Methods for Estimating Project Times & Cost

by Bert Markgraf
Both total and itemized costs are important project variables.

Both total and itemized costs are important project variables.

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Two key features of a project are on-time and on-budget delivery. The project manager can only fulfill these objectives if the estimates leading to the project schedule and budget are accurate. Methods for estimating project times and costs focus on simplifying the process and breaking it down into little steps. Such methods allow project managers to estimate the cost and duration of small tasks more reliably. Estimates of many small tasks will be both high and low, and some will cancel out, reducing the overall error.

Work Breakdown Structure

Dividing the project into smaller tasks lets a project manager get an overview of duration and cost. One method that accomplishes such a simplification is the work breakdown structure. It guides a project manager through a structured process by starting with the whole project on the top level. The project manager divides the project into several sections on a second level. These sections can overlap but represent separate activities.

Typical project parts for the second level are planning, purchasing equipment, production, shipping and commissioning. On a third level, the project manager further divides the sections. Purchasing equipment can become a list of the equipment he has to purchase. The project manager adds levels until he has tasks and activities for which he can assign an accurate cost and duration.

Task Costs

Once he has broken the project up into small tasks, the project manager can assign costs. For equipment that he has to purchase, he can contact suppliers to get accurate estimates. For other tasks, he can estimate the number of hours and use an hourly rate. Another method of assigning costs is to use historical data. If the company has completed a similar project, the cost of equipment may be available. Finally, the project manager can estimate overhead by applying a percentage based on how much overhead costs such projects typically generate.

Activity Durations

The project manager can use the same method as he uses for costs to assign activity duration. He can check with suppliers to get delivery times and use historical records to estimate how long a task takes. For common tasks, such as pouring concrete or paving a parking lot, he can use industry norms to derive duration, based on the cubic feet of concrete or the square footage of the parking lot. For labor-intensive, non-standard activities, he can check with the people who will carry out the work.

Costs and Schedule

Once he has established activity costs and a project schedule, the project manager has to link the estimates so he can arrive at an approximate cash flow. He has to look at the activities that he has scheduled and the costs he has assigned to each activity to schedule payments. While companies are interested in the total cost of the project, they also have to be able to schedule their cash flow. This method allows the project manager to estimate the payments that he has to make each pay period.

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