Budget Estimating Techniques

Bottom-up estimating, including activity cost estimating. Bottom-up estimating is done at the lowest level of the WBS and costs are aggregated upwards.

Three Point Estimating - Instead of using one estimate for each activity, three estimates are provided. The concept of using three estimates is to allow for uncertainty and risk associated with the activities in a project.
  • Most likely: this is the estimate that represents the most likely resources will be assigned that can complete the work in a realistic time frame.
  • Optimistic: this is the estimate that represents the fastest that the activity can be completed assuming no unexpected interference, risk or uncertainty.
  • Pessimistic: this is the estimate that represents the worst case scenario where risk and uncertainty create delays in activity completion.

Advantage 

-it encourages participative management and creates a more accurate estimate because of the detail level of the estimate. 

Disadvantage 

-it consumes a good amount of time and effort on the part of those contributing to the estimates.


Top-down estimating, including parametric, analogous, group decision making, and software estimating. Top-down estimating determines costs at the project level or deliverable level and allocates costs downward to the detailed activities. 
  • Parametric estimating is "an estimating technique in which an algorithm is used to calculate cost or duration based on historical data and project parameters." Parametric estimating can be used when there is a known cost per unit based on historical data. 
  • Analogous estimating is a "technique for estimating the duration or cost of an activity or a project using historical data from a similar activity or project." Analogous estimating is a technique that can be used by reviewing past similar projects. It can only be used if there is ample historical information available of the actual costs of similar projects. 
  • Group decision making-  a panel of experts are used to create estimates via iterative facilitated consensus-building sessions. This process will produce a cost estimate for the project based on the consensus view of the expert opinions from those with knowledge and experience in similar type projects. 
  • Software estimating is a technique that uses a software package or program that is driven by project historical information, statistical analysis and/or simulations. The software determines the estimate for a project based on set characteristics or criteria and estimates are analyzed by providing a probability of success for each estimate.
Advantage
-can be done fairly quickly with basic information about the project.
-can be done to provide guidance in the project selection process or in the development of the Project Charter to establish initial budgeting expectations and requirements for the project.

Disadvantage
- is that they tend to be less accurate than bottom-up techniques.

Projects have defined set of activities

Objectives: The goals expected to be achieved. There can be technical goals (develop new technology), legal or political goals (to meet governmental regulations), and/or business goals (beating or eliminating competition). These objectives should be measurable.

Scope: All the work required to deliver the product or result and satisfy the objectives for which a project was undertaken at a level of quality expected by the customer. The scope includes all the deliverables required to meet the project objectives.

Cost: The planned cost of conducting the project; it includes human and physical resources.

Time/Schedule: The planned time to complete the project, as well as the Milestones along the way

How a Project Selection Process works?

Typically, organizations use a combination of both financial and non-financial criteria to determine the best projects to select. A typical project selection process would likely include the following steps:
  1. Business plan identifies project opportunities aligned to the organization's strategy OR an employee has an idea for a project and reviews it with their management team for concurrence to proceed and get allocated funding.
  2. Management submits project information on a standardized form. This form typically includes basic level business criteria such as the project goals and deliverables, project purpose, the business reason or business problem addressed by the project, and general information about the project cash outflow, inflow, and market potential.
  3. Project Portfolio team reviews the project suggestions and pre-selects projects based on a set of criteria that best matches the strategic plans of the organization.
  4. Projects undergo additional feasibility studies to confirm viability and confirm the financial and non-financial benefits. This typically includes a review of the project resource requirements.
  5. A final set of projects is prioritized and selected with Project Managers assigned to begin Project Initiation.
Once the finalized projects are selected, they are incorporated into the organization's Project Portfolio which typically undergoes regular reviews by management to ensure that the portfolio as a whole contains the projects necessary for the overall success of the organization.

Group Creativity and Group Decision Making Techniques

Group Creativity Techniques
  •  Brainstorming
  • Nominal Group Techniques
  • Idea/ Mind Mapping
  • Affinity Diagram
  • Multi Criteria Decision Analysis

Group Decision Making Techniques
  • Unanimity - Delphi Techniques
  • Majority
  • Plurality
  • Dictatorship
  • Brainstorming

A typical Project Charter vs Project Scope Statement


Project Charter consists of:
  • Project purpose
  • Measurable project objectives and related success criteria
  • High-level requirements
  • High-level project description, boundaries and key deliverables
  • Overall project risk
  • Summary milestone schedule
  • Preapproved financial resources
  • Key stakeholder list
  • Project approval requirements (what constitutes success, who decides the project is successful, who signs off on the project)
  • Project exit criteria (what are the conditions to be met in order to close or to cancel the project or phase)
  • Assigned project manager, responsibility, and authority level
  • Name and authority of the Sponsor or other person(s) authorizing the Project Charter
Project Scope Statement consists of:
  • Project scope description (progressively elaborated)
  • Project deliverables
  • Acceptance criteria
  • Project exclusions