Computerized Cost-estimating Tools

Whichever cost-estimating technique you choose for your project, you'll find that performing cost estimates manually can consume a lot of time and resources. If you feel you would rather be spending your valuable time actually managing your project, you'll want to consider using computerized cost-estimating tools.

Even the simplest tool can dramatically speed up cost estimating by totaling long columns or rows of figures in a split second. Which tools do you use in the workplace now? Perhaps you use a basic spreadsheet program, or you may use project management software.

A computerized spreadsheet of project costs allows for easy reference and analysis from a single page. Most basic applications also enable you to create simple charts and graphs for reporting purposes.

Project management software applications are specifically designed to aid in the planning and controlling of project activities. These programs are designed to make schedule and cost control much easier for project management teams.

Most software applications contain cost-estimating features that enable you to develop your cost estimates quickly and accurately. More details on how project management software can benefit your project are provided below.

• Triangulation. Triangulation is the act of using two points in space to accurately position yourself. You can use your computer to run two or more sets of cost estimates using different approaches in order to verify and affirm their accuracy.
• Simulation. There are some fairly sophisticated software products on the market that perform simulations. These programs enable you to develop various cost performance scenarios based on a few key inputs.
• Integration. Computer software enables you to integrate your cost estimates with your company's coding system for cost accounts. Your project team will also benefit from having cost information about current and past projects available on-line through a computer network.

There is a range of project management software available, from low-end software you can use to manage simple projects to high-end software that will enable you to handle multiple or complex projects. You should choose the product that best meets your needs.
Computerized tools have a number of advantages when used in cost estimating. They can save you time and money in the following ways.

1. They can simplify the use of other costing techniques.
Computerized tools simplify the use of other cost-estimating techniques, including analogous estimating, parametric modeling, and bottom-up estimating. Cost estimating often relies on statistical analysis that is simplified by computers. Totaling and rolling-up costs is also quicker and more accurate if you use computerized tools. More details are provided below.

• Analogous estimating. Analogous estimating means using the actual cost of a previous, similar project as the basis for estimating the cost of a current project. With the right software, you can easily use computerized databases to aid in cost estimating.
• Parametric modeling. You know how well computers crunch mathematical formulas. Put this power to use if your project lends itself to parametric modeling as the best cost-estimating technique to use.
• Bottom-up estimating. Even the most basic of applications can make bottom-up estimating much easier and faster. Automated spreadsheets would be ideal for totaling individual work items, and then rolling-up the individual estimates to find the project total.

2. They can calculate cost estimates quickly and accurately and enable you to perform simulations and "what if" analyses.
Computerized tools make preparing a variety of costing alternatives easy. You can decide which estimates are most feasible and achievable in the current project. Computer applications can also run simulations and do this much more quickly and accurately than most humans can.
Plus, you can use your computer to consider costing alternatives and to perform "what-if" analyses. For example, you could "ask" your software, "What if I add five percent to all production estimates?" or "What if I used this type of metal?"

Speed, accuracy, and the ability to run simulations are all characteristics that make computerized tools both time-savers and money-savers when developing cost estimates for a project.

Using Bottom-up Cost Estimating

If you were to begin your project cost estimates at the very lowest level of your work breakdown structure and then "roll them up" through the project to finally arrive at total estimated costs, you would be performing a bottom-up estimate. You will want to use this type of cost estimating when the following conditions exist.

1. You have enough detail about the project.
The accuracy of a bottom-up estimate is driven by the level of detail it contains. This technique relies heavily on a well-decomposed work breakdown structure (WBS). Low-level activities should include a list of required resources, resource rates, and activity duration estimates.

If you do not have specific information about your project at the outset, either choose another estimating technique or be prepared to revise your estimates as the project progresses and more information becomes available.

2. You have the time necessary to use this technique.
Your project team is starting a new project. There is a lot of detail in the WBS, so the bottom-up technique is an option. Now you have to make sure that you have budgeted sufficient time to produce the estimates.

Why does bottom-up estimating take more time to perform than other cost estimating techniques? It takes time to calculate costs for every activity and every resource, especially for large and complicated projects. Unique projects may require you to research prices and dig for rates.

