Chapter 05 Estimating Project Times and Costs

The process of forecasting or approximating the time and cost of completing project deliverables is called

Estimating.

In practice, estimating processes are frequently classified as

Top down/bottom up.

What is the relationship between organizational culture and estimating?

Cultural norms affect the accuracy of estimates.

A good starting point for developing time and cost estimates is

Past experience.

Which of the following is NOT one of the factors that need to be considered to improve the quality of estimates for project times and costs?

Profit

Ed is looking over the actual results of projects and comparing them to what was estimated. He notices that the projects that took six months or longer to complete were noticeably more off the estimates. Which of the following factors is he recognizing?

Project duration

Janet is forecasting how much money her department needs to support a new project. She estimates that two people and $25,000 in expenses will cover her needs. Because management typically insists on reducing forecasts by 20 percent, she increases her estimates to allow for that reduction. Which of the following factors is illustrated in this situation?

Padding estimates

Which of the following is a good condition for top-down estimating?

Internal, small project

Which of the following is a good condition for bottom-up estimating?

When there is a fixed price contract

Richard is collecting estimates for a house that he will have the funding to build in 12 months. Which of the following factors does Richard need to consider in regard to the quality of these estimates?

Planning horizon

Which of the following does NOT help describe a bottom-up estimating approach?

They are made by someone who uses experience and/or information from someone else to determine overall project cost and duration.

Which of the following methods is NOT considered a top-down approach to estimating project time and cost?

Template

Jose is forecasting project time and cost for constructing a new building by multiplying the total square footage by a given dollar amount. Which of the following methods is he using?

Ratio

Sean is forecasting the time and cost of developing a customized software program by looking at the number of inputs, outputs, inquiries, files, and interfaces. Which of the following methods is he using?

Function point

Laura is forecasting the time and cost of developing an intranet for a new customer. Her department has completed six such intranets for customers during the last two years. Although the proposed system is about the same size as the others, she estimates that it will take about 10 percent less time and money. Which of the following methods is she using?

Learning curve

Learning curves are more likely to be applied in situations where most of the costs are

Labor

Which of the following describes the consensus method?

Uses pooled experience of senior and/or middle managers to estimate the total project duration and cost

Which of the following is NOT one of the bottom-up approaches to estimating project time and cost?

Learning curve

Which of the following would be the best method for projects where the final product is not known and the uncertainty is very large?

Phase estimating

Rob is responsible for estimating a work package that has a significant amount of uncertainty associated with the time and cost to complete. Due to the uncertainty involved he will be making a low, an average and a high estimate. Rob is using which estimating approach?

Range estimating

Which of the following is NOT true in regard to the level of detail estimates should contain?

Detailed estimates are crucial to project success; therefore, an effort should be made to make estimates as detailed as possible for all projects.

The salary of the project manager would be an example of what type of cost found in a project?

Direct project overhead

Typical kinds of costs found in a project include all of the following EXCEPT

All of these choices are examples of costs found in a project.

Accounting would be an example of which of the following costs typically found in a project?

General and administrative overhead

Which of the following would best represent direct project costs?

Labor, materials and equipment

Which of the following is NOT one of the recommended guidelines for developing useful work package estimates?

Estimates should include a normal level of contingency.

Companies are using which of the following for improving the estimating process for future projects?

Creating historical databases of previous projects

Reasons why estimating time and cost are important include all of the following EXCEPT

To help establish a project selection process.

The bottom-up approach for estimating times and costs that uses costs from past projects that were similar to the current project is known as

Template method.

Which of the following top-down methods is used when projects closely follow past projects in regard to features and costs of those features, and result in costs being assigned by percentages to major segments of the project?

Apportion

Refining estimates may be necessary for a number of reasons. For example, resource shortages, in the form of people, equipment, or materials, can extend original estimates. This is a good example of

Normal conditions not applying.

Refining estimates may be necessary for a number of reasons. For example, people working on prototype development needing time to interact with the design engineers after the design is completed is a good example of

Hidden interaction costs.

Refining Estimates may be necessary for a number of reasons. For example, a manager getting further into a project and obtaining a better understanding of what needs to be done to accomplish a project and meet the needs of the customer is an example of

Changes in project scope.

Refining estimates may be necessary for a number of reasons. For example, design flaws being revealed after the fact, extreme weather conditions, and accidents occurring are good examples of

Things going wrong on a project.

Large projects that have long time horizons and a very high complexity can be referred to as

Both Mega Projects and White Elephants.

