Estimating Costs Using Activity Durations

By establishing the forecasted time it will take to complete various tasks in the work breakdown structure for your project, you will have prepared another important input to cost estimating: activity duration estimates. Activity duration estimates are primarily an input to schedule development, but they are used in project cost estimating as well.

An activity duration estimate is a quantitative assessment of the likely number of work periods that will be required to complete an activity. An activity's duration is important when you are estimating labor costs, for example, or when estimating the costs of financing over the total project duration.

To estimate an activity's total cost, multiply the rates for the activity by the estimated duration. When you estimate activity duration for each project activity and then sum the results, you can determine a cost estimate for the entire project. Knowing the time it will take to complete all project activities makes estimating total project time and costs easier.

There are three things to remember when using activity durations to calculate cost estimates.

• Include range of results. One is that activity duration estimates often include a range of possible results. They are, after all, just estimates.
• Convert units for time. Sometimes you have to convert months or weeks into "working days" or "working hours" to calculate costs. Your company or industry likely has conventions for figuring out how many production hours are in a week, month, or year.
• Allow for down time. Finally, remember to consider down time in your calculations. Remember that people do not work "24/7." Include weekends and holidays in your calculations.

Your activity duration estimates will include a range of possible results. Naturally, when activity durations have a range, your cost estimates will have a range, too. The points below illustrate the steps in estimating costs using activity duration estimates, indicating how a pharmaceutical company would estimate costs for clinical trials of a new drug.

• Establish the activity duration estimate. The duration of the clinical trials is estimated to be six months, plus or minus two weeks, assuming that three laboratory technicians are working on the testing.
• Check the resource rates that apply to this activity. Labor rates for this project are $18 per hour for each technician. If the company did not own the laboratory and equipment that will be used during the trials, it also would need to know the rental rates for these resources.
• If necessary, convert units of time. One year has 52 weeks, so six months has 26 weeks. To find the working hours in six months plus or minus two weeks, assume that technicians work a 40-hour week: 26 x 40 = 1,040 hours. Then, 2 x 40 = 80 hours. You could say there are 1,040 hours plus or minus 80, or that there are 960 to 1,120 hours in this time frame.
• Multiply the estimated duration by the rate for the activity. Multiply the labor rate ($18 per hour) by each end of the spectrum, and you get an estimated cost of between $17,280 and $20,160 per technician, or $18,720 plus or minus $1,440. Multiply again by three for each worker, and you get a total estimate of $56,160 plus or minus $4,320.

Activity duration estimates are estimates of how long it will take to complete each activity in the work breakdown structure. Without this vital information, you cannot accurately estimate project costs.

Estimating Project Activity Durations

Have you ever worked on a project where a critical resource was not available when you needed it? Has a project activity been shorter or longer than you expected? How do project managers plan resources for these activities?

Activity duration estimates are an important input to project resource planning. Activity duration estimates are quantitative assessments of the likely number of work periods required to complete an activity. The estimates should include the range of possible results. Project managers use activity duration estimates as a basis for scheduling time and resources for a project.

The project manager uses the WBS to determine which activities are involved in completing the project. Then using the tools and techniques of activity duration estimating, he prepares estimates for activity duration.

The estimates include an "optimistic," "most likely," and "pessimistic estimate," listed in that order. For example, activity 1 could take 10 days to complete, will most likely take 12 days, but could take as long as 16 days.

Only the optimistic and pessimistic estimates are used by project managers to create a range of possible results. These results become your activity duration estimates. In the example given earlier, the duration estimate would be two weeks, plus or minus two days, to indicate that the activity will take between 12 and 16 days.

Project managers also calculate the probability of the estimates being correct. For example, a project manager might estimate that there is a 15 percent probability that an activity duration will exceed 3 weeks, and an 85 percent probability that it will be less than 3 weeks.

John, a project manager for Quick-as-a-Wink computer consultants, has determined the activities involved in a software development project. One of those activities is scripting the content. John determines that the scripting activity should take 240 working hours to complete. He will use these hours to calculate his activity duration estimates.

