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Introduction to estimations in project management; role of deception versus delusion; selective perception in estimating; practical recipes. For more information how to perform schedule risk analysis using RiskyProject software please visit Intaver Institute web site: http://www.intaver.com. About Intaver Institute. Intaver Institute Inc. develops project risk management and project risk analysis software. Intaver's flagship product is RiskyProject: project risk management software. RiskyProject integrates with Microsoft Project, Oracle Primavera, other project management software or can run standalone. RiskyProject comes in three configurations: RiskyProject Lite, RiskyProject Professional, and RiskyProject Enterprise.
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Estimations In Project Management
Intaver Institute Inc.303, 6707, Elbow Drive S.W, Calgary, AB, CanadaTel: +1(403)692-2252Fax: +1(403)459-4533www.intaver.com
Estimations in Project Management
“The Father of the Bride”: wrong estimations of the cost.
George Banks Mental Errors
1. 1. He wanted to spend as little as possible and therefore was motivated to come up with an unrealistically cheap estimate. He ignored all evidence that would have suggested the true cost of the wedding (expensive cake, large number of guests, etc.) when he did his rough estimate.
2. 2. He used a reference point (the cost of a house) to come up with the estimate. It was completely irrelevant to a wedding and therefore was nonsensical for this particular estimate (though good for the movie). This is a classis example of anchoring.
3. 3. He was overconfident. Weddings are a one-day event and it will take place in his house, so he thought the amount of money required would be manageable.
What Should Have George Banks Done to Avoid a Nervous
Breakdown ?1. Ask some other people how much the wedding would cost and use this number as a reference point.
2. Make a rough estimate by summing up all known expenses without ignoring any items.
3. Make necessary contingency plans by continually asking, “What else could happen?”
Politics of Psychology?
Flyvbjerg Curve
Examples of Wrong Estimation
Project type Number of cases
Average cost escalation
Rail 58 44.7%
Fixed-link (bridges and tunnels)
33 33.8%
Roads 167 20.4%
All projects 258 27.6%
Psychology of Estimations
• Rule of PI: Actual duration (cost) of an activity will be about PI (3.1415…) bigger than the original estimate, even if the estimator was aware of this rule.
• Planning fallacy and the optimism bias • Student syndrome: many people will start to
fully apply themselves to task just in the wake of a deadline.
• Confirmation Bias
Availability Heuristic
Simple Psychological Exercise
1. Take three seconds to try to recall all of the projects or large activities you were involved during the last year.
2. Now repeat step 1, but take 15 seconds.
3. Repeat steps 1 and 2 taking up to three minutes for each step, and write down the results.
“What I see is what I want to see.”
Planners or project managers sometimes cease to review data as soon as they find something that supports their estimate. They can also discard evidence that contradicts their estimates.
Selective Search of Evidence
Other Explanations Of Problems With Estimation
· There is no established project estimation process.
· Inaccurate data is used, or historical data may not be complete.
· The forecasting techniques and tools are inefficient.
· There is no ability to track actual project performance, which can be used to refine estimates.
· The project planners are inexperienced.
Simple Remedies
• Never make a wild guess • Collect Relevant Historical Data • Reality checks • Independent Assessment
Example of Reality Check
500 1000 1500 2000 2500
Mission Cost ($ mln)
0
0
20
40
60
80
100
120
140
160
180
Mis
sion
Dur
atio
n (m
o )
HEAD
Magillan
Landsat 7URAS LISA
CGRO Chandra (AXAF)
GalileoTerra
HST
GOES I-M
Aqua
NASA’s LISA Project cost estimation
Estimating Probabilities
1. Subjective judgment
2. Relative frequency approach
3. Combination of both
Method of Eliciting Judgment
• Direct assessment of an event’s probability• Ask the experts two opposing questions: “What is
the probability that the project will be canceled?” and “What is the probability the project will be completed?”
• Probability wheel
25% No problem with the component
35% Full replacement of the component
40% Repair of the component
Probability Method
Low estimate
High Estimate
11 intervals
How many instances per each interval
Building Consensus
• Come back to original questions• Visualize range on opinions• People usually good in technical estimations but not good
about cost• Separation of compound events
Sensitivity to Probability
Maj. Ernest Y. Wong and Lt. Col. Rod Roederer of the U.S. Military Academy (2006) reviewed the decision to attack Iraq from a decision theory point of view. To make their point, they hypothetically assumed that the decision to attack Iraq was based only on one criterion: the existence of a stockpile of weapons of mass destruction (WMD). They performed analysis using methods that we have discussed in this book. They demonstrated that outcome of the decision to attack Iraq is very sensitive to uncertainty in assessment of probability of Iraq having WMD at this time. If probability is greater than a certain break even number (say 75%), the decision may be correct; and vice versa. However, if the probability is expressed as a range (from 60% to 90%), and the break even point is within this range, it is very hard to tell what course of actions should have been taken.
Future Reading
Lev Virine and Michael Trumper
Project Decisions:
The Art and Science
Management Concepts, Vienna, VA, 2007
Lev Virine and Michael Trumper
Project Think:Why Good Managers Make Poor Project Choices
Gower, 2013