While it may be true that Mega Projects are by nature extremely difficult to estimate, another factor identified in the consistent pattern of estimating difficulties is:

Deception.

An external view of a Mega Project based upon the outcome of similar projects undertaken in the past is known as:

Reference Class Forecasting.

Benefits of Reference Class Forecasting include

All of these choices.

The pattern of improvement identified from a worker having performed a task multiple time is known as a

Learning Curve.

Estimating can be challenged by

All of these choices.

When work package estimates are made by individuals most knowledgeable about the work being performed and these estimates are then "rolled up" to find estimated costs for major deliverables and the project itself, ____________ estimating is being used.

bottom-up

When someone uses experience and/or information from others to determine the project duration and total cost, ____________ estimating is being used.

top-down

The estimating factor that considers the decreasing accuracy of estimates as one forecasts activities that are further into the future is known as ____________.

planning horizon

The estimating factor that considers the skill level of participants doing the estimating is known as the ___________ factor.

people

The estimating factor that considers the tendency to overestimate project time and cost in order to improve the likelihood of meeting the estimates is known as the ___________ factor.

padding estimates

The estimating factor that considers the prevailing belief in some firms that detailed estimating takes too much time and is not worth the effort is an example of the ___________ factor.

organizational culture

The preferred method for situations involving strategic decision making, projects with a high degree of uncertainty, and projects with an unstable scope is the ___________ approach to estimating project time

and costs.

top-down

The preferred method for situations where the cost and time estimates are important, in a fixed contract situation, and when the customer wants a lot of detail is the ___________ approach to estimating project time and costs.

bottom-up

The information necessary to conduct a bottom-up estimate of project time and costs starts with the ___________.

work-package

Jose is forecasting project time and cost for constructing a new building by multiplying the total square footage by a given dollar amount. He is using the ___________ method of top-down estimating.

ratio

Rose is working on estimates for a project that is very similar to a previous project, in that it has many of the same features and those features have similar costs. Each feature or deliverable will represent the same percentage of the total cost as it did for the previous project. Rose is using the _________ method of top-down estimating.

apportion

The top-down method for estimating project time and cost that uses weighted variables based on major parameters and is frequently used in the development of software is known as the ____________ method.

function point

The top-down method of estimating project time and costs that is useful for projects requiring the same task, group of tasks, or product repeated several times, especially if it is labor intensive, is the ______________.

learning curve

The bottom-up method of estimating where work package time and costs for past projects are used as a starting point for a new project and adjustments are made based on differences in the new project is known as the ___________ method.

template

The top-down method of estimating when the pooled experience of senior and/or middle managers are used to estimate the total project duration and cost is the _________ method.

consensus

The approach to estimating project time and cost that begins with an overall estimate for the project and then refines estimates for various stages of the project as it is implemented is known as ____________.

phase estimating

The estimating approach that is best to use on projects where there is an unusual amount of uncertainty surrounding the project and when it is impractical to estimate times and costs for the entire project is known as ___________.

phase estimating

A way to improve estimates on future projects is to collect and archive data on past project estimates and actuals. Creating a ___________ for estimating is a way to achieve this goal.

database

Project costs such as labor and materials are typically classified as ___________ costs.

direct

The salary of the project manager and temporary rental space for the project team would be classified as __________ costs.

direct overhead

Estimates should be made based on ___________ conditions, efficient methods, and a normal level of resources.

normal

Costs that are associated with time devoted to the coordination in meetings and briefings as well as time necessary to resolve disconnects between tasks are known as ____________ costs.

interaction

Costs that are not directly related to a specific project, such as advertising, accounting, and senior management's salary, are classified as _____________ costs.

general and administrative overhead

A(n) __________ is something that is a valuable but burdensome possession.

white elephant

The best way to __________________ is to collect and archive data on past projects.

improve estimates

Project estimates should be broken down into as much detail, and with as much accuracy, as possible.

FALSE

Cost, time, and budget estimates are the lifeline for control; they serve as the standard for comparison of the actual and the planned throughout the life of the project.

TRUE

Past experience is almost always used primarily in the initial phases of estimating.

TRUE

After averaging out the underestimates and overestimates, a long-duration project is more likely to be on target than a short-term, small project.

FALSE

The process of forecasting or approximating the time and cost of completing project deliverables is called planning.

FALSE

The project management structure chosen to manage the project will have little impact on the quality of estimates

FALSE

As long as everyone in a project adds a little padding to reduce risk, the project duration and cost estimates will be more accurate.

