In alignment with other PMI practice standards, the Practice Standard for Project Estimating provides information on the activity of project estimating. In particular, this practice standard focuses on managing the estimating process.
The audience for this practice standard includes, but is not limited to:
This chapter provides an overview of this practice standard and includes the following sections:
1.1 Purpose of the Practice Standard for Project Estimating
1.2 Definition of Project Estimating
1.3 Estimating and the Project Management Practice
1.4 Relationship Between this Standard and Other PMI Standards and Knowledge Areas
1.1 Purpose of the Practice Standard for Project Estimating
The purpose of this practice standard is to:
This practice standard has a descriptive purpose rather than one used for training or educational purposes.
The Practice Standard for Project Estimating covers project estimating as it is applied to single projects. These concepts may be applicable to the estimating of programs or portfolios as well.
Chapters 6 and 7 of the PMBOK® Guide—Fourth Edition (Project Time Management and Project Cost Management) are the basis for the Practice Standard for Project Estimating. This practice standard is consistent with those chapters, emphasizing the concepts and principles relating to project estimating. It is also aligned with other PMI practice standards as described in Section 1.4.
Figure 1-1 compares the purposes of this practice standard to those of the PMBOK® Guide—Fourth Edition and textbooks, handbooks, and courses. It is recommended that the PMBOK® Guide—Fourth Edition be used in conjunction with this practice standard because there are many references to sections in the PMBOK® Guide—Fourth Edition.
This practice standard is organized in four main sections:
Each of these four stages is described in separate chapters that address the following topics: (a) inputs, (b) activities, (c) outputs, (d) key considerations, and (e) generally accepted good practices.
This practice standard emphasizes those principles that are fundamental to effective, comprehensive, and successful project estimating. These principles are stated at a general level for several reasons:
These principles can be used as a check for an organization's processes. Practitioners can establish procedures specific to their particular situation, project, or organization and then compare them with these principles, to validate them against good project estimating practice.
1.2 Definition of Project Estimating
The definition of an estimate, as defined in the PMBOK® Guide—Fourth Edition, is as follows:
Estimate—A quantitative assessment of the likely amount or outcome.
This definition is usually applied to project costs, resources, effort, and durations and is usually preceded by a modifier (i.e., preliminary, conceptual, feasibility, order-of-magnitude, definitive).
Project Estimating—The act of creating a quantitative assessment of the likely amount or outcome. It is usually applied to project costs, resources, effort, and durations.
Project estimating as described in the PMBOK® Guide, is comprised of three processes that will be elaborated within this practice standard:
Baseline—An approved plan for a project, plus or minus approved changes. It is compared to the actual performance to determine if performance is within acceptable variance thresholds. Generally refers to the current baseline, but may refer to the original or some other baseline. Usually used with a modifier (e.g., cost performance baseline, schedule baseline, performance measurement baseline, technical baseline).
1.3 Project Estimating and the Project Management Practice
Project estimating is vital to successful project execution as it is an integral part of project management practices. Project estimating activities are a relatively small part of the overall project plan and are performed early in the project life cycle. However, effective project estimating is a key contributor to the successful planning and delivery of project objectives. A project uses the cost, resource, and duration estimates along with the expected benefits to build the business case for the project.
There are many notable examples of where final costs or schedules were significantly different than the original estimate. These variances were caused by many reasons, but all are related to the project estimating life cycle:
Even though estimates are developed initially at the onset of a project, it is important to think of estimating as a continuous activity throughout the project life cycle. The initial estimates are used to baseline the project resources, schedule, and cost. These estimates are then compared to the project benefit stream in order to determine an early view of the feasibility of the project. As the project progresses and more information is known, the estimates are continually refined and subsequently become more accurate. This is consistent with the project concept of progressive elaboration According to the PMBOK® Guide—Fourth Edition:
Progressive Elaboration—Continuously improving and detailing a plan as more detailed and specific information and more accurate estimates become available through successive iterations of the planning process as the project progresses.
Progressive elaboration allows a project management team to manage to a greater level of detail as the project evolves.
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 not a one-time event.
With the collection of data during the project control phase, the project team will have enough information to refine the initial estimates and establish more accurate forecasts, creating more effective action plans and allowing to better understand the project trends.
1.4 Relationship Between This Standard and Other PMI Standards and Knowledge Areas
Estimating has connections to many other disciplines within project management because it is an iterative process that occurs throughout the project life cycle. Therefore, this practice standard has relationships to many other existing PMI standards, for example:
1.4.1 PMBOK® Guide—Fourth Edition
This applies to assumptions of estimates and stakeholder management around expectations based on the stage of the project.
Cost estimates and activity duration estimates are inputs into the risk register, based upon assumptions made, amount of information available when the estimates were created, and the degree of confidence in the estimate projections. This process also includes determining the risk tolerance of the project stakeholders, such as the sponsor and customers.
Cost and activity duration estimates are inputs into the quantification of the risk impacts on the project objectives. Risk mitigation often results in additional work and additional cost to be included as part of the estimate.
Cost estimates and activity resource requirements are inputs to the procurement approach and are used to evaluate the reasonableness of bids. The project estimate becomes the project budget after the contract negotiations.
1.4.2 Practice Standard for Earned Value Management [2]
Managing earned value starts with creating estimates for specific increments of work. Earned value is also a diligent way of monitoring and verifying the project actuals and forecast and to compare to the project estimates.
1.4.3 Practice Standard for Work Breakdown Structures [3]
The WBS is used to identify project scope elements (deliverables within phases). These are in turn (starting with work packages—the lowest level of WBS decomposition) used (decomposed) to create activities and milestones that are intended for the project schedule as part of the schedule development process. The WBS also establishes essential relationships between key assumptions for scope, scale, and performance requirements at all levels that can be used to support the various estimating methods (as demonstrated in Section 4.3).
1.4.4 Practice Standard for Scheduling [4]
The schedule is created based on an activity list derived from the work packages in the work breakdown structure.
1.4.5 Practice Standard for Project Risk Management [5]
Estimates are based on assumptions that have risks embedded in them and which need to be managed.
1.4.6 The Standard for Program Management [6]
Sections 3.4 and 3.6 highlight program management processes related to program estimating. Risk mitigation often results in additional work and additional cost, which needs to be included as part of the estimate.
1.4.7 The Standard for Portfolio Management [7]
Section 3 highlights portfolio management processes related to project estimating.
1.5 Summary
The Practice Standard for Project Estimating provides a standard for project management practitioners and other stakeholders that covers the aspects of project estimating which are recognized as good practice on most projects most of the time. This practice standard focuses on estimating activity resources, activity durations, and cost. Project estimating is important because of the many direct linkages to the other aspects of project management.
The principles for the management of project estimating described in this practice standard should be applied based on the specifics of a project. Experience indicates that project success may be directly related to the appropriate application of project estimating principles throughout the project life cycle.