CHAPTER 5
MANAGE ESTIMATES
This chapter covers the ongoing maintenance and management of activity duration estimates, activity resource estimates, and cost estimates. The objective of the Manage Estimates stage is to outline the fundamental inputs, activities, and outputs with regard to managing estimates appropriately.
This chapter also describes an approach to managing project estimates from initial estimates to completed projects, based on the consumption of actual time and cost, and the ability to reforecast remaining cost and time.
This chapter includes the following sections:
5.1 Introduction
In preparation for this chapter, some clarification is needed. Since the project manager actually monitors and controls the schedule, costs, and resources for the project, and not the estimates, the Manage Estimates stage and the monitoring and controlling of the project could be considered to be one and the same. Although they are closely related, there are some subtle differences. The Monitoring and Controlling Process Group is a broader concept that includes other aspects aside from schedule and costs. Similarly, this stage should not be considered to be managing change control as discussed later in this section.
For the purposes of this practice standard, the Manage Estimates stage should be understood as applying actual consumption to the baseline, assessing the impacts, and then recalculating the estimates, if the consumption trend is not synchronized with the expectations.
Once the activity duration, activity resources, and costs have gone through the initial estimating process as defined by the organizational process assets and Create Estimates stage, the actual management of these estimates is undertaken by the project manager, with the support of the project team and key stakeholders. Figure 5-1 shows the inputs and outputs of the Manage Estimates stage, which is described in this chapter.
This chapter is intended to describe an approach to managing the estimates once the initial project estimates have been completed and the project is under way. This approach is one of a number of industry good practices for managing project estimates. The basic principles include the regular review of the estimate and budget; applying actual costs, time, and resource consumption in a timely manner; adjusting for approved changes; and re-estimating or reforecasting of the estimates.
5.2 Inputs
Inputs to Manage Estimates for activity duration, activity resources, and costs will vary from project to project and from organization to organization. There are six basic inputs that are required for effectively managing estimates:
5.2.1 Baseline Estimates
According to the PMBOK® Guide—Fourth Edition, a baseline is an approved plan for the project. Usually it is the original plan, plus or minus approved changes, which is compared to the actual performance to determine whether performance is within acceptable variance limits.
For estimating purposes, there are three baselines for consideration:
- Project cost performance baseline estimates,
- Project schedule baseline estimates, and
- Project resource histogram estimates.
5.2.2 Approved Changes to Baseline
Estimates are affected by requests for changes made to expand or reduce the project scope, modify budget, revise schedules, or reflect a change in the makeup of the project team. Since change control processes, inputs, tools and techniques, and outputs for time, cost, schedule, and resources are covered in the PMBOK® Guide—Fourth Edition, this chapter will refer to those processes rather than reiterate them in this practice standard.
Usually, only change requests that have been processed through the Perform Integrated Change Control process and have been approved should be considered when re-estimating project costs or schedules.
A change in project resources, however, may not require a formal change control review and may need to be negotiated to acquire replacement team members or an adjustment made to the schedules to account for the remaining work to be completed by the project team in its altered state.
Approved changes are included as outputs from the Perform Integrated Change Control process and are covered in the PMBOK® Guide—Fourth Edition.
5.2.3 Resource Plan
As defined in the PMBOK® Guide—Fourth Edition, the human resource plan provides guidance on how project human resources should be defined, staffed, managed, controlled, and eventually released.
Through negotiation and team acquisition, appropriate human resources and associated competencies are assigned to the work activities.
When a critical resource skill is required and that skill is not part of the team, or the person with that particular skill leaves the project, a delay in completing tasks for that skill is likely to occur. This delay can impact the project schedule and the project costs until another individual with the required skill set is acquired.
If a resource is acquired with a competency less than planned for in the human resource plan, more time may be required to complete the tasks, resulting in a re-estimate of the project schedule and project costs. Resource competency is established in the roles and responsibilities section of the human resource plan.
The staffing management plan section of a project's human resource plan also indicates which resource skills are needed and when to bring those resources in throughout the project life cycle. The timing for bringing on a resource and the utilization percentage assists in setting the resource profile to ensure an optimum amount of time is spent on the activities required to achieve project objectives.
Resources also include facilities, equipment, and materials other than human resources. Costs and scheduling for these resources should also be included in the initial project estimates. Consumption of these resources needs to be considered and tracked along with human resources.
5.2.4 Work Performance Information
The actual amount of time and costs associated with achieving the project objectives are considered work performance information, also known as the actuals.
Resources are usually associated with costs in that there is an hourly rate which, as time is consumed, the rate translates into cost consumption. This applies to both contracted and internal positions.
