Project Selection And Estimating Techniques

Project Selection and Estimating Techniquespencer Obriencpmgt303 Pr

Explain the factors that determine how a company selects a project. Differentiate between top-down and bottom-up estimates, including when each would be used. · Top-Down – This type of estimating is generally less accurate; it is used at the beginning of the project when developing the overall scope statement or project charter for rough orders of magnitude estimating in general project planning within the organization. (pg. 197) · Bottom-Up – This type of estimating is generally more accurate because it starts at the bottom with the detailed costs of all specific components of each work activity and progressively forms the sum of all costs used in estimating the project budget. (pg.197) Determine the methods for estimating project costs. · Analogues Cost Estimating – uses information from previous project activities that are similar in scope, complexity, and requirements of deliverable as a comparable for estimating costs of new project activities. (pg. 193) · Parametric Cost Estimating – uses the same bases of analogous estimating from historical data of previous projects and similar activities but utilizes a statistical or scalable component to derive a relevant cost estimate. (pg. 194) · Three-Point Cost estimating – cost information of components within work activities that would suggest not only one absolute value, but also a range of value that might represent a variety of influences that could swing the cost to a positive or negative direction. Three-point cost estimating utilizes both optimistic and pessimistic values to calculate an expected cost. (pg. ) Explain the types of costs. · Direct Cost – These costs are associated directly with work activities required to produce project deliverables. (pg. 190) o Labor o Materials o Equipment o Consulting o Travel · Indirect Costs – These costs include all other operations costs incurred by the organization to support the production of a project deliverable. (pg.190) o Overhead expenses o Administrative costs o Indirect labor o Indirect materials Format your 700 - to 1,050 - word paper consistent with APA guidelines. Submit the assignment.

Paper For Above instruction

The process of project selection, along with the estimation of project costs, is central to effective project management. As organizations navigate complex decision-making environments, they must base their project choices on factors that align with strategic goals, resource availability, and anticipated outcomes. Similarly, choosing appropriate estimating techniques ensures accurate budgeting, resource planning, and risk management. This paper explores the key factors influencing project selection, differentiates between top-down and bottom-up estimating methods with their appropriate use cases, enumerates various cost estimation techniques, and describes the types of project costs.

Factors Determining How a Company Selects a Project

Organizational project selection is driven by a combination of strategic alignment, economic viability, resource capacity, and risk considerations. First, strategic alignment assesses whether a project supports the company's long-term objectives, mission, and competitive advantage. Projects that align well with strategic priorities tend to be favored. Second, economic factors involve cost-benefit analysis, return on investment (ROI), and payback period calculations, ensuring that projects contribute positively to the organization’s financial health.

Resource availability, including personnel, technology, and capital, influences project selection by determining whether an organization can feasibly undertake a project without overstretching its capabilities. Additionally, risk assessment evaluates potential uncertainties, technical challenges, and market conditions that could impact project success. Other considerations include stakeholder interest, compliance requirements, and environmental impact. Organizations use these factors collectively to prioritize projects that deliver maximum value with acceptable risk levels.

Differences Between Top-Down and Bottom-Up Estimating

Top-down and bottom-up estimating are two fundamental approaches to projecting project costs, each suited to different phases of project planning and varying levels of accuracy.

Top-Down Estimating involves establishing an overall project estimate based on high-level data, often derived from similar past projects, expert judgment, or organizational benchmarks. This method is generally less precise but efficient, suitable during initial project phases such as the project charter or scope statement development. It provides stakeholders with a rough idea of costs to facilitate decision-making and project approval. Typically, top-down estimates are used when detailed project scopes are unavailable or when quick approximations are necessary for strategic planning (PMI, 2013, p. 197).

Bottom-Up Estimating entails a detailed analysis where costs are estimated for each specific work activity or deliverable, then aggregated to determine the total project cost. This approach is more accurate as it considers granular data from work breakdown structures (WBS), involving input from technical experts and team members directly involved in execution. Bottom-up estimating is often employed during project planning and execution phases, where detailed task information is available, enabling precise cost control and budgeting (PMI, 2013, p. 197).

Methods for Estimating Project Costs

• Analogous Cost Estimating: Uses historical data from similar past projects to estimate current project costs. It relies on lessons learned, expert judgment, and organizational databases to provide a quick, high-level estimate. This method is advantageous when detailed information is scarce or when early estimates are needed (PMI, 2013, p. 193).
• Parametric Cost Estimating: Enhances analogous estimating by incorporating statistical models and scaling factors. It uses parameters such as square footage, units, or labor hours multiplied by historical cost rates to derive estimates. For example, estimating construction costs based on cost per square foot offers scalable insights with improved accuracy over simple analogies (PMI, 2013, p. 194).
• Three-Point Cost Estimating: Accounts for uncertainty by considering three activity scenarios: optimistic, most likely, and pessimistic. It generates an expected cost by averaging these scenarios, often using formulas like the Triangular or Beta distributions. This approach provides a more comprehensive risk-adjusted estimate, particularly useful in high-uncertainty projects (Thamhain, 2013).

Types of Project Costs

Direct Costs are directly attributable to specific project activities and include labor, materials, equipment, consulting, and travel. These costs are specific and measurable, forming the basis for project budgeting and control. For example, paying for a contractor’s labor or purchasing raw materials are direct costs, as they are inherently linked to the work required (Heldman, 2018).

Indirect Costs encompass operational expenses that support project execution but are not directly linked to a single activity. These include overhead expenses, administrative costs, indirect labor, and indirect materials. Overhead costs like rent, utilities, and administrative salaries are spread across multiple projects or organizational units. Accurate allocation of indirect costs is critical for true project cost accounting and profitability analysis in organizations (Kerzner, 2017).

Conclusion

Effective project selection hinges on understanding strategic priorities, resource constraints, and risk factors. Comparing top-down and bottom-up estimating reveals their respective advantages: quick approximations versus detailed accuracy, respectively. Employing suitable estimation methods such as analogous, parametric, and three-point estimating enhances budget reliability and risk management. Recognizing the distinction between direct and indirect costs further enables precise financial control. Together, these techniques support successful project delivery aligned with organizational goals.

References

• Heldman, K. (2018). Project management jump start: The science and art of successful project management. John Wiley & Sons.
• Kerzner, H. (2017). Project management: A systems approach to planning, scheduling, and controlling. Wiley.
• PMI. (2013). A Guide to the Project Management Body of Knowledge (PMBOK® Guide) (5th ed.). Project Management Institute.
• Thamhain, H. J. (2013). Managing engineering and technology. John Wiley & Sons.
• Wilson, R. (2014). A comprehensive guide to project management schedule and cost control: Methods and models for managing the project lifecycle. CRC Press.