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.

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Use the following process to estimate the total effort
required for your project.

  1. 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.
  2. 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. 
  3. 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.
  4. 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.
  5. 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.
  6. 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%.
  7. Calculate
    the total effort by adding up all the detailed work components.
  8. 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.
  9. 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.
  10. 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