Chapter 3: Project Planning

3.1 Estimating Project Times and Costs

When we estimate project times and costs,
we are essentially calculating two key variables that will influence the delivery of the project.
The estimation process can be achieved through top-down or bottom-up strategies Estimates derived through a
top-down approach are often carried out by senior management.
This is done by a macro point-of-view, using analogical derivation,
group consensus, or via mathematical algorithms.

Bottom-up estimates, then, are typically performed by the project team or the execution team.
Their estimates rely on estimates of elements found in the WBS.

Estimates are important because they can be used to:

Support sound decision-making.

Schedule work and tasks.
Determine project length (duration) and costs.
Determine whether the project is worth considering and embarking on.
Develop cash flow requirements as well as budget considerations.
Determine how well the project is progressing compared to plan.
Develop time-phased budgets and establish the project baseline.

3.2 Estimating Guidelines for Times, Costs and Resources

Project managers recognise that time, cost and resource estimates must be accurate to ensure effective project
planning, scheduling and controlling .
However, inaccurate or poor estimates are often a recurring contributing factor to project failure.
Thus, the following guidelines provide a good baseline or basis for developing useful work package estimates
for project planning purposes:

 Responsibility – At the task or work package level, estimates should be made by the person or persons who are more
familiar with the task.

 Rely on Multiple Parties to Estimate – A cost or time estimate’s accuracy is increased (and improved) when several
people with the relevant experience or expertise provide their valuable inputs. This also serves as a parity check.

 Normal or Usual Conditions – Estimates should be premised on normal or usual conditions, and based on efficient
methods, and using a normal level of resources.

 Time Units – Specific time units (e.g. in days, weeks, months, etc.) should be selected early in the development phase
of the project lifecycle by the project manager. All task time estimates need to be consistent time units to prevent any
misalignment between the stakeholders.

 Independence – Each task should be treated as independent of other tasks that might be integrated by the WBS.

 Contingencies – Work package estimates should not include allowances for contingencies or exigencies.

 Risk Considerations – Identifying the degree of risk allows stakeholders to consider the various alternative methods
and hence alter process decisions. (This will be covered in greater detail under Project Risk).

3.2.1 Factors Affecting the Quality of Estimates

To build a good estimate for costs, time and budget for the project,
the project manager must recognise that the quality of estimates as well as the estimation process (or
processes) are strongly influenced by numerous factors as listed below:
Planning Horizon – Estimates of current events are close to being fully accurate but are gradually condensed
as the events get more distant.
Project Duration and New Technology – Occasionally, poorly written scope specifications for new
technology can cause pivotal errors in time and cost estimation.
People and Stakeholders – Inputs from the various stakeholders can have an impact on the quality of the
estimates.
Project Structure and Organisation – Which project structure chosen to manage the project will influence
time and cost estimates.
Padding Estimates – More often than not, project managers and the project team may insert buffers (or what
we term as padding) to limit the risk of any project delays or failures. However, this may cumulate to an
overstated project duration and cost.
Organisation Culture – Organisation culture shapes every dimension of project management.
Other Factors – Non-project factors can also influence sizing of cost and time. Examples include equipment
down-time, national holidays, and legal limits, etc.

Why do you think accurate estimates are essential for effective project management?

3.3 Methods for Estimating Project Times and Costs

Since estimating takes effort and incur money, the amount of time dedicated to estimating is a significant consideration. Top-down estimates
are regularly created by a stakeholder who uses his or her familiarity and experience to define project duration and cost. Estimates are
usually a first-cut estimate from senior management; they are often not as realistic. Whenever possible, the estimation of the time and costs
of a project should be granulised to the lowest, or the work package level. However, the project must have a clear project definition for this
to work well.

Figure 3.1 Top- down and Bottom-up estimating(Source: Boston University Metropolitan College)

Typically, bottom-up estimates leverages a team of experts who have a good deal of experience in implementing the task(s). This gives the
customer a chance to deal with the project trade-off issues.

