Chapter:3

Project cost and Estimation

 Cost & Estimate

• Project cost estimation is the process of predicting the quantity, cost,

and price of the resources required by the scope of a project.
• A cost estimate is the approximation of the cost of a program, project,
or operation. The cost estimate has a single total value and may have
identifiable component values.
• A cost estimate is used to evaluate the required funding and to
compare with bids or tenders.
• Estimate accuracy is a measure of how closely the estimate is able to
predict the actual expenditures for the project or operation. This can
only be known after the project is completed.
• An example for a definitive estimate might be that the estimate has a -
5/+10% range of accuracy with a 90% confidence that the final value
will fall in that range. The accuracy of an early estimate relates to the
estimate quality.
 Types of Estimates in Project Management

• Top-down estimate
• Bottom-up estimate
• Expert judgment
• Comparative or analogous estimation
• Parametric model estimating
• Three-point estimating.
 Pricing Process

• Specific pricing strategies must be developed for each individual

situation
• The total program costs obtained by pricing out the activities over the
scheduled period of performance provide management necessary to
successfully manage the project.
• The work breakdown structure and activity schedules are priced out
through the lowest pricing units of the company. It is the responsibility
of these pricing units, whether they be sections, departments, or
divisions, to provide accurate and meaningful cost data.
 CPM

• The critical path method (CPM) is a technique where you identify

tasks that are necessary for project completion and determine
scheduling flexibilities. A critical path in project management is the
longest sequence of activities that must be finished on time in order for
the entire project to be complete.
• CPM revolves around discovering the most important tasks in the
project timeline, identifying task dependencies, and calculating task
durations.
• It helps you break down complex projects into individual tasks and
gain a better understanding of the project’s flexibility.
 Why?

• CPM can provide valuable insight on how to plan projects, allocate

resources, and schedule tasks.
• Improves future planning: CPM can be used to compare expectations
with actual progress. The data used from current projects can inform
future project plans.
• Facilitates more effective resource management: CPM helps project
managers prioritize tasks, giving them a better idea of how and where
to deploy resources.
• Helps avoid bottlenecks: Bottlenecks in projects can result in lost
valuable time. Plotting out project dependencies using a network
diagram, will give you a better idea of which activities can and can’t
run in parallel, allowing you to schedule accordingly.
 How to find the critical path

1. List activities
• Use a work breakdown structure to list all the project activities or tasks
required to produce the deliverables. The list of activities in the work
breakdown structure serves as the foundation for the rest of the CPM.
2. Identify dependencies:
Based on your work breakdown structure, determine the tasks that are
dependent on one another. This will also help you identify any work that
can be done in parallel with other tasks.
• Here are the task dependencies based on the example above:
• Task B is dependent on A
• Task C is dependent on B
• Tasks C and D can run in parallel
• Task E is dependent on D
• Task F is dependent on C, D, and E
• The list of dependent tasks is referred to as an activity sequence, which
will be used to determine the critical path.
3. Create a network diagram:
The next step is to turn the work breakdown structure into a network
diagram.
• For creating network diagrams, each box, or node, represents an
activity—with the arrows representing relationships between the
different activities. all four possible relationships:
• “Finish to Start” (FS): When an activity cannot start before another
activity finishes.
• “Start to Start” (SS): When two activities are able to start
simultaneously.
• “Finish to Finish” (FF): When two tasks need to finish together.
• “Start to Finish” (SF): This is an uncommon dependency and only
used when one activity cannot finish until another activity starts.
• lead times and lag times can be written alongside the arrows. for
example, you can simply write “10 days” over the arrow representing
the relationship between the connected nodes.
4. Estimate task duration
• To calculate the critical path, the longest sequence of critical tasks, you first
need to estimate the duration of each activity.
To estimate the duration:
• Making educated guesses based on experience and knowledge
• Estimating based on previous project data
• Estimating based on industry standards

Forward pass: This is used to calculate early start (ES) and early finish (EF) dates
by using a previously specified start date. ES is the highest EF value from
immediate predecessors, whereas EF is ES + duration. The calculation starts with
0 at the ES of the first activity and proceeds through the schedule. Determining ES
and EF dates allows for early allocation of resources to the project.

Backward pass: This is used to calculate late start (LS) and late finish (LF) dates.
LS is LF - duration, whereas LF is the lowest LS value from immediate
successors. The calculation starts with the last scheduled activity and proceeds
backward through the entire schedule.
5. Calculate the critical path
Step 1: Write down the start and end time next to each activity.
• The first activity has a start time of 0, and the end time is the duration of the
activity.
• The next activity’s start time is the end time of the previous activity, and the
end time is the start time plus the duration.
• Do this for all the activities.
Step 2: Look at the end time of the last activity in the sequence to determine the
duration of the entire sequence.
Step 3: The sequence of activities with the longest duration is the critical path.
6. Calculate the float
• Float, or slack, refers to the amount of flexibility of a given task. It
indicates how much the task can be delayed without impacting
subsequent tasks or the project end date.
• Finding the float is useful in gauging how much flexibility the project
has. Float is a resource that should be used to cover project risks or
unexpected issues that come up.
• Critical tasks have zero float, which means their dates are set. Tasks
with positive float numbers belong in the non-critical path, meaning
they may be delayed without affecting the project completion date. If
you’re short on time or resources, non-critical tasks may be skipped.
• Calculating the float can be done with an algorithm or manually.
Total float vs. free float
• Here’s a breakdown of the two types of float:
• Total float: This is the amount of time that an activity can be delayed
from the early start date without delaying the project finish date or
violating a schedule constraint. Total float = LS - ES or LF - EF
• Free float: This refers to how long an activity can be delayed without
impacting the following activity. There can only be free float when
two or more activities share a common successor. On a network
diagram, this is where activities converge. Free float = ES (next task) -
EF (current task)
• Compare the times for the two paths. Maximum of {22,19} = 22. We see that
path I has the maximum time of 22 weeks. Therefore, path I is the critical path.
The critical activities are A, B, D and F. The project completion time is 22
weeks.
Problem 2 : Find out the completion time and the critical activities for the
following project