John's activity duration estimates include the duration and the probability of the estimate being correct. John estimates that the scripting activity will take six weeks ± three days. There is a 75 percent probability that the scripting activity will take more than six weeks, and a 25 percent probability that it will take less than six weeks.

Activity duration estimates form the backbone of the project schedule. A properly prepared schedule will lead to better resource planning. And better resource planning will lead to a more successful project.

Compressing Project Duration

Have you ever heard the saying, "You may delay, but time will not," by Benjamin Franklin? As a project manager, don't you sometimes wish that you could just stop the clock? This is especially true when a project's schedule needs to be shortened so it will be finished before its scheduled date.

You could use duration compression to shorten the project schedule. PMBOK defines duration compression as, "shortening the project schedule without reducing the project scope."

There are two duration compression techniques commonly used by project managers to meet imposed dates or other schedule objectives. These techniques are: crashing and fast tracking.

Crashing
Crashing a project schedule involves analysis of cost and schedule trade-offs to obtain the maximum duration compression (shortening of the project schedule without changing the scope), with the least amount of cost. This technique is usually the last choice for project managers.

Crashing the schedule may not always be the most feasible option for your project. It often results in increased project costs and the addition of extra resources. The rules of thumb for crashing a schedule are always crash or shorten tasks on the critical path and choose to crash tasks that will have the least impact on the project's budget.

Consider this example. Palmcom Computers has just reviewed its draft schedule for a new computer design project. It has discovered that the original plan has to be crashed to complete the project sooner than initially anticipated. Palmcom realizes that the objective of crashing its planned schedule is to come up with the best project end date.

Since crashing involves building a plan without regard to resources, Palmcom has restructured its schedule to include additional resources.

Fast tracking
Fast tracking involves looking at a project plan and assessing when it is practical to do work in parallel instead of sequentially. It works best where there are activities that are somewhat independent of each other. Fast tracking the schedule compresses the project schedule by overlapping activities that would normally be done in sequence, such as design and construction.

Consider this example. Sol-car, an automobile manufacturer, is designing a new solar-powered vehicle. Sol-car has just been notified by a major supplier that the panels it has ordered will not be available until May 15. The company has recently announced that it will unveil this new automobile on June 21. Therefore, this delay in shipment may cause a delay in the project's completion date.

Based on this information, Sol-car reviews its project schedule. It has decided that the last phase of the project will have to be adjusted to compensate for the previous delay. The last phase of this project would include the body assembly, the frame construction, the painting, and the final testing and marketing. The network diagram on the left is the original schedule, and the diagram on the right is the fast tracked schedule.

Looking at this schedule you can see that the activities are sequential in nature, with a finish to start dependency. This means that the preceding activity must be completed before the next activity can start.

Sol-car has fast tracked this schedule by moving activity D, which is somewhat independent of the other activities. Activity D will run concurrent to activities B and C. However, this can only occur if activity D's required resources are available.

Although these methods of project duration compression may seem like the answer to a project manager's prayer, there are disadvantages that should be taken into consideration. Can you think of what these disadvantages might be?

Fast tracking often results in rework and increases risk of a project being over budget. For example, there is an increased risk that the activity will not be performed properly when activities are overlapped. If this does occur, the activity will have to be redone.

Crashing often increases a project's cost. For example, if additional resources are added to crash a project activity, the labor costs on the project will be more than originally anticipated.

Although there are risks involved with duration compression, the ultimate goal is to bring a project back on track and end up with an improved, shorter duration. Either crashing or fast tracking will help you achieve that goal.

Estimating Activity Duration

One thing you can't afford on a project is wasted time. Time wasted on a project will affect both the budget and the schedule. Fortunately, proper planning and accurate activity duration estimates can be used to keep your project on time and within budget.

Project managers use activity attributes to select and sort the activities that comprise a project. They look at all aspects of a project before determining the project schedule knowing that a "missed" or inaccurately estimated activity can drastically alter the project schedule.