3. You require a high degree of accuracy.
Bottom-up estimating is perhaps the most time- and labor-intensive way to estimate project costs. The "up side," however, is the high degree of accuracy you obtain using this technique. No other estimating technique enables you to better narrow down your range of possible results than this one.

Bottom-up estimates are generally considered to be accurate within five percent to 10 percent. They can be used as "control" estimates, meaning they are used during the cost control process to measure cost performance once actual costs are known.

4. You have little historical information upon which to base cost estimates.
There is a final type of project that would call for the bottom-up cost estimating technique: one for which there is little or no historical information. There are several reasons why you would not find historical information, including cost estimates, from other projects.

• Your project is unique. You may have a project that is unlike any that has gone before, and there are no similar projects upon which to base your cost estimates. Perhaps you are working in an emerging field or discipline for which no established history exists.
• You are using new technology. Have you implemented new technology into your processes? It may alter actual costs to the extent that previous cost estimates will not be accurate for the new project. New technology may either increase or decrease actual costs.
• You choose not to consult commercial databases of cost information. There are commercial databases of cost information available for many different industries. However, there are costs involved in purchasing a database plus the periodic upgrades. You may find it more worthwhile to develop your own database over time.

In summary, the bottom-up estimating technique is one that you will want to use to produce accurate cost estimates when there is little historical data about similar projects, a real need for accuracy, and adequate detail and time available.

The Analogous Estimating Technique

One of the most common methods of estimating project costs enables you to take advantage of the similarities between a current project and projects that have been performed in the past. This technique is called analogous estimating.

An analogy is a set of comparisons you draw between two things with similar characteristics. Analogous estimating is also known as "top-down" estimating because you apply the total costs from a previous project in order to estimate the total costs of a new one. Just keep breaking the budget down according to the new work breakdown structure (WBS).

The main benefit of using the analogous estimating technique is that it is less costly than other estimating techniques. The down side of using this technique is that it is also generally less accurate.

You may be wondering, "If analogous estimating is not considered to be accurate, why would I use this technique?" However, before you disregard analogous estimating altogether, you should be aware of the circumstances under which it is most reliable. It is particularly beneficial when the following conditions are present.

1. The new and previous projects are similar
There are two situations in which analogous estimating is used. One is when your project is similar to other, previous projects. The more similar the projects are, the more accurate the estimates will be. You also can base estimates on a similar project when you don't have detailed information about a new project. More details are provided below.

• Are they similar? To determine the degree of similarity between the past and current projects, examine the scope and purpose of the former project to ensure the projects are alike in fact, and not just in appearance.
• Not enough detail. Sometimes important costing information becomes available only after a project has begun. A similar project's budget will provide a general baseline to go by.

2. The individuals preparing the estimates have the necessary expertise
Knowledge about, and experience with, the subject matter determines whether the individuals preparing the estimates have the needed expertise. You may want to hire one or more external experts to help with cost estimating.

3. The estimating team has access to adequate information about the previous project
If your current project lends itself to the analogous estimating technique, you'll want to furnish your cost estimating team with everything they will need to produce accurate results. Listed below are some types of information they should have on hand when they are developing cost estimates using analogous estimating.

• Scope statements. The team will not know whether two projects are in fact similar unless it can compare descriptions of the project and product scopes.
• Work breakdown structure. The work breakdown structure from the previous project is also necessary to ensure that similar processes and steps will be followed in the current project. Differences in the two projects could affect the accuracy of cost estimates.
• Performance reports. Actual costs are the most important information from the old project. Your team will use them to determine which of the previous estimates were accurate. It should use the actual costs to revise any inaccurate estimates before copying them into the new project.

Remember the analogous estimating technique as a less costly way of estimating project costs when your team has the needed information and expertise to effectively compare the current project to previous, similar projects.

Historical Information Sources for Cost Estimating

Have you ever made an important project decision based on a similar situation in the past? Historical information and estimating publications are important inputs to cost estimating because they serve as benchmarks.

