5
MANAGE ESTIMATES
The objective of the Manage Estimates stage is to outline the fundamental inputs, activities, and outputs about managing estimates appropriately throughout the life cycles of portfolios, programs, and projects. This section also describes an approach to managing estimates from initial estimates to completed portfolios, programs, and projects based on the consumption of actual time and cost in relation to the completed work. The ability to reforecast remaining cost and time in relation to required efforts to complete remaining work is also described.
Managing the estimates of costs, effort, time, and resources is an intricate and interdependent exercise. As planned resources are consumed, the actual values are documented and compared with the planned values. Variances from the plan should be reviewed, and a decision made as to whether or not to formally revise the plan; if yes, then revised estimates are incorporated into a rebaselined plan.
This section includes the following subsections:
5.2 Manage Estimates: A Living Plan Cycle
Although this section provides details on how to manage estimates in the context of project management, similar methods can be applied to portfolio and program management, because both domains contain similar estimate components but at higher and broader levels. Similar estimate and related management activities can be applied to the adaptive project life cycle. Adaptive life cycles may apply the concepts more frequently due to the nature of repetitive shorter cycles and iterations.
5.1 OVERVIEW
The program or project manager actually monitors and controls the schedule, costs, and resources for the program or project, as well as the estimates, so the Manage Estimates stage and the monitoring and controlling of the project are considered one and the same.
For the purposes of this practice standard, the Manage Estimates stage compares actual consumption with the latest approved baseline, assessing the impacts, validating and, if needed, adjusting the estimates if the variances are due to errors in the estimates rather than to project performance issues. Reestimating should never be carried out in such a way that it can disguise performance shortcomings.
Once the initial estimates are created as defined by the organizational process assets and the Create Estimates stage, management of these estimates is undertaken by the project manager, project team, and other key stakeholders. The same applies for portfolio and program management. Figure 5-1 illustrates the inputs and outputs of the Manage Estimates stage described in this section.
This approach is one of several industry good practices for managing project estimates. The concept includes the regular review of the estimate in a timely manner, adjusting for approved changes and reestimating or reforecasting.
5.2 MANAGE ESTIMATES: A LIVING PLAN CYCLE
This section covers the activities applied to the initial and revised estimates to properly manage and maintain the estimate throughout the project life cycle. The activities described in this section are good practices that can be applied to most projects, most of the time.
Figure 5-2 (steps 1 through 3) illustrates 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, resource consumption, and approved changes are applied. The results are reviewed and a reestimate for the portfolio, program, or project is created if necessary.
◆ Step one: Apply actuals. Once the initial activity 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 management plan. The same also applies to portfolio and program management, because each of these management domains contains similar components at different levels.
■ Effort estimate management. It is crucial to measure if the original effort estimate to complete WBS packages defined in the project scope is correct or requires adjustment. A project manager may discover that an activity was underestimated in terms of efforts (e.g., ten work units instead of five), especially if similar activities will be performed throughout the project. Consequently, the project manager may decide to revisit the techniques used in the estimate or adjust the estimate to reflect the actual experience.
■ Duration estimate management. When 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 management plan. If not interfaced, the time usage for each resource will need to be entered manually.
In cases where vendors are employed, the actual time billed on the associated invoice should be reconciled. Estimations should apply information such as contextualized actual cost or actual duration.
■ 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 when adding nonlabor resource costs to the project. These costs may include such items as software, equipment, training, entertainment, team-building events, and fees or taxes, depending on the organization's cost accounting policies. If included in the original cost estimate, then consumption needs to be reflected appropriately throughout the project life cycle.
■ Resource estimate management. Throughout the project life cycle, resources are added or released, based on the resource management plan as outlined in the PMBOK® Guide. Consideration, in the form of an identified risk, should be given for normal and sudden staff turnover during the project. The resource roles, responsibilities, and competencies are defined, and the staffing management plans are detailed in the resource management plan.
The resource management plan includes the procedures for staff acquisition and mobilization, resource calendars, staff release plans, and competencies and training needs. In the initial project resource estimate baseline, the known skill needs are documented, filled as close to the requirements as possible, and added or removed as needed. 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 resource be less competent, then the impact to the project schedule could be significant, because more time may be needed to complete the activities and deliver the scope. Conversely, if the replacement candidate possesses the skills of the previous team member, but the resource cost rate is significantly higher, this could impact the project cost estimate.
The availability, cost, and quantities of resources other than people (e.g., equipment, facilities, etc.) should also be tracked. The actual consumption is compared to that planned in order to determine if a reestimate is needed based on the degree of variance.
◆ Step two: Review and control. In parallel with progressive elaboration, 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 unmanaged project complexity, changes to requirements, or other project environmental variables that could impact the project estimate.