- Contracted Positions. In contracted positions, there are two basic types of contracts: time and material (hourly) and fixed cost (fixed bid). For hourly contracts, the hourly rate is negotiated within the contract. The amount of time consumed is reflected in the hours billed to the project and represented in an actual invoice that can be applied against the project when posted to an accounts payable system. The tracking of actual time from invoices is important as some nonbillable time may also be spent on the project. However, unless clearly specified in the contract, nonbillable time should not be tracked against the project cost estimate.
On fixed-cost contracts, the cost of the project is set at an agreed-upon price with milestone or phase-end billing points; the amount of time used is immaterial to the cost estimate, to a point. When schedules slip, a vendor may decide to put additional or different resources on a project, but the final cost to the client remains the same. Approved changes may adjust the cost and therefore change the estimate, but the amount of total cost is consumed regardless of the amount of time consumed. Because of this, tracking of actual time from invoices is important ony in determining the work effort for better estimates on similar projects.
- Internal Positions. For internal employees, the rate may be combined into a blended rate rather than displaying the actual compensation of any employee team member.
Some organizations do not track the cost of employees for a project, preferring to consider their compensation as a cost of doing business. Although this is not uncommon, it tends to not accurately reflect the total cost of investment and, therefore, the return on investment in achieving project objectives.
For both contracted and internal positions, a time entry system may be employed to track actual time spent on the project, or time can be tracked by a project coordinator on a project spreadsheet. From the time entry system, the project manager can apply consumption of time against the project schedule.
Some organizations do not require employees to enter time. However, in order to get a valid and accurate schedule, consumption of actual time spent on each activity by all project team members is highly recommended. This will provide for more realistic management of the schedule estimate.
5.2.5 Organizational Process Assets
An organization's corporate knowledge base or process asset library may contain the organizationally approved methodologies, processes, procedures, and templates used for managing the scheduling, costs, and resource estimates. The Manage Estimates stage is dependent on the processes and practices that are defined within the process assets library. Well-defined processes and procedures for estimate management and reporting enable more consistency in managing estimates, as well as identifying, approving, and communicating changes for estimates to the project team and key stakeholders.
The processes describe the approach for using the prescribed templates, while the templates provide a level of consistency across projects and the organization. Samples of templates used could also be available as outputs from lessons learned activities from previous projects.
5.2.6 Project Estimating Approach
The project estimating approach, as created during the Prepare to Estimate stage, defines the approach for managing and monitoring the project estimates and forecasts. This, along with the organizational process assets, should outline the plan for managing the estimate.
5.3 Activities
This section covers the activities applied to the initial and revised estimates to properly manage and maintain the estimate through achievement of the project objectives.
The activities described in this section are good practices that can be applied to most projects, most of the time, rather than a single solution for managing every project estimate.
Figure 5-2 shows the process for the project estimate management cycle from the time the initial project estimates are generated as project baselines, through a series of iterations where actual costs, time and resource consumption, and approved changes are applied. The results are reviewed and a re-estimate for the project is created, if necessary.
5.3.1 Manage Estimates: A Living Plan Cycle
.1 Step One: Apply Actuals
Once the initial project schedule, project cost, and project resource estimates are completed and baselined, the project manager or a selected project team member can begin to apply actual time, cost, and resource usage against the project plan.
a.) Project Schedule Estimate Management
Where there is a formal time entry process and the scheduling application is interfaced with the time tracking system, the actual time consumed should be updated automatically in the project plan. If not interfaced, the time usage for each resource will need to be entered manually.
In the case where vendors are employed, the actual time billed on the associated invoice should be reconciled. If a validated discrepancy exists, the invoiced value should be used because it also reflects charges to the cost of the project.
b.) Project Cost Estimate Management
As time is entered against the project, the resulting calculation of time consumed against the resource rate generates the consumption of actual costs.
Special consideration should be made in recording non-resource costs to the project, such as software, equipment, training, and fees or taxes. If included in the original cost estimate, then consumption needs to be reflected appropriately throughout the project life cycle.
c.) Project Resource Estimate Management
Throughout the project life cycle, resources are added or released, based on the human resource plan as outlined in the PMBOK® Guide—Fourth Edition. Consideration, in the form of an identified risk, should be given for normal and sudden staff turnover during the course of the project. The resource roles and responsibilities are defined, and the staffing management plans are detailed in the human resource plan.
The staffing management plan includes the procedures for staff acquisition, resource calendars, staff release plan, and competencies and training needs. In the initial project resource estimate baseline, the known skill needs are documented and filled as close to the requirements as possible, and brought on and off the project in an optimal order. If the project runs according to plan, the resource estimate should reflect the proper use of resources throughout the project life cycle.
This situation is not always the case. With the sudden turnover of a key resource, the project manager and project team may need to evaluate the availability of suitable candidates to fulfill the remaining workload. Should the replacement team member be less competent, then the impact to the project schedule could be significant. On the other hand, if the replacement candidate possesses the skills of the previous team member, but the resource cost rate is significantly higher, this could have an impact on the project cost estimate.