Activity lists, which describe all the activities to be performed on a project, are used in estimating the duration of project activities. Resource requirements that detail the people, equipment, and materials needed for a project are also used as inputs in this process.

Activity duration estimates are quantitative assessments of the likely number of work periods that will be required to complete an activity. Activity duration estimates give project managers a range of possible results.

Project managers can determine a timeline for a project from the range of possible results. This range can be an indication of the number of work periods or the probability that the activity will take as long or longer than expected.

Sam is a project manager for an aerospace company. He is using activity duration estimates as an input to project schedule development. Sam has estimated that assembling the wing will take at least 8 days, but no more than 12.

There is a 15 percent probability that the assembly will take more than 12 days, and an 85 percent probability that it will take less than 12 days.

Since there is a high probability that assembly will take less than 12 days, the project manager will schedule 10 days for this activity.

While activity duration estimates help project managers determine how long activities will take, activity attributes also play an important part in selecting and sorting the given project activities.

Activity attributes are important because they enable project managers to select activities and sort them into convenient groupings. Project managers use these groupings to find out information about a given project. Activities exhibit three types of attributes: responsibility, geographic area, or building, and activity type.

The responsibility attribute refers to who will perform the work. The geographic area or building attribute refers to where the work will take place.

The activity type attribute refers to whether an activity is grounded in specific details or is based on a summary of events.

Activity duration estimates help project managers determine the likely number of work periods an activity will take to complete while activity attributes are important for sorting and selecting project activities. Both inputs are essential in planning a project so that it remains on time and within budget.

Project Outputs: Activity List Updates

Project activity lists, which are elements of the project management process, may sometimes have to be updated after activity duration estimating is completed. In some cases, after activity duration estimating, an activity may be divided, or otherwise redefined, in order to show the correct logical relationships. Dividing or redefining an activity might cause it to take longer to complete. In other cases, the change will cause the activity to take less time than originally estimated.

The activity list must be updated to reflect these changes, since the duration of the activity will be affected. These activity list updates are important outputs of activity duration estimating.

For example, an activity list included writing code for a software project as one activity required to complete a project. Upon completion of the activity duration estimating process, it was found that the coding activity should be split up into three separate activities—developing interfaces, scripting, and testing. The activity list needed to be updated to reflect the change in the original activity.

The estimated duration for the original activity, writing code, also needed to be updated. The project manager used the tools and techniques of activity duration estimating to obtain estimates for the three new activities.

Updating the activity list is an important process for a project manager because it:

• helps the project manager create a more accurate schedule
• ensures that all team members are informed.

Remember, activity list updates are valuable outputs of the project activity duration estimating process, since they help project managers create more accurate schedules and keep team members informed.

Project Outputs: Activity Duration Estimates

As a project manager, you can help ensure the success of your project by recognizing and understanding the various outputs of activity duration estimating. One of those outputs are the activity duration estimates themselves.

Activity duration estimates are quantitative assessments of the likely number of work periods (usually days) required to complete an activity. Project managers use activity duration estimates as a basis for scheduling time and resources for a project.

Activity duration estimates are derived from the Work Breakdown Structure (WBS). Use the WBS to determine which activities are involved in completing the project. Then, using the tools and techniques of activity duration estimating, prepare estimates for activity duration.

The estimates should include optimistic, most likely, and pessimistic estimates, listed in that order. For example, an activity that could be completed in as few as 10 days (an optimistic estimate), will most likely take 12 days to complete (the most likely estimate), but could take as long as 16 days (a pessimistic estimate).

Only the optimistic and pessimistic estimates are used by project managers to create a range of possible results. These results become your activity duration estimates, or valid durations. Valid durations are estimates arrived at using the tools and techniques of activity duration estimating.

You also should calculate the probability of the estimates being correct. Since you're working with estimates and not actual outcomes, you won't be able to use formulas for calculating probability. Instead, you should use other techniques, such as expert judgment or analogous estimating.