During the typical execution of a project, the project manager, project team, and stakeholders expect time and cost consumption to approximate what was stated in the project management plan derived from the baseline estimate. Each organization may have governance models or rules that describe this relationship. The 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.
After applying actual time and costs or after assigning new team members, any time and cost 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 reestimate, including any provision for scope, cost, resource, or schedule change control. The Practice Standard for Earned Value Management provides more details on the different types of variances and how they are measured.
For resources other than human resources—such as materials, equipment, facilities, travel, and expenses—tracking the use or consumption of these resources is equally important because they are included in the costs of the project.
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 within any governance model includes: analysis and approval for changes in scope, cost estimates, schedule and duration timelines; resource staffing or skill competencies; and the decision as to whether or not the new estimate should be rebaselined.
◆ Step three: Reestimate after applying actual time, cost, or change in resources. When approved changes to scope, schedule, resources, or budget 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—the project team conducts a formal review of the actuals used compared to the baseline. Any substantial cost variance or schedule variance is addressed through standard project management practices and is covered in the PMBOK® Guide.
The resulting variances also become inputs for reforecasting the project or the next project phase. The project manager and project team create forecasts on the remaining amounts of time, effort, cost, and resources needed to deliver the project or phase objectives. These forecasts are based on the current rates of consumption of time, effort, cost, and resources.
Schedule forecasts rely on actual time consumed to date, staffing management plans, and the remaining activity duration estimates.
5.2.1 INPUTS TO THE MANAGE ESTIMATES STAGE
Inputs to the Manage Estimates stage for activity effort, duration, resources, and costs will vary from portfolio to portfolio, program to program, project to project, and from organization to organization. Following are the six basic inputs required to effectively manage estimates:
◆ Project estimating approach. The project estimating approach, 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.
◆ Baseline estimates. The original baselines, plus or minus approved changes through agreed-on governance, are compared to the actual performance to determine whether they are within acceptable variance limits. The same also applies to portfolio and program management, because each of these management domains contains similar components at different levels.
For estimating purposes, the following are baselines for consideration:
■ Cost performance
■ Schedule estimate
■ Resource histogram
■ Activity effort
■ Relative estimate baseline
■ Estimation of benefits
These elements are interrelated. For example, a change in estimate of an activity effort will likely result in a change of schedule, cost, benefit, and/or resources estimates.
◆ Approved changes to baseline. Estimates are affected by approved requests for changes made to expand or reduce the project scope (i.e., effort); modify budget (i.e., cost); revise schedules (i.e., duration or time); or reflect a change in the makeup of the project resources (i.e., project team resources or other resources such as materials, equipment, facilities, travel, etc.). Since change control processes, inputs, tools and techniques; outputs for time, cost, scope, and efforts; and resources are covered in the PMBOK® Guide, this section will refer to those processes rather than reiterate them in this practice standard.
Typically, only change requests processed through the Perform Integrated Change Control process and approved should be considered when reestimating project efforts, resources, costs, or schedules.
Approved changes are included as outputs from the Perform Integrated Change Control process and are covered in the PMBOK® Guide.
◆ Resource management plan. As defined in the PMBOK® Guide, the resource management plan provides guidance on how project resources should be categorized, allocated, managed, and released. Following are some examples:
■ 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 skill leaves the project, there is a risk of being unable to complete the task and 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 to undertake an activity, more time and/or more resources may be required to complete the tasks, resulting in reestimates of the project schedule and project costs. Resource competency requirements are defined in the roles and responsibilities section of the resource management plan.
The staffing section of a project's resource management 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 assist 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 financial, facilities, equipment, and materials other than human resources. Quantities, costs, and scheduling for these resources should also be included in the initial project estimates based on planned activities. Consumption of these resources needs to be considered and tracked along with human resources:
◆ Work performance information. The actual amounts of time, resources, and costs associated with achieving the project objectives are considered work performance information, also known as the contextualized actuals.
Human resources are typically associated with costs in that there is an hourly rate. As time is consumed, this rate translates into cost consumption. This applies to both contracted and internal positions.
■ Contracted positions. In contracted positions, there are three common types of contracts: time and materials, fixed price, and cost reimbursable.
❍ For hourly contracts, the hourly rate is negotiated within the contract and is typically based on the levels of experience and competence. 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 charged to 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 effort 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 actual time from invoices is important only in determining the work effort for better estimates on similar projects in the future.
■ Internal positions. For internal employees, the rate may be combined into a blended rate rather than displaying the actual compensation of any employee. For example, some organizations have developed a tariff rate, often referred to as a burden rate, for internal employees to use in project budgets for a better sense of the actual costs of portfolios, programs, and projects.