In project management, historical information is information about previous projects that can be used to help with a current project. Four sources of historical information a project management team can use for cost-estimating purposes are discussed below.

1. Project files
In all likelihood, your current projects are not that different from projects your company has done in the past. Each of these finalized projects should have a file, whether it is a "hard copy" file in a cabinet somewhere, or an electronic file.

You should consider both similarities and differences between past and current projects when consulting closed-out project files. One way to do this is to carefully compare the project scope statements.

An essential part of project management is keeping complete files of all planning inputs, work results, performance reports, and correspondence. If external organizations also worked on a project, you could obtain copies of their records for the project as well.

The documents most relevant to cost estimating are previous cost estimates, budgets, reports on cost performance that include actual costs, and documents that show the rationale behind revised cost estimates and budget changes.

Knowing how useful project files are to future projects should motivate you to keep every output your project management process generates. For example, you could implement a system for document retention within your project team, make sure that all stakeholders know that you want to keep all documentation in a central project file, set up a shared directory on your company's computer network where documents can be stored and backed up, and keep records of the reasons for cost variances, even when it causes embarrassment for the cost estimators.

2. Project team knowledge
The knowledge of your project team members is another form of historical information. Employees with experience and maturity are a great asset when it comes to cost estimating. They can draw on their experiences when cost estimating, since they likely will recall cost information about the various projects on which they have worked.

3. Commercial cost-estimating databases
Commercial databases are another source of historical information from which you can obtain cost information about previous projects. Publicly-owned corporations are required to make such information available. Other companies charge fees for access to databases that compile this information.

If you find a number of projects similar to yours in a database, compare them to your project and make adjustments for differences. You should be able to arrive at fairly accurate cost estimates for your project. Remember that certain factors, such as inflation, need to be considered when basing current cost estimates on former projects.

4. Estimating publications
Estimating publications are similar to commercial databases, as they contain commercially available analyses of raw data that can be used to prepare estimates. These publications help team members who are preparing cost estimates customize general information to their specific project. This streamlines the cost estimating process and increases efficiency.

Estimating publications can include such resources as computer software programs, industry-specific case studies, and periodical articles. These resources can provide you with useful project data in a reasonably short amount of time.

Of the four sources discussed above, project files contain the most reliable cost information. Project team recollections are useful, but they are generally far less reliable than documented results. Historical information and estimating publications are a great starting point for cost estimating. Remember to use the cost estimates that were proven accurate so you can avoid making the same errors again.

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.

Three Inputs to Cost Estimating

Resource requirements, resource rates, and the chart of accounts are three important inputs to project cost estimating. Details about these three closely linked inputs to cost estimating are provided below.

1. Resource requirements
A project's resource requirements come in the form of a list of items needed to complete a project. The list is produced during the resource planning phase.

Resource requirements refer to the types and quantities of resources needed to complete each activity listed in a work breakdown structure (WBS). Resource types, and the quantities needed to complete an activity, help determine project costs.

Project managers obtain the necessary human resources through staff acquisition and obtain materials through procurement. Typically, a project's resource requirements fall into five categories.

• Labor. Labor includes all of the human resources needed for a project, such as receptionists, computer programmers, engineers, and managers.
• Materials. Materials include the inputs you need for production or for delivery of a service. You will usually purchase materials from an external supplier, or from another division of your firm if it owns the raw resources you need for production.
• Equipment. Equipment includes machinery, hardware, software, and methods of transportation you need in order to complete the work. When estimating costs, consider how long equipment will be useful before it must be replaced.
• Overhead costs. Overhead costs can include costs associated with the facilities in which your project is carried out and interest payments on loans or leases.
• Contingency costs. Contingency costs are allowances made for risk and uncertainty. A project budget should contain a buffer to allow for unexpected costs, such as those that can result from natural disasters, computer viruses, accidents, strikes, or unexpected increases in the cost of supplies.