The availability of resources other than people, for example, equipment, facilities, etc., should also be tracked.
.2 Step Two: Review and Control
Simultaneous with progressive elaboration, the project estimates should be scheduled for review on a regular basis to ensure proper controls are in place to identify variances. These variances can be caused by the complexity of the project, changes to requirements, or other project environmental variables that could impact the project estimate.
During the normal execution of a project, the project manager, project team, and stakeholders expect time and costs consumption to approximate what was stated in the project plan as derived from the baseline estimate. Actual time is applied with the rates factored in for each resource. Consumption of any resource costs other than human resources is factored into the project.
It is difficult to track the actual consumption to the average consumption per period as calculated by the project plan. Fluctuations between the actual consumption and the estimated average consumption per period are normal. For example, a resource may be calculated at 40 hours per 5 day work week, when in fact the team is working 4 ten-hour days. For the first 4 days of the week, the consumption of time is greater than the plan. However, on the fifth day it is equal when no hours are worked.
After applying actual time and costs or after assigning new team members, any costs and time variances should be compared to the project baseline for time and costs. If any variance is outside acceptable limits, then the project will need a more substantive re-estimate, including any provision for scope, cost, or schedule change control.
For resources other than human resources, such as materials, equipment, facilities, travel, and expenses, etc., tracking the use of or consumption of these resources is equally important because they are considered in the costs of the project.
Again, excluding approved changes, if at the weekly reviews the trend indicates significant over or under consumption, corrective action should be requested, documented, and communicated to the relevant stakeholders using the appropriate project control procedures.
The formal authorization of a change includes: analysis and approval for changes in scope, cost estimates, schedule and duration timelines, and resource staffing or skill competencies, and the decision whether or not the new estimate should be re-baselined.
.3 Step Three: Re-estimate after Applying Actual Time, Cost or Change in Resources
When approved changes are introduced to the project, and at certain key milestones, such as with a major deliverable at the end of a phase or an event that is a precursor to additional funding, the project team conducts a formal review of the actuals consumed with respect to the baseline. Any substantial cost variance or schedule variance is addressed through standard project management practices and is covered in the PMBOK® Guide—Fourth Edition.
The resulting variances also become variables for reforecasting the project or the next project phase. The project manager and project team create forecasts on the remaining amount of time, costs, and resources needed to deliver the project or phase objectives based on the current rate of consumption of time, cost, and resources.
Forecasting cost differs from re-estimating the budget at completion. The cost forecast can be expressed as the estimate to complete, in other words dollar (currency used) amount needed to complete the requirements. It can also be defined as estimate at completion minus the actual cost to date. For more details on this, refer to the Practice Standard for Earned Value Management.
Schedule forecasts rely on actual time consumed to date, staffing management plans, and the remaining activity duration estimates.
5.3.2 Use of Tools and Techniques
The following key tools and techniques can be used to manage, forecast, and report on project estimates:
- Project Management Information Systems (PMIS)—These tools are software applications that provide the project manager and project team with the means to record actual time, cost, and resource utilization across the project. These tools enable the project manager to maintain ongoing information for managing the estimates. From the most simple to the most complex, they are classified as follows:
- Spreadsheets—Either as a template or specific to a project, spreadsheets enable the project manager to track costs against an initial estimate.
- Advanced Scheduling Software—Scheduling tools allow the project manager to record the initial schedule estimate, set up resources with an associated cost structure, and apply time usage against the project. When the project and resources have been set up and time is accurately tracked against schedule tasks, the resulting estimate to complete can be fairly accurate. Much of this estimating is conducted in a manual fashion unless the scheduling software interfaces with a more complex project portfolio management application.
- Project Portfolio Management Tools (PPM)—These tools are advanced and complex applications that can interface with financial systems and scheduling systems to more automatically track time and cost against baseline estimates.
- Earned Value Management (EVM)—Earned value management is a very important part of controlling the project in that it integrates scope, time, and cost. It is an early predictor, giving the project manager and the project team an opportunity to manage the estimates and proactively manage the project. Once forecasts have been developed, then other tools and techniques like schedule compression, what-if scenario analysis, adjusting leads and lags, performance reviews, and resource alternatives can be used or applied.
For more information on the EVM process, refer to the PMI Practice Standard for Earned Value Management.
- Templates—As maintained within the corporate knowledge base or process asset library, these templates are organizationally standardized formats and processes that enable consistency across the project life cycle and across projects.
- Communications Management Plan—This plan usually provides, among other information, resources allocated for communication activities, including time and budget. A more complete list of items covered in the communications management plan are described in the PMBOK® Guide—Fourth Edition.