FALSE

Organization culture can significantly influence project time and cost estimates.

TRUE

If a project is internal to the company and relatively small, the bottom-up approach to estimating time and costs for the project is the best choice.

FALSE

If time and costs are important to a project the top-down approach to estimating time and costs for the project is the best choice.

FALSE

The ideal approach to estimating project time and costs is to use both the top-down and the bottom-up approach.

TRUE

Estimates that are typically based on estimates of elements found in the work breakdown structure are called bottom-up estimates.

TRUE

Top-down estimates usually are derived from someone who uses experience and/or information to determine the project duration and total cost.

TRUE

Estimating the total cost of a house by multiplying the total square feet by cost per square foot is an example of the apportion method of estimating costs.

FALSE

Estimating the total cost of a project by multiplying each major function by a complexity factor is an example of the apportion method of estimating costs.

FALSE

Phase estimating is used when a project cannot be rigorously defined because of the uncertainty of design or the final product.

TRUE

All task time estimates need consistent time units.

TRUE

One guideline to follow when estimating time, cost and resources is to use several people to make the estimate for a task.

TRUE

The consensus method of estimating costs is a bottom-up technique.

FALSE

The salary of the project manager and her administrative assistant is classified as direct labor costs.

FALSE

General and administrative costs are usually allocated as a percent of the total of a direct cost, which includes labor, materials, or equipment.

TRUE

Work package estimates should include allowances for contingencies.

FALSE

Estimates are supposed to be based on normal conditions. While this is a good starting point, it rarely holds true in real life.

TRUE

Mega Projects often under deliver on expected benefits and cost more than expected.

TRUE

Repetition of a task generally results in a reduction of labor hours each successive time a worker performs that task.

TRUE

Identify and briefly describe the two major classifications of estimating project time and costs.

(1) Top-down estimates are made for the project as a whole and typically made by top management; (2) Bottom-up estimates are made at the work package level and by those responsible for completing the work packages.

List and briefly describe four reasons why estimating time and cost are important to project management.

Estimating time and cost are important to project management because they are needed to support good decisions, to schedule work, to determine how long the project should take and its cost, to determine whether the project is worth doing, to develop cash flow needs, to determine how well the project is progressing and to develop a time-phased budget.

Identify and briefly describe three out of the six factors that should be considered to improve the quality of estimates for project times and costs.

(1) Planning horizon; (2) Project duration; (3) People; (4) Project structure and organization; (5) Padding estimates; (6) Organization culture.

Under what conditions would the top-down approach to estimating project times and costs be the best choice?

In the early stages of a project to help develop the initial plan, in making strategic decisions, in projects of high uncertainty, in small internal projects, or in projects with an unstable scope.

Under what conditions would the bottom-up approach to estimating project times and costs be the best choice?

When low-cost, efficient estimates are needed, when time and cost are important, when working on a fixed price contract, or when the customer wants details.

Describe the ideal approach for a project manager to develop optimal estimates for a project's time and costs.

The ideal approach is to allow enough time for both the top-down and bottom-up estimates to be worked out and included in the final plan.

Estimates should be based on normal conditions, efficient methods, and a normal level of resources. Explain.

Normal conditions are sometimes difficult to discern, but it is necessary to have a consensus in the organization as to what normal conditions mean in this project. This establishes a certain level of accuracy.

Describe phase estimating. When should it be used and how is it different from all other top-down and bottom-up methods of estimating?

This approach starts with a top-down estimate and then estimates are refined after each phase of the project. Some projects cannot be clearly defined because of their uncertainty. Phase estimating uses a two-estimate system over the life of the project. A detailed estimate is developed for the immediate phase and a macro estimate is made for the remaining phases of the project.

Identify the drawbacks to an excessive LO 5-3 Describe the methods, uses, and advantages and disadvantages of top-down and bottom-up estimating methods. in estimating project times and costs.

If the estimate reflects excessive detail, there is a tendency to break the work effort into department assignments. This tendency can become a barrier to success, since the emphasis will be on departmental outcomes rather than on deliverable outcomes. Excessive detail also means more unproductive paperwork.

Identify the three major categories of project costs and give an example of each.

(1) Direct costs (labor, materials, equipment, other); (2) Project overhead costs (salaries of project managers, rent on space to house the project, etc.); (3) General and administrative overhead costs (advertising, accounting, and senior management of the organization).