Once you understand the effort that's required, you can assign resources to determine how long a project will take (duration) and then you can estimate labor and non-labor costs.
There are three early estimates that are needed for a project--effort, duration, and cost. Of the three, effort hours must be estimated first. Once you understand the effort that's required, you can assign resources to determine how long the project will take (duration) and then you can estimate labor and non-labor costs.
Use the following process to estimate the total effort required for your project.
- Determine how accurate your estimate needs to be. Typically, the more accurate the estimate, the more detail is needed, and the more time that is needed. If you are asked for a rough order of magnitude (ROM) estimate (-25% - +75%), you might be able to complete the work quickly, at a high-level, and with a minimum amount of detail. On the other hand, if you must provide an accurate estimate within 10%, you might need to spend quite a bit more time and understand the work at a low level of detail.
- Create the initial estimate of effort hours for each activity and for the entire project. There are many techniques you can use to estimate effort including task decomposition (Work Breakdown Structure), expert opinion, analogy, Pert, etc.
- Add specialist resource hours. Make sure you have included hours for part-time and specialty resources. For instance, this could include freelance people, training specialists, procurement, legal, administrative, etc.
- Consider rework (optional). In a perfect world, all project deliverables would be correct the first time. On real projects, that usually is not the case. Workplans that do not consider rework can easily end up underestimating the total effort involved with completing deliverables.
- Add project management time. This is the effort required to successfully and proactively manage a project. In general, add 15% of the effort hours for project management. For instance, if a project estimate is 12,000 hours (7 - 8 people), and then a full-time project manager (1800 hours) is needed. If the project estimate is 1,000 hours, the project management time would be 150 hours.
- Add contingency hours. Contingency is used to reflect the uncertainty or risk associated with the estimate. If you're asked to estimate work that is not well defined, you may add 50%, 75%, or more to reflect the uncertainty. If you have done this project many times before, perhaps your contingency would be very small--perhaps 5%.
- Calculate the total effort by adding up all the detailed work components.
- Review and adjust as necessary. Sometimes when you add up all the components, the estimate seems obviously high or low. If your estimate doesn't look right, go back and make adjustments to your estimating assumptions to better reflect reality. I call this being able to take some initial pushback from your manager and sponsor. If your sponsor thinks the estimate is too high and you don't feel comfortable to defend it, you have more work to do on the estimate. Make sure it seems reasonable to you and that you are prepared to defend it.
- Document all assumptions. You will never know all the details of a project for certain. Therefore, it is important to document all the assumptions you are making along with the estimate.
- This type of disciplines approach to estimating will help you to create as accurate an estimate as possible given the time and resources available to you.