A presentation to provide welding managers in cost and price development.

1. Project Proposal
Development
Training
TRAINING FOR MID-LEVEL LEADERSHIP
IN PROJECT COST ESTIMATING AND
SCHEDULING

2. INTRODUCTION AND
OVERVIEW
Welcome to the class. It is the first in
a series of classes that will be taught
to mid-level managers to introduce
them to project cost estimating and
the mechanics of schedule
development.

3. You Will Learn to:
• Estimate the cost of a pipeline
welding project with a minimum
of estimating error.
• To develop a timeline for the
project that allows a margin for
changes.
• Describe methods, uses, and
advantages/disadvantages of
top-down and bottom-up
estimating methods.
• Distinguish different kinds of
costs associated with a project.

4. IMAGES
COURTESY
OF
GLENN RILEY
WAUKESHA
PEARCE
OKLAHOMA
CITY

5. PROJECT
DEVELOPMENT
BASED ON
PROJECT LIFE
CYCLE
Larson & Gray (2021, p. 9)

6. AYDVAYIA (((2016)
ESTIMATING ERRORS

7. Steps Required
to Reduce
Estimating
Errors
PART I

8. Bottom-up
Top-Down
Consensus
Parametric
 Cost and time
important
 Fixed-price
contract
 Customer
wants details
 Estimate
process down
to the Work
package level
 Strategic
decision
making
 High
Uncertainty
 Internal, small
project
 Unstable
scope
 Uses pooled
experience of
upper- level
management to
estimate project
duration and
cost.
 Firms wanting
greater rigor
use the Delphi
Method to make
macro
estimates.
 Ratio method
is often used in
the “need”
phase to get
an initial
duration and
cost estimate.
 Apportion
method is an
extension to
the ratio
method used
when projects
follow past
projects.
Cost
Estimating
Methods
(pps. 140, 142, 146)

9. ESTIMATING PROJECT COST AND TIME
(…[objective ] “have a 95 percent probability of meeting time and cost estimates.”
(Larson & Gray, 2021, p. 136)
Cost Error Impact
$ Increased risk
$ Cost overruns
$ Extended schedules
$ Project plan is eroded
$ Profit challenges
Time Error Impact
$ Increased risk
$ Cost overruns
$ Extended schedules
$ Project plan is eroded
$ Profit challenges

10.  Planning – Make estimates closer to work package
definitions.
 Project scope – Ensure that scope is correctly
written.
 People- Use people that are skilled in estimating.
 Project structure – Focus on complexity of project
and making local decisions (pps. 136-137).
...
REDUCING ESTIMATING ERRORS

11. REDUCING ESTIMATING ERRORS (Part II)
 Guard against padding cost and time
estimates.
 Organizational culture – differing cultures
impact estimates; some tend to over-
estimate and some underestimate.
 Other factors – consider and allow for
variables (p. 137).

12. THE ART AND SCIENCE OF
FORECASTING

13. Cost vs. Forecast
 Cost = Estimate (or actual) of today’s cost to develop a work
package.
 Forecast = Estimate of cost when project is complete and
turned over to customer.
 Actual = Actual cost incurred from womb to tomb
 Cost estimate error = Difference between Cost and Actual

14. ESTIMATING TIME AND COST
 Supports good decisions
 Needed to schedule work
 Determines duration and cost
 Determines if the project is worth doing
 Needed to determine cash flow needs
 Helps determine how project is progressing (p. 138).

15. TOP-DOWN APPROACH
 Used when scope is not definitively defined
 No relevant historical data is available.
 EWAG made by upper-level management.

16. Steps Utilized to Apply Modern Forecasting
Methodologies
Top-Down Approach
 Rough estimate
 Usually occurs in “conceptual” stage
 Estimates often made over cocktails by upper management
 Not enough information available to finalize design
 Used until WBS tasks are clearly defined (p.142).

17. Top-Down
Approach
 Consensus Method
 Delphi Method
 Ratio Method
 Apportion Method
 Function Point Method for
Software and Systems
 Learning Curves (pps. 142-
145)

18. CONSENSUS
METHOD
DELPHI
METHOD
 Group decision process about the
likelihood that certain events will
occur .
 Uses a panel of experts familiar with
the kind of project in question.
 The notion is that insight and
experience are better equipped to
estimate project cost/times than
theoretical approaches or statistical
methods (p. 142).
 Uses pooled experience of senior
and/or middle managers to estimate
total project duration and cost.
 Involves a meeting where experts
discuss, argue, and reach a decision
as a best guesstimate (p. 142).

