Before you can estimate duration, you must understand the effort hours associated with your project. For example, what is the duration of an activity that takes 40 effort hours? The duration could be less than a week if multiple people are involved, and it would take longer than a week if only a part-time resource is involved.
For the sake of discussion, however, let's say that one person is assigned to this 40-hour activity. As the project manager, should you estimate that the duration of the activity is one calendar week? Maybe that would not be the best choice.
There are a number of factors that come up during the day that keep us from being fully productive. For example, let's say you work 8:00-5:00 with a one-hour lunch. Is it really the case that you are at your desk at 8:00 and you are 100% productive? Do you then maintain a 100% peak performance until 12:00 and then immediately shut down and go to lunch? Likewise are you always at peak performance from 1:00 until the end of the day?
None of us can work at that pace all day. These normal peaks and valleys of our day keep us from being 100% productive for the full eight hours.
Socializing is another cause for this productivity drop, but this isn't a bad thing. Social interaction helps with the teamwork and comradery that are a big part of what makes up a high-performing team. Of course, we all know people that take the socializing to an extreme, but some socializing is healthy and necessary.
Other factors that interrupt our eight hours of work time include going to the bathroom, walking to and from meetings, phone calls and the start-up time required when you multitask from one activity to another.
A generally accepted rule of thumb for average productive hours per day for employees is 6.5, based on an eight-hour day. This does not mean that in any one day a person may not be productive for a longer time. However, it does factor in a person's productive hours per day over time.
You should also take a productivity factor into account for your contract resources. They're still going to socialize a little and they still need to go to the bathroom. However, you don't expect that contract people will have the same level of non-productive time as employees. A good rule of thumb for a contract resource is 7 to 7.25 productive hours per day. (Of course, you still need to pay them for eight hours per day.)
This productivity factor can be used to determine the duration of activities in your workplan. (There is a place to plug in this factor in most project management tools.) For example, let's say you have an 80 hour activity. If one employee is applied full time, it may take him a little over twelve days (80 / 6.5 productive hours per day) to complete the work. If a contract resource is allocated full time to this same activity, the activity duration would be eleven days (80 / 7.25 productive hours per day). This is a more reasonable expectation of how long activities will take to be completed, and you want your workplan to be as realistic as possible.