Thursday 15 August 2019

Reconciling Estimates

As we've mentioned before, when the developing the project charter it is common to use a top-down estimating approach, however once the charter is signed off at the end of the project initiation phase it's time to start the project planning phase. In the planning phase when building the work breakdown structure it is time to implement the more accurate estimation approach of bottom-up.

In the Planning phase when a bottom up estimation is completed it is common for the two estimations to be different, this is of course the result of the bottom up approach being more labor intensive, difficult and accurate than the top down approach. More often than not the bottom-up approach is generally higher than the top-down, this is usually because of political reasons or optimistic estimations or just during the charter the whole scope just wasn't evident.

When the bottom-up estimation is higher than the top-down estimation
  • Ask the project sponsor for more budget to cover the difference in cost
  • Modify the scope by removing or scaling down requirements 
  • Negotiate with vendors to try to get better prices thus decreasing the budget required
  • Some combination of the above
If the bottom-up estimation is lower than the initial top-down estimation:
  • Settle with the project sponsor on the lower estimate
  • Add requirements to the scope to user up the extra budget
  • upgrade the current requirements
  • Some combination of the above
Once the project budget is finalized and it's allocation to activities, all agreed changes must be updated in the:
  • Project Charter
  • Requirements document
  • Scope Statement
  • Work Breakdown Structure
  • Activity List
All documents must reflect the agreed upon Resources, Scope, and Schedules and should always be kept in sync with the current agreement between the PM and Stakeholders.

When all reconciliation is complete and confirmed and the budget is aligned to the project scope, it's time to consider adding contingency funds based on the risks identified in the project. The contingency portion of the budget is additional money added to the budget to cover the cost of incurring potential risks that have been identified.