2. Resource rates
Another input to cost estimating is resource rates. Resource rates refers to the per-unit cost for each resource required to complete a project. If exact rates are not known, the rates themselves may have to be estimated.
Cost estimating is virtually impossible without the unit rates for each resource required. Examples of resource rates are staff costs per hour, printing costs per copy, lease costs per day, interest costs per year, utilities costs per month, and component costs per part. You will benefit from having accurate cost estimates based on accurate resource rates early in the project.

3. The chart of accounts
When calculating your cost estimates, you should allocate resources to the project based as closely as possible on your organization's chart of accounts. This is a table that contains the coding or numbering system that is used by the accounting department to monitor expenses. Categories of expenses can include staffing costs, office supplies, equipment, rent, and insurance costs.

Divide your project costs into categories that match the categories in your company's general ledger. This will save you time during your cost management efforts later in the project, especially if you use project management software that is integrated with your company's accounting system.

Perhaps part of your performance reporting efforts and postmortem analysis for your project will involve comparing the cost performance of different projects. This will be much easier if all projects use the same coding system.

You will need your company's accounting codes, as well as your project's WBS, resource requirements, and resource rates, to calculate cost estimates. Remember, determine resource requirements and resource rates before you begin estimating project costs to ensure the accuracy of your estimates. Integrate cost estimates with your company's chart of accounts to simplify cost control.

Cost Estimating and the Work Breakdown Structure

Do you often find it easier to solve a large problem by breaking it down into smaller parts? This is what the work breakdown structure (WBS) does for a project manager. The WBS itemizes the many tasks that make up a project.

The work breakdown structure contains the entire project scope—all the work you need to complete in order to deliver the product. Throughout the cost estimating process, you should refer back to the WBS to ensure that you have included each activity. The WBS enables you to:

• organize your cost estimates
• identify each project activity that generates cost
• illustrate the project scope in a summarized, graphical representation.

A work breakdown structure is a type of tree diagram that enables you to see the project scope all on one page. It depicts a hierarchical listing of the work, showing how the work elements are broken down (or decomposed) into tasks, work packages, and detailed activities. The WBS is organized as follows:

• The top line of the WBS contains the name of your project.
• The first level of the WBS contains the major elements of the project. Most projects within a given organization will have similar project life cycles.
• The lower levels of the WBS show the continued decomposition of the phases. The third level usually contains tasks. Lower levels would be comprised of work packages and ultimately, individual activities.

The work breakdown structure is developed as an output of defining the project scope. When creating a work breakdown structure for a project, use the scope statement to identify each of the project's major phases or elements.
Each phase will have its key deliverables, which are further decomposed into tasks and then into work packages or activities. Keep in mind that different elements may have different levels of decomposition.

For each project you manage, you'll have to decide to what degree you will decompose your work breakdown structure. If you want to develop detailed, accurate cost estimates, you will need to fully decompose the work.

As a guideline, ask yourself: "Can adequate cost and duration estimates be derived at this level?" If the answer is no, then you must continue to break tasks into work packages, and these into specific activities. The steps below summarize the process of decomposition.

1. Identify the major elements of the project.
2. Decompose elements into tasks, work packages, and detailed activities.
3. Ensure that the lowest level items are tangible and can be measured for completion.
4. Verify the correctness of the decomposition by comparing it to similar projects or having a qualified person review it.
5. Assign a unique identifier to each item that corresponds to your firm's code of accounts.

Step 3, in which you verify that each bottom-level work package or activity is measurable, is the most important step to cost estimating. Ask yourself: "Can each item be appropriately scheduled, budgeted, and assigned to a specific department, team, or person who will be responsible to complete it?" You'll be able to produce fairly accurate and detailed cost estimates if each activity is measurable—if it can be assigned a duration and a list of required resources, including human resources, materials, and equipment.
The work breakdown structure makes it easy to find the total cost estimates. Once the work of your project is sufficiently broken down into measurable, verifiable activities, assign a cost to each item. The process of totaling bottom-level activities, assigning a total to the task, totaling all tasks belonging to a deliverable, and so on, is called "rolling up" the estimates.

In summary, project managers and their teams will refer frequently to the work breakdown structure during the life of a project. However, at no other stage is the WBS more important than when cost estimates are being prepared.

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.

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 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.