BUS 528 - Chapter 8 Ideas

1. Follow the Golden Rules:
a. Have the right people make the estimates
b. Base the estimate on experience
c. Don’t negotiate the estimate –negotiate the equilibrium

2. Estimating techniques:
a. Phased Estimating
Phased estimating is a favorite among project managers because it requires cost and schedule commitments for only one phase of the project at a time. It breaks down the full product life cycle into phases, each of which is considered a project.
b. Apportioning
Also known as top-down estimating, apportioning begins with a total project estimate, then assigns a percentage of that total to each of the phases and tasks of the project. Although apportioning is rarely as accurate as a bottom-up estimate, it is an appropriate technique for selecting which projects to pursue.
c. Bottom-up estimating
Bottom-up estimating requires the most effort, but it is also the most accurate. As the name implies, all the detailed tasks are estimated and then combined, or “rolled up”.
3. Building the detailed budget estimate
The detailed estimate is the standard for keeping costs in line. Forecasting cash flow enables the project’s funding to be planned and available when needed. Sources of data for the detailed budget:
• Internal labor cost
• Use the burdened labor rate
• Don’t leave out the cost of staffing the project
• Internal equipment cost
• Estimating equipment that will be used up
• Estimating equipment used on multiple projects
• External labor and equipment costs
• Materials costs

4. Generating the cash flow schedule
Knowing when money will be spent is almost as important as knowing how much will be spent. Companies that depend on operations to generate the cash to fund projects need to control the rate at which money goes into the project.