Estimating Project Duration and Costs
The duration of a project can only be estimated once you know what resources are available, for example, if a project is estimated to require 1000 hours of effort and only one person is available to work on it, it may take six months or more. However, if three people are available, it may be possible to complete the project in two months.
Costs are normally split into labour costs and non-labour costs. The labour cost can be determined by examining the number of hours of effort required and the cost per hour. If you are using external labour, eg contractors or consultants, the costs should be estimated and budgeted in advance. This is straightforward if you already know your exact requirements, but if the final staffing requirements are not yet known you may need to make some assumptions based on the general type of staff required, eg use standard hourly cost for accountants, programmers, office administrators.
Methods of calculating the costs of internal labour vary from company to company. In some cases, the labour costs for internal employees are assumed to be zero, since they are already accounted for in a departmental budget. This does not mean that there is no cost; it simply means that there are no further costs in addition to what the company is already paying. Other companies use an average hourly cost per employee when calculating project budgets. This may be an average cost per hour for all employees or it may vary depending on job function.
Non-labour costs include everything not directly related to salary or contractor costs. Some of these, such as training and team-building costs are employee-related, but they are not regarded as labour costs as they do not relate directly to employee salary or contractor costs. Every project manager should be familiar with the accounting rules in his or her own company to ensure that labour and non-labour costs are allocated correctly. Non-labour costs generally include:
- Hardware and software
- Materials and supplies
- Travelling expenses
- Team building
If parts of a project are outsourced, this is normally regarded as a non-labour cost since the company is paying for deliverables and is not concerned about the supplier's labour costs.
Next: Project Manager Skills