technique is the least time-consuming and does not cost much to arrive at an estimate.

Parametric Estimation:-

The only difference between Analogous Estimation and Parametric Estimation is that Parametric Estimation uses historical, statistical data to calculate cost estimates. This method involves taking different variables from similar projects in the past and applying them to your current project. Note that the measurement should be scalable in order to be accurate. For example, if in a previous construction project, the cost of concrete per cubic meter was $100, then to calculate the cost of concrete for the current project you need to multiply it with the total construction area in cubic meters. In the same way, requirements of man-power and materials can be calculated and thereby the inherent costs.

Three-Point Estimation:-

This technique aims at reducing the biases and uncertainties involved while making estimating assumptions. So, instead of having just one estimate, three estimates are determined and then aggregated to arrive at the Three-Point Estimation.

The three different estimates are determined as follows:

  1. Most Likely Cost (Cm):Considers a normal scenario where everything goes as per the plan.
  2. Pessimistic Cost (Cp):Considers the worst scenario and assumes that everything goes wrong.
  3. Optimistic Cost (Co):Considers the best scenario and assumes that everything goes better than what was planned.

The PERT Estimate Formula is: Ce = (C+ 4C+ Cp)/6 where Ce = Estimated Cost

Cost estimates derived using this formula are more accurate than the previous two techniques since the biases, uncertainties and risks are done away with.

Bottom-Up Estimation:-

This technique is the most accurate, costly and time-consuming method of cost estimation. Here, the cost of every single activity is estimated and then added up to arrive at the total project cost. For this purpose, the project manager has to first list out all the activities, tasks and other requirements in great detail before beginning the cost estimation. However, this technique can be used only when every detail about the project is available.

Conclusion:

We have seen the various ways in which cost can be estimated. But, a project manager has to use his sound judgement to determine the most suitable technique depending on the availability of historical and statistical data as well as the time to calculate the most accurate cost estimate.

Related Topics:

How to give Time Estimation in a Project?

How to give Time Estimation in a Project?

How to give Time Estimation in a Project?

Accurate Time Estimation is a very important aspect of Project Management. For a project to be called a success, it has to be completed on time and within the budget. Therefore, it is imperative that the project manager is able to estimate time accurately so as to know how long a project will take to complete. This will help enhance project planning, ensure timely delivery of milestones and to determine the pricing of contracts.

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Many times, the amount of time required to complete a project is underestimated; especially when the project manager is not acquainted with the work required to be done. He may miss out taking into account unforeseen events or urgent high-priority tasks. In order to be able to accurately estimate project timelines, you can follow the below steps.

Understand the project requirements:-

Begin with understanding the project requirements by engaging the key stakeholders. The goal of the project can be- to develop a new product or software, create new service model of an organization, upgrading existing systems, etc. Thoroughly knowing the project requirements will help to identify the amount of work that needs to be done on the project.

Decide the order of all tasks/deliverables:-

Now list all the activities that have to be completed in great detail. Note them down in a chronological order. It is not necessary that you mention the timeline for each task. However, it would be prudent to make a note of important deadlines.

Decide who you need to involve:-

It is important that a project manager seeks the active participation of the key stakeholders who are commissioning the project. Also, you may take the help of subject-matter experts and people who have done such tasks earlier. This will ensure that they contribute in estimating timelines due to their prior experience.

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Estimate time required:-

When you begin to estimate the time, do not do it for the project as a whole. Instead, set a timeline for completion of each task on your list of deliverables. There are certain factors which may cause delays in completing tasks. Ensure that you allow enough time for the following:-

  • General project management administration and meetings.
  • Liaison with suppliers and contractors for resources, including delays in deliveries by suppliers.
  • Accidents and Emergencies.
  • Breakdowns in equipment.
  • Holidays or illness of key project members.
  • Quality control rejections.
  • Other high-priority tasks depending on urgency.

Various Methods for Estimating Time:

Bottom-Up Estimation:-

Bottom-up estimation involves estimating time for the project as a whole. In this approach, larger tasks are broken down into smaller, detailed tasks and then the time needed to complete each task is estimated. To get an idea about how long you will take to complete the project, you may add up the estimated time needed for each task.

Top-Down Estimation:-

In this approach, you develop an overview of the estimated time by using previous project experience as a guide. You may compare the bottom-up estimates and top-down estimates to have a better understanding of the required time. There could be a huge difference between the two estimates; however, you can use both to arrive at more accurate time estimation.

Comparative Estimation:-

In this approach, you compare your project with other similar projects to estimate time to be taken for completing the project.

Parametric Estimation:-

In this approach, you estimate the time required to complete one task and multiply it with the number of similar tasks or deliverables. This method is useful when all the tasks listed are of the same type/ repetitive work.

Three-Point Estimation:-

In this approach, you develop three different time estimates- one for the best case, second for the worst case and the third for the most likely case. This method equips you to set more reasonable time estimates based on a more realistic estimate of outcomes.

Conclusion:

As an efficient project manager, you should be able to estimate deadlines accurately. Failing which, you may lose a lot of credibility and money. If you under-estimate time requirements, you will continuously miss various deadlines causing delays at every stage of the project. Moreover, you would end up putting the project team under unnecessary stress.

Related Articles: 

  1. Project Risk Management: The Four Stages of Project Risk Removal
  2. Leadership Techniques for Project Managers
  3. Seven Early Signs of Project Failure
  4. Complete Collection of Project Management Statistics 2016

How to Define Project Scope?

