Estimating, cost and earned value
“How long will it take?” is the hardest question in projects. Three common ways to estimate:
| Analogous | From a similar past project: “the last app took 3 months”. Quick and rough. |
| Parametric | Rate × quantity: 20 screens × 3 days a screen = 60 days. |
| Three-point (PERT) | Ask for the optimistic (O), most likely (M) and pessimistic (P) cases and take a weighted average. |
PERT = (O + 4×M + P) ÷ 6
The budget = the cost of all work packages + a contingency reserve for expected problems. Once the project is running, how do you know you're on track? “We've spent half the budget” isn't enough: half on how much work? That's where earned value management (EVM) comes in:
| PV | Planned value: the value of work that should be done by now. |
| EV | Earned value: the value of work actually done (% complete × budget). |
| AC | Actual cost: what we've actually spent. |
| CPI = EV ÷ AC | Below 1 = over budget. |
| SPI = EV ÷ PV | Below 1 = behind schedule. |
Total budget: 400k SAR
PV200
EV160
AC200
CPI0.80
SPI0.80
Forecast final cost500
Behind schedule and over budget: this needs a management decision (red).