How to Achieve Accurate Project Time and Cost Estimates
By Paul A. Weber
What are Time & Cost estimates?
These are the project estimates in relation to how much time is required for your project. Cost is related to how much financial investment will be necessary for your project,
Why Time & Cost estimates are important?
I know you are thinking “This goes without saying”, but let’s explore this point anyway. Time and cost estimates are intertwined, because either one has a direct effect on the other. When determining the cost of a project, or a specific area of a project, time estimates are usually included, because time is literally money. Projects are not only cost determined based on material, but also according to the time estimated for project completion. This time is usually applied to the overall cost of the project because people get paid for the actually work they perform, but also the time taken to complete a task. Last, but most important, if a project cost. estimate is inaccurate, the company, the customer, or both will be unhappy. The same logic applies to project time estimates, plus, higher adjusted estimates later in the project could cause the project to cease, or produce a very dissatisfied customer. If the organization agreed to an original time or cost estimate agreement, and the estimate was figured too low, then you could be stuck with a zero profit project. Many contracts have stipulations of penalty fees for projects completed later than the agreed to time estimate.
How to construct accurate Time & Cost estimates?
This is where the work breakdown structure comes back into play. The time & cost estimates are going to be based on the work breakdown structure, because this contains all the elements of your project that were deconstructed into small pieces called work packages. There are a couple of methods that can be used to figure estimates, but PERT is the industry “gold standard” practice. The Project Evaluation and Review Technique (PERT) formula (O+4M+P/6) is used in conjunction with the work breakdown structure. Remember, small pieces compiled in the work breakdown structure are easier to time/cost estimate. Use the same measurement of time throughout your project. The PERT formula is based on the expert opinion, and weighted standard deviation values. Do not guess on these estimates. Gather opinions from the people actually doing the project work.
- Optimistic time (O): the minimum possible time required to accomplish a task, assuming everything proceeds better than is normally expected.
Pessimistic time (P): the maximum possible time required to accomplish a task, assuming everything goes wrong (but excluding major catastrophes).
Most likely time (M): the best estimate of the time required to accomplish a task, assuming everything proceeds as normal.
Expected time(TE): the best estimate of the time required to accomplish a task, accounting for the fact that things don’t always proceed as normal (the implication being that the expected time is the average time the task would require if the task were repeated on a number of occasions over an extended period of time).
Here’s an example; The Weber family is driving home. They guess they are most likely 10 minutes from home, so that is their most likely estimate. If all the lights turn green, they guess it may take just 7 minutes to get home, so that is their Optimistic estimate. If it starts raining hard, they guess it may take them 12 minutes to get home, so that is their Pessimistic estimate.
We simply put these numbers into the formula which has a statistical rate of 99% chance of estimate accuracy. This means that the Weber’s will have a 99% chance of reaching home in 9.83 minutes. Now that you know how the PERT formula works, this is an awesome tool for giving very accurate and attainable time estimates.
TE= (O + 4M + P) / 6
Step 1 (7 + 10 + 10 + 10 + 10 + 12) / 6
Step 2 7+52= 59
Step 3 59/6 = 9.83
PERT estimated time = 9.83 minutes.
Now that you have an accurate time estimate, your cost estimates will be much more accurate. Search in Google to “get into the weeds” for the statistical reason of why, and how PERT works. The important point is to realize the PERT formula does work, and is used by private companies and U.S. Government planners to estimate project times.
Paul A. Weber, PMP, MBA-PM is a Project Manager with over 12 years in the Aerospace industry within the Department of Defense.