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Improving Cost Estimates

There are several ways to improve the accuracy of cost estimates for projects. These include using simple forms to collect detailed estimates for tasks, accounting for learning curves as experience is gained on repetitive tasks, and tracking estimates to identify systematic biases. It is also important to consider factors like changing resource prices, personnel costs, and unexpected contingencies when generating cost estimates to improve their reliability.

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Humaira Mirza
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175 views

Improving Cost Estimates

There are several ways to improve the accuracy of cost estimates for projects. These include using simple forms to collect detailed estimates for tasks, accounting for learning curves as experience is gained on repetitive tasks, and tracking estimates to identify systematic biases. It is also important to consider factors like changing resource prices, personnel costs, and unexpected contingencies when generating cost estimates to improve their reliability.

Uploaded by

Humaira Mirza
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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IMPROVING COST ESTIMATES

There are a lot of ways to improve the process of cost estimating and an easy
way of measuring its accuracy
Can also be applied to almost all of the areas in project management that call
for estimating or forecasting any aspect of a project that is measured
numerically (e.g task durations, the time from which specialized personnel
will be required or the losses associated with specific types of risks should
they occur).

Forms

Use simple forms such as that in Figure 1


This form may help the PM in obtaining accurate estimates of
direct cost
when resource are needed
how many are needed
who should be in contacted
will it be available when needed.
The information can be collected for each task on an individual form
and then aggregated for the project as a whole.

Learning curves
The reason for error is the learning exhibited by humans when they
repeat a task. It should not be neglected even in one-time project.
The use of learning are:
to approximate composite learning curves for the entire projects
to approximate total costs from the unit learning curve
to include learning curve effects in critical resource diagramming
It has been found that unit performance improves by a fixed percent
each time the total production quantity doubles.
In short, each time the output doubles, the worker hours per unit
decrease by a fixed percentage of their previous value.
The percentage is called learning rate (generally 70 95%)
The higher values are for more mechanical tasks, while the lower,
faster-learning values are for more mental tasks such as solving
problems.
Mathematically, this relationship is represented by
Tn = T1nr
Where Tn is the time required to complete the nth unit, T 1 is the time
required to complete the first unit and r is the exponent of the learning
curve and is calculated as the log(learning rate)/log(2).

Can also be incorporated into spreadsheets developed to help prepare


the budget for a project.

Figure 1: Form for gathering data on project resource needs.


Tracking signals
Tracking signal helps to reveal if there is systematic bias in cost and
other estimates and whether the bias is positive or negative.
It is helpful to PM in making future estimates or on the critically
important task of judging the quality if estimates made by others.
It is important to recognize that most overestimates or resource
requirements are the result of an attempt by the subordinate to make
safe estimates, and underestimates result from overoptimism.
PM should avoid sharp criticism if the subordinates are overcorrect.
Other factors
Studies show that between 60 and 85% of projects fail to meet their
time, cost and/or performance objectives.
Those significant factors that contribute to the failure include:
Poor record for information system (IS) projects
Changes in resource prices
No estimated costs and adequate allowance for waste and spoilage
No allowance for increased personnel costs due to loss and
replacement of skilled project team members.
The Brookss mythical man-month effect (major impact on
managers, particularly in IS area)
Gives a more optimistic picture than reality warrants.
Organizational climate factors
Probabilistic element
No allowances for unexpected contingencies.
Serious source of inaccurate estimate of time and cost
Managerial approach to these problems are:
To increase all cost estimates by some fixed percentage
To identify each input that has a significant impact on the costs

To estimate the rate of price change for each input


Taking into consideration of known influences that can be predicted,
and those that cannot be predicted must then be allowed for.
Cost and time estimates should be made by the people who
designed the work and are responsible for doing it.

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