19. RATIO
METHOD
APPORTION
METHOD
 Extension to the ratio method.
 Used when projects closely follows
past projects in features and costs.
 Estimates can be made quickly with
little effort and reasonable accuracy.
 Common in relatively standard
projects with some small variation or
customization (p. 143).
 Used in the concept phase to get an
initial cost/time estimate for the
project.
 Examples: Using number of sq ft to
estimate cost/time to build a house.
Knowing sq ft and dollars per sq ft, it
should take 100 days to complete (p.
143).

20. Learning Curves
Function Point Methods -
Software and Systems Projects
Used when projects are repeated
several times. The time to perform a
task improves with repetition,
especially tasks that are labor
intensive. This pattern can be used to
predict reductions in time to perform
tasks. This pattern has been
quantified in the learning curve (p.
145) .
 Used in the concept phase to get an
initial cost/time estimate for the
project.
 Examples: Using number of sq ft to
estimate cost/time to build a house.
Knowing sq ft and dollars per sq ft, it
should take 100 days to complete (p.
143-144).

21. BOTTOM-UP APPROACH
 Cost and time are important.
 Can use a fixed-price contract..
 Customer wants details.

22. Bottom-up Approach
 Can take place after the project has been defined in detail .
Estimates should be made by knowledgeable people having
relevant experience with the task to improve the time and
cost projections.
 Estimates can be made at work package level using WBS components
(p. 140).

23. Bottom-up Approach (cont.)
 Can provide customer with alternatives regarding project completion
dates at the lower cost method vs. compressing the project delivery.
 Similar trade-offs can be compared for different levels of resources or
increases in technical performance.
 The preferred approach is to compare both top-down and bottom-up
approaches, develop schedules and budgets and reconcile the
differences between the two methods. (p. 140).

24. Parametric
Procedures
Template
Method
Parametric procedures are top-down
methods including ratios, or
surrogates, to estimate project times
or costs.
Parametric procedures can be applied
to specific tasks such as calculating
conversion projects, home projects
such as wallpapering the kitchen (p.
146).
 Templates can be used as a starting
point for the new project.
 Differences in the new project can be
noted and past times and costs
adjusted to reflect these differences.
 Enables the firm to develop a
potential schedule, estimate costs,
and develop a budget in a short time.
 Development of such templates in a
database can quickly reduce estimate
errors (p. 146).
Parametric
Procedures
Template
Method
Parametric procedures are top-down
methods including ratios, or
surrogates, to estimate project times
or costs.
Parametric procedures can be applied
to specific tasks such as calculating
conversion projects, home projects
such as wallpapering the kitchen (p.
146).
 Templates can be used as a starting
point for the new project.
 Differences in the new project can be
noted and past times and costs
adjusted to reflect these differences.
 Enables the firm to develop a
potential schedule, estimate costs,
and develop a budget in a short time.
 Development of such templates in a
database can quickly reduce estimate
errors (p. 146).

25. Phase
Estimating
Range
Estimating
 Phase estimating is a hybrid
approach using a top-down estimate
and refining the estimate for phases
as it is implemented.
 Some projects such as aerospace, IT
projects, new technology and
construction where design is
incomplete frequently use phase or
life-cycle estimating (p.147).
 Best used when “work packages have
significant uncertainty associated
with the time or cost to complete…
Work packages with significant
uncertainty should require three -
time estimates –low, average, and
high (borrowed from PERT
methodology that uses probability
distributions).
Range
Estimating
 Best used when “work packages have
significant uncertainty associated
with the time or cost to complete…
Work packages with significant
uncertainty should require three -
time estimates –low, average, and
high (borrowed from PERT
methodology that uses probability
distributions).
Range
Estimating
Phase
Estimating
 Best used when “work packages have
significant uncertainty associated
with the time or cost to complete…
Work packages with significant
uncertainty should require three -
time estimates –low, average, and
high (borrowed from PERT
methodology that uses probability
distributions).
Range
Estimating
 Phase estimating is a hybrid
approach using a top-down estimate
and refining the estimate for phases
as it is implemented.
 Some projects such as aerospace, IT
projects, new technology and
construction where design is
incomplete frequently use phase or
life-cycle estimating (p.147).
Phase
Estimating
 Best used when “work packages have
significant uncertainty associated
with the time or cost to complete…
Work packages with significant
uncertainty should require three -
time estimates –low, average, and
high (borrowed from PERT
methodology that uses probability
distributions).
Range
Estimating

28. References
ADVAYIA (2016). Project scheduling techniques: Probabilistic and deterministic.
Images. (n.d.) Slides 6, 9, 10, 11, 16, retrieved from https://images.search.yahoo.com/
Larson, E. W. & Gray, C. F. (2021). Project management: The managerial process (8th ed.) McGraw-Hill
Education
Riley, D.G. (2020). Waukesha Pearce, Oklahoma City, OK
Swanson, S. A. (2011). Estimating errors. PM Network, 25(10), 62–67.