The Project Group, LLC

The Project Group, LLC Newsletter

  Advancing Project Management

June 2003  


in this issue


The Project Group, LLC

We specialize in assisting corporate and government clients in learning to improve their productivity while planning and executing projects.

Our three-phase approach yields faster, more efficient project initiation, planning and execution results.

Are you wondering why you did not receive a May Newsletter?

The Newsletter took a vacation in May so we did not have one to send out. We are now resuming our monthly distribution.



Each month our newsletter delves into a specific step in the phases of Initiation, Planning and Execution of projects. Our methodology is applicable to any project in any industry. Our systematic approach to Project Management is designed to help your company's projects gain traction quickly, communicate clearly to all parties and keep them on track to reach a successful conclusion.

We facilitate workshops that jump-start your teams, making sure they know what they are going to do and validating they have the time and resources with which to do it.

This newsletter focuses on Process 9:

Determining The Budget






How much will your project cost?


When you have

determined the project scope;

documented, estimated, sequenced and scheduled the tasks;

made sure you have sufficient resources to complete the work;
then (and only then) are you fully prepared to estimate project costs.

In this issue we'll talk about basic project costing models, cost estimating resources and how to represent your project budget.


Some Cost Estimating Issues



Cost categories may be predetermined by accountants

Capital Expenditures may be tracked differently than Operating Expenditures

Know your company's financial reporting process

Resource unit cost often a source of contention

"Construction work" (projects where the scope is clearly defined) has a better handle on detailed resource costs

Technology-bound "Information work" (projects where defining the scope may be part of the project) often have difficulty estimating human resource costs

Basic Cost Categories






Sample IT Budget Categories


External Resources
Software Purchase
Software Maintenance
Hardware Maintenance
Office Supplies
Outside Services
Miscellaneous Expenses

Capital Expense may include
Printers - High Volume
LAN - based servers
Voice Systems
Plant Maintenance & Renovation/Site Preparation
Other Capital

Click here to see a sample IT budget


An Estimate is a guess


You are expected to commit to. How do you get around this dilemma!

Qualify your estimates with a Range.

The American Association of Cost Engineers guidelines suggest different levels of estimates depending on how they will be used.

1) Rough Order of Magnitude (often considered within the range of -25% + 75%). A ROM is used during project initiation when you're trying to determine if the project is even feasible. Imagine driving around with your spouse looking for a new house. When the fences around the swimming pools get too high and the yachts take up the whole driveway, consider looking in another neighborhood.

2) Sizing Estimate ( 50%) This estimate could be used when you have a preliminary design and you know a lot about the requirements of the project and some of the risks. Though you are in the right neighborhood, you're still not ready to make any commitments.

3) Preliminary Estimate . When you have detailed specs, or completed design drawings, you can expect to make estimates within a range of 25%. You ought to have a high level work breakdown structure (WBS) and some experts to support to costs of these WBS elements. You are in the right neighborhood and know how many bedrooms you need and whether or not the driveway will accommodate your 14 ft yacht.

4) A Definitive Estimate 10%. has enough detail to allow you to commit to doing the work. It is based on a detailed, bottom up plan supported by the hands-on people who have a stake in the project's success. You know the brand of stove you want, whether the master bath will have one or two sinks and the kind of door knob hardware your spouse wants. There is some wiggle room even within this level of detail.

Senior managers usually want to know costs and they want to know them right now. You can't make accurate estimates without significant information and the time to process that information. Using estimate qualifiers helps you manage expectations and build a case for more time and an iterative process to arrive at an estimate before you start doing the work.

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