The conditions for selecting a top-down or a bottom-up estimates are provided below:
Table 3.1 Conditions for top-down and bottom-up Top-Down Bottom-up
Estimates Estimates
estimating
Condition
Strategic decision making O
Cost and time important O
High uncertainty O
Internal, small project O
Fixed-price contract O
Customer wants details O
Unstable scope O

(Source: Larson & Gray, 2014)

Developing estimates for project’s cost and time is a skill that can be perfected over time, through repetition and experience. We will
examine the various estimation methods from both the top-down and bottom-up approaches.

3.3.1 Methods for Top-Down Approaches

Consensus Methods
Ratio Methods
Apportion Methods
Function Point Methods
Learning Curves

3.3.2 Methods for Bottom-Up Approaches

Template Methods
Parametric Procedures
Range Estimating

3.3.3 A Hybrid Approach: Phase Estimating

This approach starts with a top-down estimate for the project and then refines estimates for
phases of the project as it is estimated. Phase estimating is useful when an unusual amount of
uncertainty surrounds a project and it is impractical to estimate times and costs for the entire
project.
Figure 3.4 Phase Estimating(Source: Larson, E. W., & Gray, C. F. (2018). Estimating project times and costs.
In Project Management: The Managerial Process (7th ed.). McGraw-Hill Education.)

3.4 Types of Costs

In the process of estimating, you will need to know what are the kinds of costs would be
involved. Assuming work packages are defined, you can then determine detailed cost
estimates, and these costs typically consist of the following:

 Direct costs
o Labour
o Material
o Equipment
o Others
 Direct project overhead costs
 General and administrative overhead costs

The total project cost estimates are broken down in this manner to sharpen the control process
and improve decision making.

Table 3.2: Characteristics of project cost estimates

Costs Characteristics
Direct costs  Can be charged to a specific work package.
Costs Characteristics
 Can be influenced by project manager, project
team, and individuals executing the work
package.

Direct project overhead  Closely pinpoint which resources of the

costs organisation are being used in the project.
 Can be tied to project deliverables or work
packages.
 E.g. salary of the project manager and
temporary rental space for the project team.

General and  Represents costs that are not directly linked to a

administrative overhead specific project.
costs
 These costs are carried for the duration of the
project.
 E.g. organisation costs across all products and
projects such as advertising, accounting, etc.

3.5 Developing a Project Plan

3.5.1 The Project Network

The project network is a standard tool which is used for planning, scheduling, and monitoring
project progress. The network is created from various informational inputs collected for the
WBS. This is also represented by a graphic flow chart of the project job plan. An activity is
an element in the project that consumes time – for example, while working or waiting. Work
packages from the WBS are used to determine the activities found in a specific project
network.
Figure 3.5 The project network(Source: Wikimedia Commons)

Networks provide the project schedule. They do this by identifying dependencies and
sequencing, as well as consider the timing of activities, which the WBS is not designed to do.
A work package is independent of other work packages. It has definite start and finish points.
It needs specific resources, includes technical specifications, and has cost estimates for the
package. Notwithstanding, dependency, sequencing, and timing of each of these factors are
not included in the work package. Several work packages can form a network activity.
(Larson & Gray, 2014).

3.5.2 Developing a Project Network Diagram

To develop a highly robust project network diagram, you need to have a complete WBS.
Hence completeness of a WBS is critical. To construct a robust project network, you will
need to understand the terminologies used as well as the basic rules to follow.

Terminologies

Activity An element of the project that requires time

Merge activity An activity that has more than one activity immediately preceding it

Parallel Activities that can take place at the same time

activities

Path A sequence of connected, dependent activities

 Critical path The path(s) with the longest duration through the network; if an activity
on the path is delayed, the project is delayed the same amount of time

Burst activity An activity that has more than one activity immediately following it

Figure 3.6 Terminologies for a project network

Basic Rules to Follow

Netwoks flow typically from left to right.

An activity cannot being until all preceding connected activities have been completed.

Arrows on networks indicate precedence and flow.

Arrows can cross over each other.

Each activity should have a unique identification number.

An activity identification number must be larger than that of any activities that precede it.

Looping of activities is not allowed (e.g. A to B to C and back to A).

Conditional statements are not permitted.

Experience suggest that when there are multiple starts, a common start node can be used to
indicate a clear project beginning on the network.

