Project managers must know how to estimate project cost and duration. The first questions a sponsor or boss always asks about a project are:
- How long will it take?
- How much it will cost?
- When will you finish?
They might ask that after just 5 minutes of discussion about a new project. Whenever you hear those questions, you need to keep your mouth shut while you formulate a carefully worded answer. Those executives not only want the data on cost and duration but they will regard your answer as a commitment. They will carve any numbers you mention in stone. They will take them as a rock solid commitment about when you’ll finish the project and how much you will spend to deliver the results.
You need to become adept at using project estimating techniques and even more adept at presenting your estimates. You also need to learn the first lesson of estimating which is to keep your mouth shut. The reason that estimates are so tricky is that every estimate has risk and uncertainty until all the work is complete. Because of that uncertainty, you need to present estimates in ways that communicate that the estimate is not a commitment to finish the project in precisely 171 days. Instead of saying 171 days, you say you estimate the project will take between 150 and 195 days. Executives will always take the lower number in that range. That’s why you should always present estimates in writing. That way the higher number, 195 days, is also on the document, just in case the executives and project sponsor forget.
When Do You Estimate Project Cost and Duration?
Another issue is that you do estimates of cost and duration at different points in the project lifecycle. You make the first estimates during project initiation. These first estimates, done before the scope and deliverables are clearly defined, are obviously the riskiest ones to make. It is a difficult situation because the executive wants precise numbers to rely on and you want to hedge the estimate as much as possible. The best practice is to state duration and cost estimates in ranges which, during initiation, are usually + or – 50%. As an example, during initiation you might give an order of magnitude estimate of a duration between 100 and 150 days and a cost of between $15,000 and $20,000.
Needless to say, the wide ranges of those estimates do not satisfy executives. However, initiation is the time of greatest uncertainty about the project and only a foolish project manager would commit to a precise date or budget.
You continue to estimate project cost and duration at several points; during project planning, and every week while the project team is executing the plan. The amount of uncertainty in the estimates decreases as planning is complete and you execute more of the project plan. The estimates at initiation may be plus or minus 50% but by the time the project is half-complete, the ranges of the estimates might be plus or minus 5%.
What Techniques Do You Use to Estimate Project Cost and Duration?
There are three principal project estimating techniques that project managers use to prepare their cost and duration estimates.
Estimate Project Cost and Duration Technique #1: Analogous Estimating
The first technique is called analogous estimating and it is based on information from prior projects that are similar to the current project. At its simplest, these analogous estimates use the duration and cost data of previous projects or phases within those projects. You make adjustments up or down for the relative difficulty of the current project.
Estimate Project Cost and Duration Technique #2: Parametric Estimating
The second project estimating technique is parametric estimating. You use published data about how much work, duration and cost particular tasks take. As an example, we might find public information stating that painting an interior wall with an 8-foot high ceiling requires 1.3 hours per 100 feet of wall surface. Using that reference source, you make the duration and cost estimates for the current project using this data from similar type projects.
Estimate Project Cost and Duration Technique #3: Bottom-Up Estimating
The third project estimating technique is bottom-up estimating where you meet with the people who will be doing the work and develop estimates based on their judgment. These bottom-up estimates have many advantages. One is that they are usually more accurate because the team members have experience doing the tasks. The other is that the team members have some commitment to the estimates because they helped develop them.
You can learn proven techniques for estimating cost and duration in our online project management courses. You’ll work privately and individually with a expert project manager. You control the schedule and pace and have as many phone calls and live video conferences as you wish. Take a look at the course in your specialty.