3
PREPARE TO ESTIMATE
This section covers the Prepare to Estimate stage of the estimating life cycle and focuses on the creation of a project estimating approach. The objectives of this stage are to prepare to estimate and assure availability of all necessary resources to create the estimate.
The following subsections explain this stage in detail:
3.2 Prepare Project Estimating Approaches
3.1 OVERVIEW
Before a project estimate can be created, documenting the project estimating approach is critical and usually performed during the initiation phase of the project. Documenting the approach helps the project manager and key stakeholders consider the many factors involved in the project estimating process and identify the resources required and techniques used to estimate the project.
Figure 3-1 shows the inputs and outputs for the Prepare to Estimate stage described in this section. Spending the appropriate time planning for an estimate will help to mitigate some of the causes of variance identified in Subsection 2.6 on Estimation Variances, specifically the evolution of requirements and faulty estimating.
3.2 PREPARE PROJECT ESTIMATING APPROACHES
The first step in the Prepare to Estimate stage is to obtain all relevant information to understand the context of what is being estimated as the information becomes available.
3.2.1 INPUTS
Inputs to prepare project estimating approaches are:
◆ Project documents. Project documents contain a wealth of information critical to the success of the project and improve estimate quality. Examples of project documents include:
■ Requirements documentation. Describes how individual requirements meet the business needs of the project in the forms of user stories, use cases, bill of quantity (BoQ) if applicable and available, purpose of the project, technical characteristics, and solutions requirements.
■ Scope baseline. The approved version of a project scope statement, work breakdown structure (WBS), and its associated WBS dictionary that can be changed using formal change control procedures and is used as the basis for comparison to actual results. In agile approaches, there may be no scope baseline. Using one agile approach—Scrum—the scope is defined by the set of user stories that have been chosen to be part of a release. These are initially sized at a very high level and refined as development and implementation of the requirement are undertaken.
■ Activity list, attributes, and schedule. If the project has an existing activity list, backlog, and/or high-level schedule, these should be used in conjunction with the high-level scope as inputs to the Prepare to Estimate stage. Activity lists may also include activity attributes of associated data items that can be helpful in estimating, such as relationships, predecessors, and resource requirements.
■ Risk register. A repository in which outputs of risk management processes are recorded. The team uses the risk register to help determine the areas that may require adjustments to project resources, time, or costs. For example, a technology that is new to an organization presents a risk, because team members may not know how to use it effectively and therefore it may require more time to plan, design, and test.
■ Resource calendar. A calendar that identifies the working days and shifts upon which each specific resource is available. Any inventory of available resources is useful for estimating. Estimated activity duration is related to the availability, productivity, and allocation of resources.
◆ Experts. Once the high-level scope of the project has been documented, the project team should identify the resources necessary to estimate the various parts of the project. Several techniques described in Section 4 of this practice standard utilize the knowledge and experience of key resources. Experts do not have to be dedicated members of the project team. The engagement of project resources increases buy-in of the estimates and generates a stronger commitment to meet the realization of those estimates.
◆ Estimating techniques. The project team should understand the available estimating techniques. These may be included in the organizational process assets that are gathered. By understanding the estimating techniques, a project manager will have the appropriate inputs available when it is time to prepare the estimate. For example, analogous and parametric estimates require historical information for projects, whereas a bottom-up estimate requires a detailed WBS and activity list. These techniques will be described in more detail in Create Estimates, Section 4 of this practice standard.
In adaptive or change-driven practices, such as agile, the estimation may be managed in iterations, and each iteration will produce a higher degree of confidence in estimation. Many of the techniques compare the relative effort of completing a new requirement to the relative effort of a previously estimated requirement or something known among team members. The objective is to produce a rough estimate appropriate for the immediate need, but in most cases not definitive.
◆ Constraints and assumptions. It is important to recognize the identified project constraints and assumptions. Some projects have fixed scopes, costs, values, and/or schedules, which may constrain the estimates. Identifying these constraints and assumptions allows the project manager to develop an understanding of the flexibility of various options when estimating (e.g., scope, duration, cost, or benefit) and which requirements cannot be changed. It is also important to note any early assumptions made about the project and document them in the project assumption log. Constraints may also arise from the organization, clients, technical/process requirements, or specific issues.
◆ Additional influences. The primary influences of a project, external to the specific project requirements, are organizational process assets and enterprise environmental factors. Both influences should be considered when estimating projects because they directly impact the activities, activity durations, and cost, described as follows:
■ Organizational process assets (OPAs). Many organizations have standard processes, tools, and project management deliverables for managing projects. These assets should be understood so they can be planned for during the project estimating stage and included in the estimates. Examples include deliverables and processes included in the WBS that need to be estimated; estimating processes and standards required to be followed, which may include approaches for levels of confidence ranges and contingency reserve; and checklists of areas included in a project that need to be estimated. In the construction industry, there are databases for many items with unique codes that are continuously updated and maintained with vendors. These databases are key inputs for estimation.