For example, using expert judgment, a project manager estimated that there is a 15 percent probability of an activity exceeding three weeks and an 85 percent probability of it taking less than three weeks.

Activity duration estimates form the backbone of the project schedule. Properly prepared estimates will lead to a better schedule—and a better schedule will help lead to a successful project.

Project Activity Duration Reserve Time

You've probably heard of the Army Reserves. The Reserves are made up of citizens who are trained as soldiers and who can be called upon in situations that demand extra resources.

Similarly, reserve time is added to project activity durations to provide the extra time that may be needed based on identified risks. Risks can affect the project schedule and cause delays. Reserve time helps offset such delays.

Reserve time should be documented along with other data and assumptions relating to the project. Reserve time, like other assumptions, is contingent on project results and subject to change as the project progresses. Two methods you can use to determine reserve time are discussed below.

1. As a percentage of activity duration
Reserve time is normally calculated as a percentage of the estimated activity duration. Using this method, reserve time can be calculated by simply adding an extra percentage to each activity duration estimate.

Reserve time can be reduced or eliminated as specific project information becomes available. Its use is at the discretion of the project team and is normally guided by expert judgment or historical information.

Consider this example. You are managing a road construction project and you have estimated that it will take you 50 days to build an overpass. After consulting with one of your lead engineers, an expert on highway construction, you decide to add an additional 20 percent to the duration estimate as reserve time.

To calculate the reserve time as a percentage of the estimated activity duration, you simply multiply your duration of 50 days by 20 percent. The reserve time for this activity is 10 days.

2. As a fixed number of work periods
Another approach to creating reserve time involves simply tacking on an additional fixed number of work periods to the current estimates for each activity. Work periods are often measured in days, but may vary by project.

Let's say you're managing a similar road construction project and you have estimated once again that it will take you 50 days to build an overpass. This time, though, after reviewing historical information on similar projects, you decide to calculate the reserve time by adding five additional work periods, or days, to your estimate.

If you take into account your reserve time of five work periods, your adjusted activity duration estimate for building the overpass would be 55 days.

Whether you decide to determine reserve time as a percentage of the estimated activity duration or as a fixed number of work periods, make sure you consult with a team member who is familiar with the given activity. This will help ensure that the reserve time you decide upon is as accurate as possible.

When performing activity duration estimates for your project, remember to allow for reserve time to accommodate circumstances that could interrupt or delay the progress of your project activities.

Project Tools: Quantitatively-based Durations

If you had five lawns to mow and you knew it took you about an hour to mow one lawn, then how long would it take you to mow all five? Pretty simple, right? Well, that's how easy it is to use quantitatively-based durations to estimate project activity durations.

Quantitatively-based durations are often the simplest types of estimates to make, provided you have accurate activity information with which to work. The two types of activity information required to calculate quantitatively-based durations are quantities of work and productivity unit rates.

• Quantities of work to be performed refers to work amounts. Some examples of quantities of work to be performed for each activity are number of graphics, meters of cable, and tons of sand.

• Productivity unit rates refers to the length of time required to complete a fixed amount of work. Examples of productivity unit rates include hours per graphic, meters of cable per hour, and tons of sand per day.

Consider the example of a contractor who is building a new overpass as part of a highway project. Based on the size of the overpass, the project manager knows that she will require about 40 tons of concrete to complete the project. Since she will be working with a crew that she has worked with before, she knows it will take around five days to pour each ton of concrete.
In the example above, 40 tons of concrete represents the quantity of work, while the productivity unit rate for the project is five days per ton of concrete.

Understanding quantities of work to be performed for each activity and productivity unit rates provides useful information to project managers. This information is useful because it provides the data required to perform quantitatively-based duration calculations.

Quantitatively-based durations are calculated by multiplying the quantities of work to be performed for each activity by their productivity unit rates.

Remember, quantitatively-based durations can help you perform activity duration estimates, which can help you avoid surprises that could throw off your project schedule.

Project Tools: Analogous Estimating

One of the tools you can use for project activity duration estimating is analogous estimating. The dictionary defines analogous as "being similar in some particular way."

