Precision in Project Management: Expert Tips and Techniques for Crafting Realistic Budgets and Schedules

If you are a Project Manager, you care to get things done on time and within budget, and you certainly know how difficult it is!??

Project uncertainties and related risks make the creation of a realistic schedule and budget particularly challenging. Also, the responsibility of each stakeholder in this exercise is not always clear to everybody.?

To begin, it is important to clarify the role of the Project Manager in the project schedule and budget estimation. These two elements, although they are the final responsibility of the Project Manager, are very much a collaborative effort, as any good Project Manager will rely on the knowledge of the Project Team to achieve them.??

When we talk about estimating the duration of a task or the activity cost, the team member is indeed the lead actor. The estimation for the specific task or activity shall always be done by the person doing the work (or the most familiar with the work), to improve accuracy.??

But if the estimation is provided by other functions, what is the role of the Project Manager? what is the Project Manager meant to do when his/her Project Team is unable to come up with accurate estimates??

The responsibilities of the Project Manager will be clarified throughout this article, together with tips and techniques to help defining accurate scheduling and budgeting, even when faced with uncertainties.?

Tip #1: turn uncertainties into opportunities and threats?

If you ask your project team members?how long it will take to complete a specific task,?and they have no idea of the answer, do not panic! The worst thing you can do is to accept the best guess of your stakeholder as an appropriate answer: the tendency would be to double the time of the activity or to cover risks and issues that might be encountered.??

The practice of adding extra time or costs to an estimate is called padding. Padding prevents Project Managers from developing realistic schedules and budgets, and must never be accepted. One of the responsibilities of the Project Manager is indeed to avoid padding.??

This begs two questions: what is the reason for padding the estimates? How can this be avoided? The reason for padding is certainly a lack of information that helps to clarify unknowns. So, first thing a Project Manager can do is to provide the team with enough information to estimate each activity and let them know how refined the estimate shall be. Then, a best practice to address the “padding issue” would be to go through a risk management process with the estimators to turn the uncertainties into opportunities and threats (risks), hence include them in the estimation through contingency reserves calculations.???

Tip #2: do a (little) bit of math!??

Following the PMBOK Guide [1] there are several techniques that can be used for estimating. Estimators might select one or choose to combine different methods. Let’s have a look at them more in detail.??

Reserve Analysis?

Risks and unknowns are covered by contingency reserves, determined through specific calculations (Expected Value (EV) for schedule, Expected Monetary Value (EMV) for cost: EV or EMV = Probability x Impact) and management reserves (about 5% to 15% of the total cost). Contingency and management reserves can be added (in case of threats) or subtracted (in case of opportunities) to the total for a more accurate estimation. This approach is called Reserve Analysis and is one of the techniques used for estimating. Having said that, note that formulating reserves is the responsibility of the Project Manager.?

Analogous Estimating???

Analogous Estimating is a technique for estimating the duration or cost of an activity or a project using data from a similar activity or project. It is a gross value estimating approach sometimes adjusted for known differences in project complexity. This technique is most reliable when activities are similar in facts and not in appearance and the project team member preparing the estimates has the needed expertise. This technique is less time-consuming, but less accurate compared to others.?

Parametric Estimating?

Parametric Estimating is an estimating technique in which an algorithm is used to calculate cost or duration based on historical information and project parameters. It analyzes relationships between historical data and other variables to estimate duration or cost (e.g. Labor hours per drawing, or labor hours per meter in case of cable installation). This technique provides a high level of accuracy, but it can be expensive and time-consuming if the data are not readily available.?

Three-Points Estimating?

With the Three-Points Estimating technique, the project team will give an optimistic (O), pessimistic (P) and most likely (M) estimate for each activity. This technique allows more consideration on both the risk associated with the activity being estimated, analyzing what could go right (opportunities) and what could go wrong (threats). A wide range between optimistic and pessimistic can indicate uncertainty.?

• Expected Activity Duration (Triangular distribution)?

Triangular distribution is used when there is insufficient historical data or when using judgmental data. This formula gives equal weight to each of the three points when calculating the expected activity duration or cost.?

• Expected Activity Duration (Beta distribution)?

Beta distribution uses a formula to create a weighted average for the work to be done, which gives stronger consideration to the most likely estimate. This method of estimating leverages the benefit of risk management in reducing the uncertainty of estimates.?

Bottom-Up Estimating?

Bottom-Up technique is used when an activity’s duration or cost cannot be estimated with reasonable degree of confidence. The work within the activity is hence decomposed into more detail, then the estimations are aggregated into a total quantity for each of the activity’s duration.?

Once all estimates are available from the project team, they shall be reviewed by the Project Manager to verify that they are reasonable, and checked for padding and risks. It is also important that the Project Manager records all the assumptions made in this exercise for later review.?

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Conclusion?

In this article, we explored tips and techniques that can help Project Managers and team members in building accurate and realistic time and budget estimations, in line with the content of PMBOK Guide [1] and Rita Mulcahy’s PMP Exam Preparation Book [2]. I am a Project Manager working in the Pharmaceutical and Medical Device sector, and I know very well that in a context of pressure, which is common in a competitive business, it is not always easy to follow guidelines or best practices. However, it is true that the pressure handled in the right way will improve results and lead to success. So, let’s take a breath, stop for a moment, and think about which tools we can pick up from our “knowledge box” to perform better.?

Written by Marianna Scialla, PMP , Elmea Consulting

References

1. A Guide to the Project Management Body of Knowledge (PMBOK? Guide), Sixth Edition
2. Rita Mulcahy - PMP Exam Prep, Ninth Edition