Estimating project costs is hard. Get it right and you are a hero. Get it wrong and you get roasted.
Work package estimates should be based on normal conditions and normal level of resources. But cost estimating is challenging because it frequently involves complex calculations and unpredictable conditions. Project managers usually work with incomplete project details making it difficult to consistently produce accurate estimates.
Estimates can be improved by using several estimators with relevant experience and knowledge working together to estimate tasks.
Estimates made by the staff that will be responsible for completing the task and holding them responsible for exceeding time estimates may improve the accuracy of the estimates.
While adding allowances for contingencies is frowned upon, we still need to add risk to our estimates.
The best way to introduce risk to estimates is by using the PERT formula.
The PERT formula gives more weight to the most likely number by multiplying it by four, but then balances out the estimate adding the optimistic and pessimistic estimates then dividing it all by 6.
The PERT variables are:
T = Time
O = Optimistic. The least amount of time required to complete a task
M = Most Likely. An educated estimate of how long a task will take to complete without problems or delays
P = Pessimistic. The maximum amount of time required to accomplish a task
Use these variables and the PERT formula to add risk to your cost estimates.
T = (O + 4M + P)