What are estimating factors?

Productivity and utilization are the two factors we are concerned with when doing estimating for projects. Both of these factors are applicable to cost as well as schedule estimates. Productivity is a measure of how much faster or slower a particular resource is from the normal resource. A person who is very good or very experienced at what they do will probably take less time and make fewer mistakes than a new person with little experience. Productivity factors allow us to adjust the cost or the duration of the task depending on the particular individual used.

Utilization is another adjustment factor to the cost estimate. Utilization is based on the idea that even though we pay someone for a full eight-hour day, the person seldom, if ever, actually works the full eight hours. Utilization is a way of adjusting the cost of a task to allow for the time that the person is being paid but not actually doing things that are productive.

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Productivity and utilization factors are important in deriving the total project cost and schedule estimates. Failure to use them could result in otherwise good estimates being off by as much as 40 percent or even more. Failure to manage them properly could result in demoralizing the entire project team.

Productivity is a measure of how productive one person is when compared to a normal person. The normal person is a hypothetical person who works at a pace that is not abnormally fast or abnormally slow. This is a concept we inherit from industrial engineers whose job it is to manage factory people. Since most factory workers perform the same task over and over again, the industrial engineer is very concerned with being as close as possible to the actual cost. The productivity factor is an adjustment to the time that it takes a person to do work when compared to a normal person. In the industrial environment it would not be fair to measure everyone's work in comparison to that of someone who is abnormally fast or slow.

Although the idea of productivity has its roots in factory operations, it is significant to project management as well. It is difficult to measure a person's productivity accurately in project work because the nature of projects is that the work is generally not very repetitious. However, it does make sense to adjust cost and schedules depending on who is actually going to do the work. Suppose we have a choice of using John or Mary on a particular task on our project. Mary is very senior and has a lot of experience doing this kind of work. John is new to the company and has never done this kind of work before. Mary receives a much higher salary than John. Mary will most likely get the work assignment completed in a minimum amount of time and make very few mistakes. John will probably take longer to complete the work and make more mistakes doing it.

As a project manager doing estimates, we will be faced with many conflicting problems in terms of the resources we can use. We would all like to have the best people on our projects for all the positions we have on the team. Unfortunately this is not always possible. The needs of other projects should also come into play and this is one of the important jobs that the functional manager in a matrix organization must face. His or her job is to see to it that the correct and appropriate resource is used in each assignment, and this is not always the one that the project manager feels is the best one for the project.

Let us say that Mary has a salary of $125,000 per year, and John has a salary of $40,000 per year. Mary estimates that the task will take her four weeks to complete if she works on it full-time. John does not have any idea how long it will take him to do the task, but with help he estimates that it will take him eight weeks. Checking the schedule we find that the task in mind has sixty-three days of total float and forty days of free float associated with it. Although John's productivity is half of Mary's, it is cost-effective to use John for this task.

When early project estimates are put together, we frequently do not know precisely who will be available to do the work when the work is actually scheduled to be done. This is where the normal person concept comes in. The amount of time that should be put into the estimate at this point should be the amount of time that a normal person will take to do the task and the cost of that time. As we become more definitive in our estimating and as the time to actually do the project work comes closer, we should make adjustments in our cost and schedule estimates to reflect the person who will actually be doing the work. At the point the person who will do the work is identified, the cost of that person to the project and the estimated time that the task will take should be recognized.

Utilization becomes important to project managers as well. Remember that utilization is the adjustment factor to correct for the fact that everyone is paid to work a certain number of hours in a day, say eight hours, but that no one actually works that many hours in a day. Everyone has interruptions, visits from an immediate boss, coffee breaks, telephone calls, calls of nature, meetings in the hall on the way to and from the calls of nature or the coffee machine, and many others.

Where utilization becomes a problem is in recognizing whether a person doing an estimate has or has not included a utilization factor in the estimate. If a utilization adjustment has been made to an estimate we receive and if we apply a utilization factor to it, we will be adding unnecessary cost to our estimate. On the other hand, if a utilization factor has not been applied to the estimate and if we do not add it, we will have underestimated the cost of doing the task. This utilization factor is of some importance when you consider that the amount of time that is lost in a typical eight-hour day is about 30 percent. This 30 percent is based on people who have very good timekeeping records. In most companies it is probably higher than this.

Generally you can standardize on a utilization factor for your project. This utilization factor will usually not change much from project to project and will generally be set by a company policy. The real problem comes when we are trying to determine whether or not someone on our project team has included the adjustment of utilization or not. The rule here is that when you are in doubt about an estimate, you need to make sure the person doing the estimate has thought about it and deliberately included it in the estimate or excluded it from the estimate. Most people who are not professional estimators will not include a utilization factor when they estimate the time that it will take to do a task in hours as in, "I think this task is going to take me fifteen hours to complete". This person probably means that if they can start working on this task and work without interruption, they will finish it fifteen working hours after they started. We should probably increase the estimate by 30 percent and use 19.5 hours for this task.

Another person submits an estimate of the time to do a different task as two weeks. This person probably means that if they start working on Monday, they will finish the task at close of business one week from the following Friday. In this case the person has probably included the utilization and interruptions.

Neither of these estimates is wrong. They are just different. As the project manager we must be sure we understand the estimate that is being submitted to us and make utilization adjustments accordingly. It is no wonder that we have so much trouble with estimating cost and time.

Now, about those morale issues (that's morale not moral). As a project manager we do not want to use productivity and utilization factors directly and individually. Usually we will not have much of a choice with utilization factors because they will generally be established by project or company policy. Productivity is another matter. It can be quite demoralizing for a project team member to see that the productivity level of the task he or she is working on has been set at 65 percent. Most people feel that their productivity level is more like 100 percent or even higher. This is because they view productivity as the amount of effort they are putting into the work. In other words, they are working as hard as they can. We do not want to publish that they are working at a 65 percent productivity level.

A much better way to incorporate productivity into our project is to allow the individual who is going to do the work make his own estimates. When the estimates are reviewed with the person, time can cooperatively be added or reduced to reflect what we observe to be that person's productivity compared to what he sees as his own productivity.