Think of the similarities between the human brain and a computer. One of the similarities is that they both process and store information. The similarities between the human brain and a computer make them analogous.

Project managers can use similarities between project activities when they are estimating activity duration. This technique of using similarities is called analogous estimating and involves the use of the actual duration of a previous, similar activity as the basis for estimating the duration of a future activity.

Sometimes referred to as top-down estimating, analogous estimating is used when there is a limited amount of detailed information about the project. This is especially true in the early phases of project planning.

Analogous estimating saves project managers time and money because it enables them to avoid the cost of hiring experts. However, project managers must be careful when using this tool. It is most reliable when:

• both activities are similar in fact and appearance
• the individuals preparing the estimates have the needed expertise.

Analogous estimating can be a powerful tool when used properly. When using this tool, always ensure that the two projects are similar in appearance and fact. Also, make sure that the person who performs the estimates has the necessary experience. Analogous estimating can help you ensure that you accurately estimate the duration of project activities.

Project Risk and Activity Duration Estimating

It has been said that "sometimes the greatest risk is not taking one." Whether this is true or not depends on how much of a risk-taker you are as a project manager. If you are aware of your project's identified risks, you will be better able to perform your project activity duration estimates.

Identified risks can affect activity durations considerably. You should take the impact of identified risks into account when performing activity duration estimates to improve the accuracy of the project schedule. There are two main factors to consider when assessing the identified risks. These two factors are discussed below.

1. Is the risk a threat or an opportunity?
Risks are generally perceived in one of two ways—as threats or opportunities. Threats are risks that may have adverse effects on project activities. Opportunities are risks that may have favorable effects on project activities.

Deciding whether a risk represents a threat or an opportunity can help you perform activity duration estimates. Activity durations will not necessarily change based on whether you perceive risks as threats or as opportunities. However, your perception will likely impact your willingness to put up with the effects the risks may have on your activity durations.

2. Does the risk have a high or a low probability of occurring?
The relationship between a risk's probability and its potential impact on activity duration estimates is directly proportional. This means:

• high probability = high potential impact
• low probability = low potential impact.

One of the most effective ways to assess the probability of identified risks is to examine historical information. Information from previous projects can help project managers gauge the probability of risks occurring on current projects.
The project team must decide the extent to which the effect of risk should be considered in the baseline estimates for each activity. If the effect of identified risks is not taken into account, activity durations could take longer than expected. Be aware of the effects of a project's identified risks, and help keep the project's schedule on track.

A project's identified risks can have significant impact on activity durations, so remember to consider risks when formulating your activity duration estimates.

Using Activity Lists for Project Management

Are you the type of person who makes a list so you don't forget anything? Lists are great: They help you to remember any items that you consider important.

Managers can use lists when planning a project. Lists help managers remember any items that are important for the completion of a project. One such list, used by project managers, is the activity list.

An activity list is a description of all the activities that will be performed during a project. It is a helpful input to activity duration estimating for a project.

As a project manager, you can use an activity list to provide your project team members with a detailed description of all activities they will perform on a project. This description helps project team members understand how the work is to be done.

The activity list is actually an extension of the work breakdown structure (WBS). The WBS is a hierarchical list of what must be done to complete the project. Like the activity list, it includes a description of each of the project deliverables and activities, so that the project team members will understand how the work is to be done. The layout of the WBS includes details about the following elements:

• the overall program
• the specific project
• the project's deliverables
• the activities involved in completing the deliverables.
  

Project managers use the WBS when creating their activity lists to ensure that the list is complete, and that all necessary activities are identified for each deliverable. The WBS also ensures that any activities that are not required as part of the project scope are excluded.
The activity list, like the WBS, should include descriptions of each activity. This ensures that the project team members understand their jobs and do them as required.

Remember, an activity list is a great way of remembering all of the activities that must be performed during a project. In addition, project managers can use this input to determine which activities are involved in the project when estimating activity duration.