Figure 3.7 Basic rules of a project network

3.5.3 Activity-on-Node Method

While there are two methods used to develop project networks: activity-on-node (AON) and
activity-on-arrow (AOA), increasingly AON is appreciated and used by most project
managers in the industry. Hence, it is with this in mind that we will cover only AON
method. An activity is repesented by a node or a box. The node can take many forms, but is
usually represented by a rectangular box. The arrows between the boxes show the
dependencies among activities. There are three specific relationships that you will have to
take note:

1. Which activities must be completed immediately before a specific activity?

We call these activities: predecessor activities.
2. Which activities must immediately follow this activity? We call these
activities: successor activities.
 3. Which activities can occur while this activity is taking place? We call such an
activity: a parallel activity.

3.5.4 Network Computation Process

The project network positions the activities in the correct sequence for calculating the start
and end times of activities. Performing a few simple computations allows the project manager
to finish a process called the forward pass and backward pass, hence providing more
information on the following questions:

 Forward Pass referring to Earliest Times

o How soon can an activity start? (Early start or ES)
o How soon can the activity finish (Early finish or EF)
o How soon can the project be finished?
 Backward Pass referring to Latest Times
o How late can the activity start? (Late start or LS)
o How late can the activity finish? (Late finish or LF)
o Which activities represent the Critical Path? (CP)
o How long can the activity be delayed? (Slack or Float, or SL)

The forward pass starts with the first project task or activity and follows each path via the
network to the last project task. As you move or trace along the path(s), you can then add the
activity timings. Consider that the longest path denotes the project completion time for the
plan and is what we termed as the Critical Path. The forward pass requires you to remember
the following points:

1. You can add activities along each path in the network.

2. You can carry the early finish (EF) to the next activity where it becomes its
early start (ES), unless:
3. If the next suceeding activity is a merge activity, you select the largest early
finish number (EF) of all its immediate predecessor activities. (Larson & Gray,
2014).
Figure 3.8 A critical path(Source: Project Management
Guru, https://projmgmtguru.blogspot.com/2017/12/project-schedule-planning-tools.html)

The backward pass, on the other hand, starts with the last project task on the network. You
move backwards on each path and subtract task or activity timings to find the late start (LS)
and late finish (LF) times for each task. The backward pass has similarities to the forward
pass, with the following important considerations:

1. You can subtract or minus activity times along each path starting with the
project end task (LF = DUR = LS).
2. You can carry the LS to the next preceding activity to establish its LS, unless;
3. If the next preceeding activity is a burst activity; in this case you will have to
select the smallest LS of all its immediate successor activities to establish its LS.

Reflect 3.2

What are the key differences between a WBS and a Network Diagram? When do you use one
over the other?

Suggested Answer
 Activity 3.1

Draw a project network from the following information.

Activity Predecessor Duration

A None 2

B A 4

C A 3

D A 2

E B 3

F C 6

G C, D 5

H E, F 6

I G 5

J H, I 5

Activities B and H can be shortened to a minimum of 2 weeks. Which activity would you
shorten to reduce the project duration by 2 weeks? Why?

3.5.5 Determining Slack or Float

The amount of time a task or an activity can have a delay yet not delay the overall project can
be revealed by total slack. Hence, we can consider total slack as the amount of time a task or
an activity can exceed its early finish date without affecting the project end date.

Total Slack (or Float) is:

 The difference between the LS and ES (LS − ES = SL) or

 The difference between the LF and EF (LF − EF = SL)
The critical path is therefore the network path that has the least slack in common.

Free slack (FS) is the amount of time an activity can be delayed without delaying any
immediately following (successor) activity. Or, we can consider free slack as the duration an
activity can exceed its early finish date without having to affect the early start date of any
successor.

Watch

To develop a better understanding of how to create project network diagram from a WBS and
calculate both the scheduling times and critical path, watch https://www.youtube.com/watch?
v=URdxhl_8qIE

Reflect 3.3

Why is slack important for the overall planning and execution of a project?

Suggested Answer

Lesson Recording
Applying the Project Network Diagram to a Given Scenario