■ Enterprise environmental factors (EEFs). These include internal and external environmental factors that surround or influence project success. Examples include, but are not limited to, organizational culture, industry or government standards, and marketplace conditions. A more comprehensive list of enterprise environmental factors can be found in Enterprise Environmental Factors, Section 2.2 of the PMBOK® Guide.
◆ Historical project information. Once the high-level scope is known, the project team gathers available historical information on similar past or ongoing projects. This can be the basis for a comparison or starting point, which can be used in the analogous estimating technique. It may also be used to understand how to utilize lessons learned so that these are included in the project estimate. Examples of historical project information include effort, schedule, cost, resources, and other forms of documentation. IT and agile project managers should consider the age of historical information to determine if it is still valid to be considered as an input to their estimates. Using outdated data in developing estimates can be problematic in highly changing environments such as software development, where the data, tools, and techniques vary and evolve rapidly.
3.2.2 OUTPUTS
Once the inputs have been gathered, the project manager should document the project estimating approach about estimating activity effort, activity duration, activity resources, and cost.
◆ Project estimating approach. The estimating approach chosen by the team and the rationale for selecting the approach are important communication elements to help team members quickly understand a project and detect variances early. This information is often included in the project management plan and should be visible in all retrospectives on project progress. The documented approach for estimating effort, costs, activity durations, and activity resources includes a description of the project being estimated, the estimation techniques used, resource needs, assumptions, constraints, and timing of estimates, described as follows:
■ Scope of estimate. What's included and excluded should be expressly identified and documented, along with a detailed list of assumptions. The scope of the estimate is not the same as the project scope and should not be confused with the project scope statement or scope baseline.
■ Organizational process assets (OPAs). Companies that have standard organizational process assets may also have a list of mandatory deliverables for projects. These should be noted so that estimates are obtained for these deliverables within the project.
■ Estimating assumptions. Explicitly state any assumptions about what is in the scope of the estimate and what is known and not known at the time of the estimate. These can include assumptions around the business case, the skills and availability of the team, and the project environment.
■ Constraints. A factor that limits the options for managing a project, program, portfolio, or process. Constraints may be economic, legal, environmental, technical, or social and include specific data or costs for the project that cannot be altered. Specific constraints identified by the customer need to be identified and documented.
■ Estimation technique(s). The project manager determines the best estimation technique(s) based on available information and identified risks. It is a good practice to use more than one technique to calibrate and compare those techniques. Section 4 in this practice standard outlines the scenarios in which each technique is best applied. This could include estimate rollup practices for related portfolios and programs.
■ Estimation confidence. Identify what is needed to obtain a high level of confidence for the project estimate.
■ Contingency reserve planning. State the approach for using a contingency reserve, including how it will be created, managed, and how it may change as the project progresses.
■ Risk assessment. Assess the existing project risk register for risks that can impact the project estimate and how they are being managed.
■ Management and monitoring processes. Document the plan for managing estimates, the timing and approach for reforecasting estimates, and the approach for monitoring the estimates and actuals. This should include the approach for metrics collection and reporting and the use of earned value analysis if being applied.
■ Improvement processes. Document the approach for capturing and utilizing lessons learned, actual costs, and effort to improve the project estimating process.
Once the project estimating approach is selected, it is good practice to share it with team members and subject matter experts and obtain signoff from key project stakeholders. Even though these individuals may have helped select the approach, a review validates the communications and helps set expectations as to what is being estimated, what the evolving estimates mean, and how the estimating process will evolve. This practice also increases the sense of ownership, consciously or unconsciously motivating team members to work harder to meet the estimates.
◆ Information and resources used to create the estimate. While preparing the estimate, relevant information is gathered and will be used during the Create Estimates stage (see Section 4).
3.2.3 CONSIDERATIONS
Figure 3-2 depicts the challenges cost estimators typically face and the enablers available during the Prepare to Estimate stage.
The project team should consider the following while getting ready to estimate in the Prepare to Estimate stage (see Figure 3-2):
◆ Allocate appropriate time to plan. The project estimating process takes time to plan properly. Projects are often held to commitments from early project estimates, so it is important to spend an appropriate amount of time planning the estimate. This time should be considered an investment because it improves accuracy.
◆ Proper stakeholder expectations management. As described in Subsection 2.5, Use of Metrics and Available Data, the known information and subsequent confidence levels and ranges for estimates change over the course of the project. Therefore, it is important for the project manager to set expectations with stakeholders and sponsors early in the project and manage expectations properly over the course of the project as the estimate evolves.
