Estimating is difficult on many projects – especially when you are estimating work you have not done before. Good estimates are needed for a viable Financial Plan. These three techniques will help.
Break Large Projects into a Series of Shorter Projects
It can be difficult to define and estimate work that will be done three months from now. It’s even harder to estimate a year in the future. There is more and more estimating uncertainty associated with work that is farther and farther out in the future.
A good technique longer projects is to break the work into a series of shorter projects, each of which can be planned, estimated and managed separately with a much higher likelihood of success. 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
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. 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.
Estimate Time-Constrained and Resource-Constrained Activities
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.
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 duration will be one day. If you send two people to the class, the class does not get shorter; it still takes one day. If you find that applying resources has no impact on the project duration (or very little impact), then the activity is time-constrained.