Practice Standard for Project Estimating - Second Edition

Project Management Institute Project Management Institute

• Publisher: Project Management Institute
• Year: 2020
• ISBN:
  9781628256437
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Projektmanagement

Project estimating plays a vital role in project management. Typically completed in the initial planning stages, accurate project estimation can be a difficult task. Organizations and project managers should use these initial estimates to baseline the project schedule and cost, then refine these estimates as the project develops. Accurate estimation and refinement of the estimates leads to better and earlier decision making, thus maximizing value.Developed within the framework of A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition and other PMI standards, the Practice Standard for Project Estimating – Second Edition focuses on providing models for the project management profession in both plan-driven and change-driven adaptive (agile) life cycles. This practice standard describes the aspects of project estimating that are recognized as good practice on most projects most of the time and that are widely recognized and consistently applied.PMI practice standards describe processes, activities, constraints, inputs, and outputs for specific discipline subject areas and are targeted to all practitioners within projectized organizations, not just project managers.

1

INTRODUCTION

In alignment with other PMI standards and practice guides, the Practice Standard for Project Estimating – Second Edition provides information on the activity of project estimating. This practice standard focuses on managing the estimating process and providing practical guidance geared toward project leaders, team members, and other stakeholders.

The audience for this practice standard includes, but is not limited to:

◆Portfolio/program/project managers;

◆Program and project team members;

◆Functional managers/operational managers,

◆Members of a program/project management office;

◆Program and project sponsors and stakeholders;

◆Educators and trainers of program and project management;

◆Analysts;

◆Scrum teams, scrum masters, and product owners;

◆Senior management and/or any decision maker responsible for approving the estimate; and

◆Individuals interested in program and project management and estimating in general.

This section provides an overview of this practice standard and includes the following subsections:

1.1 Purpose of this Practice Standard

1.2 Project Estimating Definitions

1.3 Scope of Project Estimating

1.4 Project Estimating and the Project Management Practice

1.5 Relationships among this Practice Standard and Other PMI Standards and Knowledge Areas

1.6 Summary

1.1 PURPOSE OF THIS PRACTICE STANDARD

The purpose of this practice standard is to define the aspects of project estimating that are widely recognized and consistently applied based on generally recognized good practices.

◆Generally recognized means the knowledge and practices described are applicable to most projects most of the time, and there is consensus about their value and usefulness.

◆Good practice means there is general agreement that the application of the knowledge, skills, tools, and techniques to program and project management processes can enhance the chance of success over many programs and projects in delivering the expected business values, benefits, and results.

◆This practice standard has a descriptive purpose rather than one used for training or educational purposes.

The Practice Standard for Project Estimating – Second Edition covers project estimating as applied to portfolios, programs, projects, and organizational estimating. Project management estimating affects portfolios, programs, projects, and organizational estimating—directly or by aggregation—and often has identical processes, tools, and techniques. While portfolios, programs, and organizational estimating—specific or within an organizational project management (OPM) context—will be covered at a high level, the principal focus of this practice standard will be on projects.

Sections 6, 7, and 9 of A Guide to the Project Management Body of Knowledge (PMBOK® Guide) [1]¹ (Project Schedule Management, Project Cost Management, and Project Resource Management) are the basis for the Practice Standard for Project Estimating – Second Edition. This practice standard is consistent with those sections, emphasizing the concepts relating to program and project estimating. It is also aligned with other PMI practice standards as described in Section 1.5.

Figure 1-1 compares the purposes of this practice standard with those of the PMBOK® Guide and textbooks, handbooks, and courses. We recommend the PMBOK® Guide be used in conjunction with this practice standard because there are numerous cross-references to sections in the PMBOK® Guide.

This practice standard emphasizes concepts fundamental to effective, comprehensive, and successful project estimating. These concepts are stated at a general level for several reasons.

