Estimating Effort: Part 1

05 Dec 2008 - 01:08 AM under Estimation | Posted by

This series of articles is extracted from a similar series I wrote for Projects@Work a couple of years ago. I’m posting it here in reaction to my review of Josh’s articles on Earned Value where he (in my opinion) used the term “estimate” when he should have said ?”budget.” Many of the terms related to estimating are used either inconsistently or imprecisely. Future items will address some ?how tos,” but first, let?s take a minute to establish some common terminology.

Estimate. An estimate is an informed assessment of an uncertain event. Informed means that you have an identified basis for the estimate. Uncertain recognizes that multiple outcomes are possible. For example, if I tell you that there are two people standing outside the door, that one is male and the other female, and that one is 6? 6? (200 cm) tall and the other is 5? 2? (158 cm) tall, which would you guess is the female?

Most people will predict that the tall person is male. Most people will make an informed assessment of this uncertain event based on their knowledge that men tend to be taller than women, that few women are as tall a 6? 6?, and that few men are as short as 5? 2?. But what if I said the woman was a professional basketball player and the man was a jockey? Most people will now predict that the tall person is female.

Guess. A guess is a special kind of estimate?one where we do not have enough information to make an informed assessment. Note that in the above examples I used predict rather than guess since you do have enough information to make an informed assessment. For example, if I asked you to predict which person outside the door was taller, the person on the right or the one on the left, you would be forced to guess. In my experience, it is rarely necessary to make a true guess when working on a project.

Effort. Effort is an expenditure of physical or mental effort on the part of a project team member. We almost always measure effort in terms of staff hours. In many application areas (IT, NPD, pharma, consulting, architecture), most project estimates will be effort estimates. If you purchase resources from outside your organization, you may not see the effort estimates that were used to develop the cost estimates, but they?re there somewhere.

Cost. Cost is a measure of resource usage?employees and contractors must be paid, equipment must be bought or rented, and so on. Cost is usually expressed in monetary terms (dollars, euros, renminbi, etc.), but it can also be expressed in terms of hours of effort. One advantage of using monetary units instead of effort hours is that it should make comparisons between projects or among activities on the same project easier.

Another advantage of using monetary units to express cost is that the financial people in your company understand the language of money. One disadvantage is that monetary units can distort the numbers if the hourly rates are not reasonable. For example, if you use a rate of $100 per hour for an employee making $50,000 per year, and the same rate for someone making $150,000 per year, your cost estimates will misrepresent the actual cost of any project that has a preponderance of effort from one or the other.

Price. A price is what you charge someone for something. Prices are always (well, almost always) expressed in monetary units. Prices can reflect rates (e.g., $100 per hour) or totals ($500,000 for the entire project). Pricing is a business decision. It is usually derived from the estimate, but the estimate is not the price?if we are selling products or services to someone, we can charge more or less than our estimated costs. Even if we know for certain what the costs are or will be, we can still charge a different price.

For this series of articles, I?m going to assume that most readers are either managing internal projects or developing estimates in order to support a pricing decision that will be made by someone else (as is often the case for project managers working for a consulting firm). As a result, I am not going to cover pricing past the point of defining it.

Budget. A budget is a management control or metric (I prefer the term metric since control has negative connotations to some). A budget is a type of plan. Most people use the term only with regard to monetary metrics, but you can have effort budgets or schedule budgets as well. Project budgets should be derived from the project estimates.

Project budgets are not absolutes! Or at least they shouldn?t be. If a project is budgeted for $1,000,000, all of the stakeholders should understand that that number is a target. It is what the team expects to spend based upon what it knows today. If the team can find a way to spend less and still deliver the full scope, it should do that. If it needs to spend more, that should generate a discussion with the funders to decide what to do.

The project budget is not the same as the project price, even for a project done under contract. The seller can price the work for an amount that is different from its internal management metric.

Baseline. A baseline is very nearly a synonym for budget. There are two subtle differences. First, project baselines are normally time-phased. While I might say that the budget for my project is $500,000, I wouldn?t really have a baseline unless I had also defined when I expected to spend that money?how much in week 1, week 2, and so on. Second, the term baseline implies some level of formal approval. I can prepare a budget for an activity or a project, but it isn?t really a baseline until the relevant stakeholder(s) have agreed to it.

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anthropology – or on the nobility of UC Berkeley’s study of him What follows is part of a commentary in the Chico Record written after Ishi’s deathCHICO RECORD ARTICLE: “He furnished amusement and study to the savants at the University of California for a number of years and doubtless much of ancient Indian lore was learned from him but we do not believe he was the marvel that the professors would have the public believe He was just a starved-out Indian from the wilds of Deer Creek who by hiding in its fastness was able to long escape the white man’s pursuit And the white man with his food and clothing and shelter finally killed the Indian just as effectually as he would have killed him with a riffle”During his years at the university there were some things Ishi kept control over – like his personal identity Ishi is actually the Yana word for “grown man” He never told anyone his real name So that died with himBut there were other things he did not have control over Before his death Ishi requested that his body not undergo an autopsy He had significant spiritual fear of the practice But after he died the autopsy happened anyway And that wasn’t all: Ishi’s brain was kept in formaldehyde for 83 years after his death and passed from the university to the Smithsonian Institute before it was finally given back to his descendants to bury In April 2000 the San Francisco Chronicle gave an account of when Ishi’s brain was returnedSAN FRANCSICO CHRONICLE ARTICLE: “Leaders of the Redding Rancheria and Pit River tribes which trace their bloodlines to Ishi’s extinct Yahi Nation through the Yana tribe promise to never reveal where they buried him They’re not saying when they will do it either – just that they’re landing in California today and that they want to be left alone to shepherd their departed elder’s spirit away in peace”So what is Ishi’s legacy For some the study of Ishi was part of the beginning of a change in the practice of anthropology into something more inclusive of native people Mari Lyn Salvadorisdirector of the Hearst Museum at UC BerkeleyMARI LYN SALVADOR: Members of these communities are becoming anthropologists and becoming museum professors And it mitigates against objectifying othersSalvador oversaw a conference at UC Berkeley this past September that brought close to 300 students anthropologists and history enthusiasts to discuss “A Century of Ishi”SALVADOR: We’ve changed We’re including people as colleagues and professors and teachers not only as museum directors who are coming from Native American communities all over the countryBut formany people Ishi’s story represents the common tragedy of Native Americans Jessica Valdez –whoseancestorswerefrom the Caddo Comanche and Apache tribes –is a young anthropologist who recently graduated from collegeJESSICA VALDEZ: If we don’t stand together as a community and make ourselves visible we’re going to fall victim to the people who conquered us That’s how I feel when I think about Ishi who was exploited he wasn’t taken seriously His native culture was just underminedToday Ishi lives in the many books films and articles made about him His ashes along with his brain have finallybeen buried But it’s not simply the memoryof Ishi that lives onhis culture and the descendants do too Again Christaan KliegerKLIEGER: That he was the last that there were no more Therefore California Native people also must be extinct That’s absolutely not true People are still hereAnd these days young nativeanthropologists like Jessica Valdez are around to make sure those people’scultures remain aliveVALDEZ: Initially I became interested in my upbringing as a native person I just wanted that to be a part of future generations to come and I thought that would be in my best interest to perpetuate my cultureAnd after 100 years Ishi himself remains alive in a sense His voice which wasrecorded with his permission has been digitized from the old wax cylinders it was originally recorded on and 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