In project management, the first step of project initiation is to define the scope of the project. Defining project scope is a part of project planning which involves the determination and documentation of various project goals such as tasks, deliverables, functions and features. The project scope needs to be well-defined and detailed in nature. Also, it should be approved by all stakeholders. Project Scope is crucial to project management since it can greatly impact the schedule or cost (or both) of a project. Only after defining project scope, the project manager will be able to allocate tasks and direct his team to complete the project successfully.

Must Read: 7 Quick Tips Regarding Project Management App

Mentioned below are the steps for defining project scope:-

1. Define the project objectives:-

The objective or goal of a project could be anything- creating a new product, creating a new service model for an organization, developing new software, etc. But it is the responsibility of the project manager to adequately define the project objectives so that his team delivers something that matches the client’s requirements. Identifying project objectives is critical to define the project scope since they help the project manager to decide what project methodologies have to be applied to the project to make it a success.

2. Define the process requirements:-

It is essential that the project manager understands the process requirements as it helps in defining the project scope. The stakeholders, senior management and project team members need to have a common understanding about what has to be included in or excluded from, a project. This will make it clear to all parties concerned as to what product or service will be delivered.

3. Involve the correct stakeholders:-

For a project to become a success, the stakeholders who are commissioning the project have to be closely involved at various stages of the project. If the stakeholders do not actively participate in every aspect of the project, then the project manager will have to lead making assumptions. This can add to confusion and even lead to scope creeps.

Also Read: 5 Tips to Succeed in Project Management

4. Identify the limitations:-

Rather than focusing on what is out-of-scope for a project, it is essential to document what exactly will be delivered as an outcome. However, it is also important to make known what will not be done; otherwise certain tasks will be executed on assumptions and cause time and cost overrun.

5. Change Management:-

It is natural for parts of any large project to change along the way. Though it is advisable to avoid scope creep, there are times when a particular part of a large project may require change due to the dynamic nature of business. In order to avoid disagreements and changes to a project’s scope by all stakeholders, it is advisable to have a strict change management process in place. Once the project scope has been defined, it should not be changed without the proper change management functions taking place, at which point appropriate action can be made to address the moving project necessities.

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Conclusion:-

For a project manager, defining the project scope will give a sense of purpose when executing the project. Understanding the project scope helps in dealing with challenges and risks. Moreover, the project scope acts as a foundation on which the schedule, budget and resources of the project are planned. A well-defined scope is the secret to keep the project under control and avoid scope creeps which will lead to successful closure of the project.

Complete Collection of Project Management Statistics 2016

Of late, the project management landscape has become dynamic. There is increased emphasis on efficiency, productivity and reporting as well as added stress on the IT industry. Due to the changing dynamics of the industry, being a project manager today is much different than being a project manager back in 2005. A lot of research has been done to analyze how often projects fail, the cost companies bear due to losses, etc.

The project management statistics below can help us understand how the role of a project manager has changed over the years and how project management has performed across various industries in the last 5 years.

  1. One out of six IT projects has an average cost overrun of 200% and a schedule overrun of 70%. Around 45% of companies admit that they are unclear about the business objectives of their IT projects. (Harvard Business Review)
  2. As per an IBM study, about 40% projects meet budget, schedule and quality goals. (Harvard Business Review)
  3. Only around one-third of all projects were successfully closed as per the time and budget set, during the past one year. (Standish Group)
  4. About 75% of IT Executives expect their software projects to fail. (Geneca)
  5. The US economy loses $50-$150 billion because of failed IT projects every year. (Gallup Business Review)
  6. The median salary of project managers is $87,500 in the United States. (Glassdoor)
  7. 50% of all Project Management Offices shut down within three years. (KeyedIN)
  8. Only 56% of project managers hold professional certification and about two-thirds of CIO’s consider PMI certification as a valuable benefit, but not a necessity. (Wrike)
  9. High performing organizations are able to successfully close 89% of their projects whereas low performing organizations complete only 36%. (Project Management Institute)
  10. 80% of “high-performing” projects are led by a certified project manager. (Price Waterhouse Coopers)
  11. About 49% organizations have incorporated a project management training program. (PM Solutions)
  12. 44% project managers do not use project management software, even though PWC concluded that using PM software increases performance. (Price Waterhouse Coopers)
  13. A whopping 97% of companies believe project management is imperative for business performance and organizational success. (Price Waterhouse Coopers)
  14. 60% companies do not measure ROI on their projects. (KPMG New Zealand: Project Management Survey 2010)
  15. Around 33% projects meet failure due to lack of involvement from senior management. (University of Ottawa)
  16. Project managers consider reliability, ease of use and ease of integration as the top three parameters while selecting PM software. (The Access Group)
  17. 66% project managers identified level of software support as the key decider while investing in new software. (The Access Group)
  18. Two-thirds of companies use project management software to communicate with their clients. (Capterra)
  19. It is estimated that the healthcare industry will increase project management roles by 30% between 2010 and 2020. This is a higher growth rate when compared to the other project-intensive industries. (Project Management Institute)

It is projected that more than 40 million new project manager roles will be created across the globe by year 2020. This will have an economic impact of more than $20 trillion on the seven project-intensive industries such as Finance & Insurance, Manufacturing, IT services, Utilities, Healthcare, Oil & Gas and Construction. (Project Management Institute Research Report)

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