Different programs, projects, organizations, industries, and situations require different approaches to project estimating. Project estimating is an appropriate process to apply to programs and projects of varying sizes. In practical applications, estimating is tailored for each specific program or project. There are many specific ways of practicing project estimating that follow the concepts presented in this practice standard.

These concepts are applicable to projects carried out in a global context, reflecting the many business, industry, and organizational arrangements between participants. These arrangements include joint ventures between commercial and national companies, governmental and nongovernmental organizations (NGOs), and the cross-cultural environments often found in these program and project teams.

Practitioners can establish procedures specific to their situation, program, project, or organization, then compare them with these concepts and validate them against good project estimating practices. In highly regulated industries or other environments, an independent project estimate may be mandated. Understanding the basis of those estimates, the methodologies, and the level of detail is important to project success.

1.2 PROJECT ESTIMATING DEFINITIONS

Important terms used in project estimating are defined as follows:

◆ Estimate. An assessment of the likely amount or outcome of a variable, such as project costs, resources, effort, durations, and the probability and impacts of risks or potential benefits.

◆ Basis of Estimates. Supporting documentation outlining the details used in establishing project estimates such as assumptions, constraints, level of detail, ranges, and confidence levels.

◆ Baseline. The approved version of a work product that can be changed only through formal change control procedures and is used as the basis for comparison to actual results.

These definitions are usually preceded by a modifier (i.e., preliminary, conceptual, feasibility, order-of-magnitude, or definitive).

Estimating, as described in the PMBOK® Guide and other related standards and practice guides, is comprised of three types of estimations, which will be elaborated on in this practice standard: quantitative, qualitative, and relative.

1.3 SCOPE OF PROJECT ESTIMATING

Project estimating is vital to successful portfolio, program, and project execution and the perception of success. Project estimating activities are a relatively small part of the overall program or project management plan and are first performed early in the program or project life cycle and repeated as the program or project progresses. The level of confidence is influenced by information available on, for example: market dynamics, stakeholders, regulations, organizational capabilities, risk exposure, and level of complexity. A program or project uses estimates along with the expected benefits to build the business case. Unrealistic estimates may compromise the ability of programs and projects to deliver expected value.

In addition to effort and resource estimation-based duration and cost estimations, project estimation is used in, but not limited to:

◆Contingency reserve definition;

◆Management reserve definition;

◆Organizational budgeting and allocation;

◆Vendor bid and analysis;

◆Make or buy analysis;

◆Risk probability, impact, urgency, and detectability analysis;

◆Complexity scenario analysis;

◆Organizational change management demands;

◆Capacity and capability demand estimation;

◆Benefit definition;

◆Success criteria definitions; and

◆Stakeholder management planning.

1.4 PROJECT ESTIMATING AND THE PROJECT MANAGEMENT PRACTICE

Even though estimates are initially developed at the onset of a program or project, it is important to think of estimating as a continuous activity throughout the program or project life cycle. The initial estimates are used to baseline the program and project efforts, resources, schedule, and/or cost. These estimates are then compared to the program and project benefit streams to determine feasibility. As the program or project progresses and more information is known, the estimates are continually refined and, subsequently, should become more accurate. This is consistent with the concept of progressive elaboration as described in the PMBOK® Guide and the Agile Practice Guide [2].

Additionally, the change control process is used to manage against the baseline cost and activity duration estimates. This continual process of reforecasting, based on new information and change controls, is why estimating is change driven and not a one-time event.

With the reported information during the project control phase, the project team will have enough data to refine the initial estimates and establish more accurate forecasts. This will create more effective action plans and allow a better understanding of program or project trends. There are many notable examples of final costs or schedules that were significantly different from the original estimate.

◆In 1914, the Panama Canal ran US$23 million under budget compared with 1907 plans.

◆In 1973, the Sydney Opera House was originally estimated at US$7 million. It was completed ten years late and the final cost came in at AU$102 million.

◆In 1988, the Boston Big Dig was estimated to be US$2.2 billion. It was delivered five years late at a cost of US$14 billion, more than six times the estimate, due in part to flooding that destroyed all work...