Reviewing the Higher Cost Estimate: When noticing that one of the cost estimates for a Work Breakdown Structure (WBS) item is 20% higher than previous projects for similar work, the project manager should take the following steps:
Investigate the discrepancy: Understand the reasons behind the higher cost estimate. Review the scope of work and any specific factors that may have contributed to the increase. Consult with the relevant team members or subject matter experts to gain insights into the differences.
Validate the cost estimate: Evaluate the accuracy and reliability of the higher cost estimate. Assess if it aligns with industry standards, market conditions, and any specific project requirements. Consider seeking input from external experts or conducting further analysis to validate the estimate.
Identify potential risks or changes: Determine if there are any additional risks, complexities, or changes in scope that may have influenced the higher cost estimate. Assess if these factors are justified and whether they require adjustments to the project plan or budget.
Consult stakeholders: Engage with relevant stakeholders, such as project sponsors, clients, or senior management, to discuss and seek their input on the higher cost estimate. Address any concerns, provide explanations, and explore potential alternatives or mitigation strategies.
Consider alternatives: Explore alternative approaches or options that can help mitigate the higher cost estimate. This may involve seeking competitive bids, negotiating prices with vendors, exploring different resource allocation strategies, or reevaluating project requirements.
Update the project plan and budget: Based on the findings and decisions made during the review process, update the project plan and budget accordingly. Ensure that all changes are properly documented and communicated to the relevant team members and stakeholders.
Calculating Duration Uncertainty of the Critical Path: To calculate the duration uncertainty of the entire critical path using the PERT formula, we need to apply the following steps:
Calculate the expected duration (ED) for each activity by using the formula: ED = (Optimistic + 4 x Most Likely + Pessimistic) / 6
Calculate the standard deviation (SD) for each activity by using the formula: SD = (Pessimistic – Optimistic) / 6
Sum up the standard deviations of all activities in the critical path.
For example, if Activity A has a duration uncertainty of 18 days (Pessimistic – Optimistic = 18), and Activity B has a duration uncertainty of 24 days (Pessimistic – Optimistic = 24), then: Total duration uncertainty = SD(A) + SD(B) = 18/6 + 24/6 = 3 + 4 = 7 days
Therefore, the duration uncertainty of the entire critical path is 7 days.
Calculating New Estimate at Completion (EAC): To calculate the new Estimate at Completion (EAC) considering past underestimation of resource costs, we can use the Budget at Completion (BAC) and Cost Performance Index (CPI) as follows:
Calculate the Cost Performance Index (CPI) by dividing Earned Value (EV) by Actual Cost (AC): CPI = EV / AC
Calculate the Budgeted Cost of Work Performed (BCWP) by multiplying
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