Estimating and Contingency Response Assignment
As we have learned in the pastcourses, there are four ways in which we can calculate cost estimatesidentified as the following:
AnalogousEstimation Also known as the Top Down method. This estimating techniqueoffers quick results and is relatively inexpensive to calculate. It is based onthe historical data gathered from a comparative project. I use this techniqueoften when I have projects that are in the production line assembly. When Iestimate a building to be $80,000, it is because I have already completed somany that are similar, that I can accurately draw a baseline estimation. Wheninquiries are presented by customers regarding a 400sqft office building, I canquickly and accurately produce a quote within seconds.
ParametricEstimation This estimation is like the Analogous method but also considersother parameters that affect the project. For example, just recently I had toclose out a project that had a few change orders involved. I just had a projectkickoff with another one that was similar. When I estimated the projectduration, I reviewed the impact to the schedule caused by the change order andadjusted accordingly. With this, I was also able to factor in the costestimation for the resources required and finalize a more accurate cost andduration proposal.
Three PointEstimation Three-point Estimation method takes factors like most likely (ML),pessimistic (PT) and optimistic (OP). The formula is ((OT+4(ML)+PT)/6). When wedelve deeper into the meaning of this and why we use it, we can see that theoutput is the average of all the possibilities. I use this to generate a taskduration when I know that there are uncertainties which makes my estimationsmore accurate and provides room for “Total Float?” when performing the CPM.This is how I get a better estimation for cost and duration.
Bottoms upEstimation -Very accurate estimating method but takes a lot of time andinvolves higher cost. Also known as the “Definitive Techniqu?” where “The costof every single activity is determined at the Lowest level of the WBS, and thenrolls up to calculate the total project cos?” (Usmani, 4 Tools to Estimate Costs in the Project Management, 2019). As stated, thisrequires the breakdown of each work package to the individual task level. Ipersonally have never used this in my current PM Position unless it is toidentify a change order. The way I understand it would be to breakdown the WBSand assign resources, hours, equipment costs etc. Then, I would add these upinto the assigned work package and all the way up to the highest WBS level. Wewould want to use this method when the WBS is highly detailed.
Withinproject management there are contingency reserves and there are managementreserves. Contingency reserves are managed and controlled by the projectmanager, whereas the management reserve is managed and controlled at theorganizational level. To determine the amount allotted as a contingencyreserve, we may consider calculations and diagrams to identify low levelrequirements. These would include the percentage of the project costs, ExpectedMonetary Value (EVM), a Decision Tree analysis and/or a Monte Carlo Simulation.The output to these methods would be a monetary value to set aside based on therisk probability and the associated cost in resource allocation.
The Management reserve is much different. Theproject manager must receive permission to use theses funds as they are usuallya percentage agreed upon to the total project budget. As stated by (Usmani, Contingency Reserve vs Management Reserve,2019),”Management reserve is not an estimated reserve; it is a figure which isfashioned according to the organization’s policy.”
Accordingto (Matrix,n.d.)the purpose of the Resource Requirements Matrix (RRM), is that it “Reflects anestimated total cost for implementing an activity or major project.” WBS workpackages are built to contain the low-level requirements that require work atthe task level. These task levels will then determine the resources and costsrequired to complete the assigned tasks. The budget can be calculated byassessing the matrix and ensuring any potential cost that could impact theproject. For example, orientation, team training, ongoing meetings, actionitems, administrative support, engineering, product development etc. All ofthese will have an associated cost involved and when we are able to break thesedown into an RRM, we can easily determine where the costs are coming from andwork backwards from there to determine our total project budget.
Works Cited
Matrix, R. (n.d.). Tool 163: Resource RequirementsMatrix. Retrieved from Flylib: https://flylib.com/books/en/2.890.1.249/1/
Usmani, F. (2019, January 28). 4 Tools to EstimateCosts in the Project Management. Retrieved from PM Study Circle:https://pmstudycircle.com/2012/06/4-tools-to-estim¦
Usmani, F. (2019, January 5). Contingency Reservevs Management Reserve. Retrieved