Early on in a project, there are many unknowns; therefore, project estimates can offer a wide confidence range (see Figure 2-2) with many assumptions. Progressive elaboration makes estimates more accurate throughout the project life cycle. Recent historical information of similar projects is important because it contains valuable data about actual time, resources, and money spent on similar activities. It is important to explain this to stakeholders and provide them with an idea as to when information will become available and when higher confidence levels for estimates can be expected. Failing to manage expectations around early project estimates can result in stakeholders having a different understanding of the commitments for a project. This may cause resistance as a result of multiple interpretations of cost, resource, activity, or schedule estimates.
◆ False perception of level of accuracy. Early estimates usually involve many broad assumptions. However, sometimes project estimating techniques result in very specific numbers. This may give the impression of a higher accuracy or level of confidence during the project estimating stage than was performed. Project managers should consider rounding numbers to the next higher increments and providing ranges for early project estimates.
◆ Adaptive life cycle (agile) project estimation. Similar estimation and related management activities can be applied in the context of adaptive or agile projects. Such projects also depend on effort, cost, resource, and schedule estimates and reestimates throughout the project life cycle. Adaptive project life cycles apply the concepts more frequently due to the nature of repetitive shorter cycles and iterations. Recognizing and addressing project issues early and learning from previous iterations within the same project are key elements in estimate management.
◆ Program estimate. This section provides details on how to manage estimates of effort, cost, resources, and schedule in the context of program management. Similar activities can be applied to programs at higher and broader levels. The estimates of different project schedules within a program can be consolidated and used as input to estimate and update the program roadmap, especially when schedules of different program components change as a result of reestimates. Similarly, a change in a program component can result in a change of type or amount of resources allocated to it and other different components within the same program. Hence, cost may also require a reestimate. Moreover, program benefits are estimated and measured continuously.
◆ Portfolio estimate. Since the portfolio may be composed of different programs, projects, and operational activities, any change in the estimates of these components will have an impact on the portfolio they belong to in terms of roadmap, budget, or value. Portfolio value is estimated and continuously measured and monitored to ensure the organization is harvesting the highest possible value of its investment and adherence to the strategic plan. Portfolio-level estimates may also be validated using industry benchmarking for similar portfolio types or project categories.
◆ Dynamic nature of resource allocation. Resource availability is measured for a point in time and is subject to change for a variety of reasons: market forces, a change in an organization's priorities, or reductions in staffing levels. The strength of management's commitment to allocating a needed resource to a program or project shall also be assessed. Contingencies should be considered in case such resources become unavailable.
◆ Internal versus external staffing. Programs and projects may be staffed with resources internal to the organization, external (e.g., contractors/consultants), or some combination. External resources may bring skills or competencies the organization lacks or they may be used to fill in where internal resources are not available. Cost and schedule estimates should account for the process of onboarding external resources, including such activities as orientation, new user setup, corporate policy training, and procurement of computer equipment.
◆ Portfolio/program shared resources. Components within a portfolio and program may share similar resources. A change in any project within a program can result in a change of resources allocated to different components within the same program. One example of this scenario is: If a project is delayed and results in a delayed departure of some resources, it may cause another project within the program to delay its start if it depends on critical resources that are still held up by the delayed project. Consequently, the program manager may make changes to the program roadmap and change the assignment of resources to different projects. A second example within this scenario is: A project could be underspending, resulting in significant savings. This can lead to the inclusion of other, potentially lower-priority, projects in the portfolio.
The following activities based on and related to project estimating should also be considered:
◆ Contingency reserve. Time or money allocated in the schedule or cost baseline for known risks with active response strategies. Contingency reserve should be added to those estimates based on the risk analysis and available information at the time the estimate is created.
◆ Organizational budgeting and allocation. Planning for organizational budgets generally includes project funding as well as project revenues. These are typically based on project estimates, however organization-specific criteria for overheads are applied (e.g., corporate overhead, management, real estate, and taxes).
◆ Vendor bid analysis. Organizations often use internal or independent estimates when analyzing proposals.
3.3 CASE STUDY
Refer to Appendix X3 for relevant information regarding the estimating approach to produce a bicycle.
3.4 SUMMARY
The project estimating approach is identified and the goals for the project are outlined during the Prepare to Estimate stage of the estimating life cycle. This stage considers how the project will be estimated using techniques, organizational process assets, and experts and assembles those in advance of the estimation work. The Prepare to Estimate stage also documents any constraints and assumptions that need to be factored in and provides a level of confidence to management. Key project and historical information is gathered and used as input during the next stage, Create Estimates.