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Gray and Larson (2003), defines estimation as the process of forecasting the time and the cost of completing project deliverables. These processes are developed by each organization, and employed in a unique way possible.
Estimating project times and cost
Accurate estimates are critical for effective project management, as inaccurate estimates may lead to false expectations and consumer dissatisfaction. Accurate estimation depends on cost and time. The lifelines for control are budgets, times and cost; they serve as a comparison between the plan outlined in the project and the actual occurrence when undertaking the project. Accurate and reliable estimates also assist in setting up project rollup and project status reports which are the major input for measuring variances and taking action. Managers will need these estimates to make the project schedule and cost for every work package in the project. This data information assists in the coordination of the project by the management.
Organization cultures influence the organizations quality of estimates in that, different organizations respond differently to certain estimates e.g. padding estimates are tolerated and privately encouraged in some organizations. While others may place a premium on accuracy and strongly discourage gamesmanship estimates.
The importance attached on estimates, affects the quality of estimates in some organizations. A number of them believe that detailed estimates may take much time and are not worth the effort or that future cannot be predicted. Others they may have the belief that accurate estimates are the baseline for effective project management
The difference between macro and Micro estimation is; Macro estimating approach are estimating processes which are classified as top down and are usually derived from analogy or mathematical relationship. Micro-estimating approach are estimating processes, classified as bottom-up and are based typically on elements estimates found in the work breakdown structure.There are certain conditions that one would prefer to use each of the above estimating approach. Macro estimates can be used when making strategic decisions; there is high uncertainly; the project is small and internal and when the scope is unstable. Micro estimates on the other hand can be applied when; cost and time is important; fixed-price contract and when the customers wants details.
The type of cost found in a project are Direct cost (Labor, material, equipments, etc), project overhead costs, and general and administrative overhead costs. Direct cost can be altered to a specific work package and are therefore influenced by the project manager. Direct costs represent real cash outflows and must be paid as the project progresses. Direct overhead costs (project costs) which closely pinpoint organizations resources being used in the project can be partly influenced by the project manager.
Time phase estimation is appropriate when a project is surrounded by unusual amount of uncertainty and it becomes impractical to estimate times and costs for the entire project. A two estimate system is used in time-phase estimation in which a detailed estimated is first developed for the immediate phase and a macro estimate is made for the remaining phase of the project.
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Contingency allowance should be separated from original estimates because, it has been experimentally noted that many projects total estimates do not materialize and the actual costs and schedule of some projects significantly exceed original work package based estimates. The estimation errors may result in the process of estimation or in the inherent uncertainty of predicting the future.
Estimates of time and cost are important when carrying out a project. Estimates based on facts from other past projects produces at most accurate information. People, technology and downtimes may sometimes influence the quality of estimates. Estimates based on facts should be acceptable as they represent the best realistic times and cost estimates.
Gray, C.F. and Larson, E.W. 2002.Project Management: The Complete Guide for Every Manager, McGraw-Hill publishers
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