When estimating effort hours, duration and cost, you must start off with an estimate of effort hours. Without an idea of the effort hours, you cannot accurately estimate duration or cost.

One of the key factors in converting effort hours into duration is to define how many productive hours of work you can expect in a typical workday. For example, if you have an activity that you estimate will take forty effort hours; it is unlikely that it can be completed in five eight-hour calendar days. No one is 100% productive. Without taking this into account, it is likely that you will hit your estimates for effort hours, but you will exceed your duration estimates. You need a “reality factor” to convert the estimated effort hours to estimated duration. You need to determine the number of productive hours per day a person is actually going to work.

A productivity factor takes into account the amount of time a typical person will actually work in a day. This productivity factor takes into account things like social interaction during the day, going to the bathroom and traveling to meetings. It also takes into account people that need a little time to get going in the morning, as well as people that start to fade in the late afternoon. You could try to come up with the number of productive hours per day for each person on the team, but it would be very tedious, if not impossible. A generally accepted rule-of-thumb for average productive hours per day is 6.5, based on an eight-hour day. This does not mean that in any one day a person may not be productive for the full eight hours. However, it does represent a person’s productive hours per day over time.

Share with the team the scheduling assumptions that you are making and your expectations. They must take the responsibility to tell you if outside influences are making it difficult for them to spend the allotted time on the project. That will give you the input you need to change their work responsibilities or else change their availability and productivity factors.

When you have contract resources, you should also take a productivity factor into account. Even though these resources are contractors, they will still experience many of the factors that lead to a less than 100% productivity factor. For instance, they are still going to socialize a little and they still need to go to the bathroom. However, you do not expect that contract people will have the same level of non-productive time as employees. A good rule of thumb for a contract resource is 7 to 7.25 productive hours per day. This factor recognizes that the contract resources are not robots and they will not be 100% productive every day. Of course, you still need to pay them for eight hours per day. However, for the purpose of your schedule, you should factor in the productivity factor as well.

Let’s look at an example. Let’s say you have an activity that is estimated to take 80 hours of effort. If an employee is applied full time, it may take him or her a little over twelve days (80 / 6.5 productive hours per day) to complete the work. If a contract resource is allocated full time to this same activity, the activity duration would be eleven days (80 / 7.25 productive hours per day).

Cost Accounts

Many projects have one overall budget that includes all of the project labor costs, hardware/software costs, materials costs, etc. This is fine for smaller and medium-sized projects. However, as a project gets larger it helps to have the overall budget broken down into smaller subsets. This is a similar to the concept of breaking down a project with long duration into a set of smaller projects. Having your budget allocated at a lower level allows you to keep better control of the details and it may point out potential budget trouble quicker than having everything rolled up into one consolidated project budget.

Cost accounts are used to allocate the budget at a lower level. Cost accounts are formally established in your organization’s General Ledger so that your budget is actually allocated in each detailed cost account and the actual project expenses are reported at that level as well.

The cost accounts can be established in a couple of ways. One way is to simply divide the different types of costs into separate cost account budgets. In this approach, you could have a cost account for internal labor charges, external labor charges, hardware costs, software costs, training costs, travel costs, etc.

Another way to set up the cost accounts is based on the WBS. After you have completed the WBS, you can create cost accounts for each group of related activities. Theoretically you could set up a cost account for each activity, but that does not make practical sense. Instead you may set up a separate cost account and budget for each phase, stage or milestone (a milestone represents the completion of one or more deliverables.)

If you set up cost accounts for related sets of work on the WBS, you have a couple choices as to what budget gets tracked. You could just track the labor costs (internal and external) associated with the work. Another option is to track all of the labor and non-labor costs associated with that work. The various types of costs can be tracked with sub-account numbers within the cost account. Of course, the more detailed your cost accounts are, the more work you will have setting up, allocating and tracking the cost account budgets. However, if your project is very large and costly, you definitely want to utilize some aspects of this technique. In very large projects, the individual cost account budgets might still be larger than the entire project budgets in some organizations.


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