Posted by: Gilad Lev-Shamur | November 28, 2009

You need all the pieces in order to complete the puzzle – Cost estimation is not one man show

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I regularly meet with our departments’ PMs (I tried to do it every week) to discuss their project progress. The meetings official target is to discuss the risks in their projects and how they are going to mitigate them, but usually the meetings deal with a lot of other things.

 Couple years ago, after we got our semiannual budget, I had a meeting with one of the PMs. His project scope was to upgrade part of our conference rooms. As it was look like very simple project, the project manager did not actually understand what I want from him with all this risks, processes and meetings.

This was a short period after I started my new role and before we implemented new projects selection processes for our semiannual budget requests, which include ranking projects according to our current objectives and various templates – include cost estimation template.  

 In order to keep the anonymity, let’s call him John. The conversation looks like that (I summarize it):

Me: “Hi John. How is your project going, something special?”

John: “No, nothing special.”

Me (trying to create a discussion):” Good. Did you open a project in our PMIS? Do you have all your quotations? Did you meet with the EHS guy and with the electrical guy?”

John:”Electrical guy? Why? I am just going to replace the carpet, paint the walls and replace the acoustic ceiling”

Me:”So, if you touch the ceiling, what about the lights dismantling and installing again? Did you ask the electrical team if they want also to replace the light to T5 model (same standards as in our new rooms)? Did you check with the IT department what impact it has on their equipment in each room and with the person responsible for cleaning about the impact on the other spaces?”

I started to see John face becoming gloomy. When we continue to talk, I again got to the conclusion that nothing in project management is simple. What look like a very simple project, got into budget problems due to wrong cost estimation process.

We estimate our costs before we start our projects. It can be done with a team of architects and engineers in large and complicated projects after part of the design was completed and can also be done by the PM in very simple projects.

The only thing we should keep in our mind, no matter who does it, is to work according to some processes and templates which will make sure we do not miss something. Like John.

Actually, the fundamental problem of John was that he did not involve all the relevant people in his project (actually he did everything by himself). This would have prevented him doing these mistakes. Nevertheless, if he used a proper cost estimation template for summarize his costs; he might recognize it in advance.  

Our current cost estimation tables include all the relevant disciplines a construction retrofit project includes (Electrical, civil, HVAC and so on), automatically adding to it the indirect and AFC parts. This reminds the project manager about other packages which he might miss. Also when reviewing the project during the projects selection process, we review his cost estimation and challenge him about disciplines he did not request any budget for.

Some useful advices for doing cost estimations:

  • Work according to the project WBS. If you can, create a basic WBS template for your projects.
  • Be carefull from $/Area estimations. It can help you verify other estimation made in other methods but not by itself.
  • Do not work on your estimation alone. Even if it look like simple project.
  • If you can, get estimation from some contractors.
  • Keep in mind when estimating to separate the capital budget and the expense budget.
  • Do not forget to include the AFC (allow for change) and indirect costs.
  • Estimation method can change during the project. $/Area estimation might be enough in the project initiation (with the AFC adjusted according to it). You need to use more precise methods during advance stages.

I did not describe how the specific package can be estimate:  parametric, according to historic data and so. This will be cover in future posts.

Good luck!

Gilad

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