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 (i.e., timesheet or time reporting) may be employed to track the 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 obtain a valid and accurate schedule, consumption of actual time spent on each activity by all project team members is highly recommended. This will provide a more realistic management of the estimate for similar projects in the future.
◆ 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 schedule, costs, and resource estimates. The Manage Estimates stage is dependent on the processes and practices defined within the process assets library. Well-defined processes and procedures for estimate management and reporting enable more consistency in managing estimates, and identifying, approving, and communicating estimate changes to the project team and key stakeholders.
The processes describe the approach for using the prescribed templates. 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.
5.2.2 OUTPUTS OF THE MANAGE ESTIMATES STAGE
The outputs of the Manage Estimates stage for effort, time, resources, and cost vary from portfolio to portfolio, program to program, project to project, and from organization to organization. Common outputs from this stage are:
◆ Updated estimates. Updated estimates include all project estimates—project efforts, project time, project cost, and project resources; these are interrelated and all should be assessed as to the impact of any change. The same also applies to portfolio and program management because each of these management domains contains similar components at different levels.
◆ Updated forecast. Managing a project estimate by viewing the forecast is a powerful performance management technique. The updated forecast is defined as the recalculation of the cost and time to complete the remainder of the project or phase objectives based on the actual consumption of resources to date. This may be iterative and reflect small incremental cycles.
◆ Updated change request log. Any updates to the list of project change requests, for example, approved, opened, and closed changes, are change log updates. These changes should include the quantification of the impact of time, effort, cost, or resources.
◆ Reporting and communication. To assure stakeholder engagement and acceptance, reporting and communications should follow the guidelines and processes as defined in the communications management plan.
◆ Updated assumptions log. Management of the estimates may reveal incorrect hypotheses or give rise to new assumptions.
◆ Updated organizational process assets. Includes any templates or forms that were updated while managing the estimates.
5.2.3 CONSIDERATIONS
Key considerations and generally accepted good practices for the activities in this stage include but are not limited to the following:
◆ Actuals. Capturing actuals is the practice of using the data in such a way so as to recalibrate models, reestimate the project, and reforecast the balance of the project. It is important to ensure that time consumption is charged on the actual activities performed for those situations when employees enter time themselves. It also supports effective business management by providing reliable data for project cost-benefit evaluation. This practice allows the organization to refine and customize the estimating methods of the organization, thus contributing to improved initial estimates for future projects.
◆ Variance analysis. Variance analysis is the practice of analyzing, understanding, and communicating the impacts of time, scope, cost, and resources and the interdependencies each has with the others. When the reestimate results in a significant variance, the sponsors or steering committee may determine that the entire project should be rebaselined or, in exceptional circumstances, canceled. In these instances, follow the approved change management control process.
◆ Change control. Following the established guidelines and organizational 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.
◆ Quality of estimates. Adhering to the living estimate processes produces a quality of estimates that enables the project manager and project team to address and forecast changes to the schedule, activities effort, costs, and resources.
◆ Organizational culture. 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 reestimating and reforecasting when change occurs, then the organizational culture for managing estimates will ensure reasonably accurate estimations.
◆ Project management information systems (PMIS). These tools are software applications that provide the project manager and project team with the means to record completed work, actual time, cost, and resource utilization throughout the project. These tools enable the project manager to maintain ongoing information for managing the estimates. From the simplest to the most complex, these tools are: spreadsheets, backlog management tools, advanced scheduling software, and project portfolio management (PPM) tools.
◆ Earned value management (EVM). Earned value management is a very important part of monitoring the project in that it integrates scope, time, and cost. It is an early predictor and gives the project manager and project team an opportunity to manage the estimates and proactively manage the project. Once forecasts have been developed, then other tools and techniques such as schedule compression, what-if scenario analysis, adjusting leads and lags, performance reviews, and resource alternatives can be used or applied as needed corrective actions.
For more information on the EVM process, refer to the Practice Standard for Earned Value Management.
5.3 CASE STUDY
Appendix X3 contains the case study on the bicycle example. In this study, bicycle production has started, the work performance data are captured and contextualized, and the obtained work performance information is updated.
5.4 SUMMARY
The Manage Estimates stage assures that actual estimates reflect ongoing portfolio, program, or project performance.
If estimates are accurate and there are no changes to scope and planned efforts, there will be no need for reestimates, and portfolios, programs, and projects will be delivered on time and within budget.
Controlling schedule, costs, and managing the project team are project management processes covered in the PMBOK® Guide, along with the Monitoring and Controlling Process Group. In this section of the Practice Standard for Project Estimating – Second Edition, definitions are provided along with a recommended process (living plan process) that defines why, when, and how to reestimate time, effort, cost, and resources during the project life cycle.
The living plan process described in this section is based on several 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.