Scope and cost

Scope and cost

Scope is a critical factor in project management. Managing scope creep is one of the project manager's and sponsor's biggest tasks , and a major theme of this book. Stakeholders will always tend to want scope increases or scope changes. This often arises not through deliberate intention , but as a result of improved understanding of the project and its issues, and from people refining or adjusting their expectations. The problem for the project manager is to steer a middle course between on the one hand appearing to say 'no' to every request, and on the other saying 'yes' too readily and then discovering later in the project that there is not enough time or resource to deliver on the additional commitment.

There is only one thing to do in this situation: discuss the requested scope change with the sponsor and project team to determine the likely cost impact, then go back to the person who wants the request and explain the cost ramifications. The type of response is initially 'Let me go away and determine the ramifications of that', after which you discuss with the sponsor and team, so that you can go back and say 'If we made such-and-such a change to the project, the cost ramifications would be $X,000 plus a delay of Y month'. You will of course need to have supporting detail to back up your argument. Although project managers often do not need to know how to estimate costs for an entire project, they should be able to make or supervise others making this kind of revised cost estimate. (The approach outlined in this paragraph is important for both real life and the PMI exams.)

Five rules of thumb for estimating costs

As you progress in your project management career, look for rules of thumb in cost estimation that will help you save time and get a better intuitive feel for costs and cost- related risks in your project. As each industry and organization is different and each has its own characteristics, it is not possible to give a long list of rules of thumb “ what matters and what works in cost estimation in an investment bank will be different from what works in a process industry and from what works in the National Health Service. However, the following five rules of thumb may have some general applicability:

• The fully loaded cost of an employee is double their base salary.

• All actual IT costs and timescales will tend to be close to double the estimated costs.

• Prior probability is the best guide to future probabilities: in other words, the costs, the probabilities of success, and the timescales for the project that you are planning are more likely than not to be the same or close to those in similar previous projects, which means that if you have that historical data, use it in your cost planning rather than accepting any 'but this time it will be different' arguments.

• In the absence of any evidence to the contrary, assume that projects have at most a 50% chance of delivering on time and on budget and to user expectations.

• Assume 200 to 220 effective working days per year per full-time employee.

A specialist task

When estimating costs the person or team doing the estimating must understand all the details, because one of the most common sources of cost estimation errors is a failure to grasp the details adequately. The WBS dictionary, for example, is something that is omitted in many real-life projects, and yet in real-life cost overruns it is often the case that a cause of the problem is that different members of the project were using key terms to mean different things; it is precisely to avoid that kind of problem that there should be a WBS dictionary. And yet, under real-life time and political pressures, the WBS dictionary is often jettisoned as unnecessary bureaucracy. So, the project manager or whoever is doing cost estimation needs to understand three things: (1) what can be done, in the absence of any constraints on time and resources; (2) what the constraints are in this particular project, especially expectations and political factors; and (3) what the risks of accepting those constraints are in terms of probable sources of error. They must then communicate those risks back to the sponsor and stakeholders, for them to either accept or modify. And of course they would be well advised to document the outcome of such feedback.

Cost estimating is a specialist task, and the reading list at the end of the chapter gives a flavour of what kind and depth of skills are necessary to acquire such specialization.