- Integrated Change Control Process—As described in the PMBOK® Guide—Fourth Edition, this is the process of reviewing all change requests, approving change requests, and managing changes to the deliverables, organizational process assets, and project documents.
- Variance Analysis—Defined in the PMBOK® Guide—Fourth Edition, as a method for resolving the total variance in the set of scope, cost, and schedule variables into specific component variances associated with defined factors affecting the scope, cost, and schedule variables. Cost and schedule variance measurements are used to assess the magnitude of variation against the original baseline estimates. Determining the causes and degrees of variances relating to cost and schedule performance baselines are important aspects of project cost and project schedule control.
5.4 Outputs
Outputs to Manage Estimates for project time, project resources, and project cost will vary from project to project and from organization to organization. There are four basic outputs from this stage:
5.4.1 Updated Estimates
Updated estimates for project time, project cost, and project resources include:
- Project Time Estimates—Project time estimates assist in rescheduling the budgeted work to complete. As time increases, these impact the consumption of resources as well. Resources have a rate or cost associated with them, so the project costs are impacted.
- Project Resource Re-Estimates—Project resource re-estimates are created when the competency of skill levels of human resources, the quality of material, or facility resources change. Although such changes can result in a decrease in the rate for the resources, it may increase the duration for achieving the project objectives, and thus affect the schedule.
- Project Costs Estimates—Project costs are not usually increased without a corresponding change in time, scope, quality, or cost of resources. However, a decrease in costs can be the result of a management decision to reduce budgets across a department or organization.
All three estimates—project time, project cost, and project resources—are interrelated and all should be assessed as to the impact of any change.
5.4.2 Updated Forecast for Remainder of Project
The updated forecast is defined as the recalculation of the cost to complete the remainder of the project or phase objectives based on the actual consumption of resources to date. Estimate at completion (EAC) is the aggregate of actuals to date plus the remaining forecast.
5.4.3 Updated Change Request Log
Any updates to the list of project change requests, for example, approved, opened, and closed changes, are considered to be change log updates. These changes should include the quantification of the impact of project time, project cost, or project resources.
5.4.4 Reporting and Communication
To keep all stakeholders, sponsors, and project team members advised of any changes to project cost estimates, project time estimates, and project resource estimates, reporting and communications should follow the guidelines and processes as defined in the communications management plan.
5.5 Considerations
Key considerations and generally accepted good practices for the activities in this stage include but are not limited to the following:
5.5.1 Actuals
Capturing actuals is the practice of using the data in such a way so as to recalibrate models, re-estimate the project, and reforecast the balance of the project.
It is important to ensure that time consumption is charged on the actual activities performed, in particular for those situations when employees enter time themselves. This practice allows the organization to refine and customize the estimating methods of the organization, thus contributing to improved initial estimates for future projects.
5.5.2 Variance Analysis
Variance analysis is the practice of analyzing, understanding, and communicating the impacts of time, scope, and resources and the interdependencies each has on the others. When the re-estimate results in a significant variance, the sponsors or steering committee may determine that the entire project should be re-baselined. In these instances, follow the approved change management control process.
5.5.3 Change Control
Following the established guidelines and corporate methodologies for project management change control assists in maintaining close attention to the changes in cost, time, and quality when the scope of the project changes.
5.5.4 Quality of Estimates
Adhering to living estimate processes produces a quality of estimates that enables the project manager and project team to address and forecast changes to the project schedule, project costs, and project resources.
5.5.5 Organizational Culture
Overall management of estimates is influenced by organizational culture. If the organization is strict regarding compliance to tracking consumption of actual time and/or cost against project estimates and in re-estimating and reforecasting when change occurs, then the organizational culture for managing estimates will ensure reasonably accurate estimations.
5.6 Summary
In summary, the re-estimating of project costs, project time, and project resources is an intricate and interdependent exercise. As actuals are consumed, these are reflected in the project plans. Variances from the plan should be reviewed, and decisions whether or not to formally change these aspects of the project need to be made. If the changes are approved and the baseline is altered, then re-estimates of time, resources, and cost are made to bring schedule variance and cost variance back in line to achieve delivery of the project objectives.
Controlling schedule, costs, and managing the project team, are project management processes covered in the PMBOK® Guide—Fourth Edition, along with the Monitoring and Controlling Process Group. In this chapter of the Practice Standard for Project Estimating, definitions are provided as well as a recommended process, (living plan process) that defines why, when, and how to re-estimate project time, project cost, and project resources during the project life cycle.
The living plan process described in this chapter is based on the collation of a number of real life experiences and good practices. As this practice standard evolves, additional good practices and real life experiences will emerge and become incorporated into the recommendation for added depth. However, the estimating cycle is a valid model for other existing approaches and may be the basis for variations on the theme.