Estimate in Phases
One of the most difficult aspects of estimating projects is that you do not know exactly what work will be needed in the distant future. It can be difficult to define and estimate work that will be done three months from now. It's harder to estimate six months in the future. Nine months is even harder. The reason is that decisions made and deliverables produced earlier in the project have an impact on what the work looks like further along. Therefore, there is more and more estimating uncertainty associated with work that is farther and farther out in the future.
The best approach for larger projects is to break the work into a series of smaller projects, each of which can be planned, estimated and managed separately with a much higher likelihood of success. From an estimating perspective, the closest project can be estimated more precisely, with the subsequent projects estimated with a higher level of uncertainty. When one project completes, the next project can be estimated with a higher degree of confidence, with estimates refined for the remaining projects. This technique also provides checkpoints at the end of each project so that the entire initiative can be revalidated based on current estimates to ensure that it is still viable and worth continuing.
Estimate Fixed Costs and Variable Costs
You may hear the terms fixed and variable cost when you are estimating the cost of a project. Variable costs are those that change relative to how many units are being used. An obvious variable cost on a project is contract labor. The more hours you use from a contactor or consultant, the more the cost to the project. The cost of contract labor is variable depending on the number of hours worked. It is important to be aware of fixed and variable costs so that you know the impact of increasing or decreasing unit costs. For example, if the project is running a little behind schedule, you may ask for some overtime work. If you increase the hours worked from your contractors, you will increase the cost to the project.
Fixed costs are those that are basically the same for the project regardless of the resources being used. For instance, if you were building a house, the concrete cost would be pretty much fixed once the design was agreed to. The cost of the lot for the house would also be fixed and would not change based on the size of the house you built. If you outsource part of a project to a third party for a fixed price, it becomes a fixed cost to the project as well. (Even if the work takes longer or shorter than estimated, your project cost should still be the agreed upon fixed cost.)
Estimate Time-Constrained and Resource-Constrained Activities
Activities can be classified as time or resource-constrained based on whether the duration can change if more resources are applied. An activity is resource-constrained if the duration changes based on the number of resources applied. For instance, you might estimate that it will take 200 hours for one person to build a roof on top of a house. If the person worked forty hours per week, it would take five weeks to complete the job. If you applied two people to the job, the effort might still be 200 total effort hours, but the job would only take 2 1/2 weeks to complete. If there were five people assigned, the work could be done in one week (of course, the duration might not drop as cleanly as this example). An activity is resource-constrained if the duration is based on the amount of resources that can be applied to the activity.
On the other hand, if an activity is time-constrained, the duration remains the same regardless of the number of resources applied. For example, if you attend a one-day class, the activity will take eight hours of time. If you send two people to the class, the class does not get shorter; it still takes eight hours. Likewise, the time it takes for concrete to dry or to mail a letter is not impacted by the number of people involved. They just take a certain amount of time. If you find that applying resources has no impact on the project duration (or very little impact), then the activity is time-constrained.
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