Prof. Bent Flyvbjerg and colleagues in their paper “Underestimating Costs in Public Works Projects: Error or Lie?” stated that 9 of 10 projects are underestimated its cost and 86% projects have their actual cost larger than estimated cost. Cost Estimation is an art and technique to forecast the cost of activities which reliability and accuracy are main factor in achieving the success of the project/activity. How to develop a reliable and accurate Cost Estimation?
This paper will give 3 suggested methodologies to achieve the reliable and accurate Cost Estimation. Status Quo judgment represented with PERT. Lichtenberg Successive Model is shown as Economist method. And the JCL-PC is a primary method used by NASA to overcome its problems in accurate estimated cost and schedule.
1. Project Evaluation and Review Technique (PERT) using Delphi Method
PERT is a method to analyze tasks to completing projects. PERT using expertise judgment (Subject Matter Expert) to minimize the uncertainty by way of gathering expertise experiences to particular matter. PERT will provide the exact time of completion through Early date and late date of a project.
With this method, project management easy to identify relations between tasks and their dependencies. The weakness of this method is inaccuracies from the SME judgment regarding the bias occurrence from the expert’s self confident. And lack of previous data, for new company, might also be limitation of this method.
2. Lichtenberg successive Model.
This method was initiated by Steen Lichtenberg in 1970. This method is used to minimize uncertainty in estimation process by way of finding the most critical elements. Using this method the project management will have a sharper and realistic view of the project future prospect and proactive used of optimisation potential. But, this method is inadequate to give a reliable result in detail, it only give reliable result for overall process.
In essence, the JCL-PC method achieves a quantify Everything Method, but does so in a mathematical way, bypassing the time/labor intensive effort connected with method four. It anticipates 99% of the conceivable risks (internal and external), no matter how unlikely they are to occur and provides the decision maker with a best available risk distribution scenario.
Running the Methodologies
When running these methodologies, exact same data will be utilize so output would shown the expected differences. Blog W3 will talk about this matter.
Each methodology will explain its result and have to show its deviation comparing to others. Blog W4 will talk about this matter
Analysis and Comparison of criteria
We will make comparison between methodologies and see how accurate they would be. Blog W5 will talk about this matter
Selection of the preferred methodology
We will select the most realistic and reliable methodology. Blog W6 will talk about this matter
The preferred methodology will be applied in real project and see how it works. Blog W7 will talk about it
Flyvbjerg, B., Mette Skamris Holm, M.S., and Buhl, S., (2002) Underestimating Cost in Public Works Projects: Error or Lie?, APA Journal 2002. Retrieved from http://flyvbjerg.plan.aau.dk/JAPAASPUBLISHED.pdf
Butts, G., & Linton, K. (2009). NASA’s Joint Confidence Level Paradox: A History of Denial. Retrieved from http://www.build-project-management-competency.com/wp-content/uploads/2009/12/NASACost-Schedule-Report.pdf
Lichtenberg, S. (2005). How to Avoid Overruns and Delays Successfully – Nice Basic Rules and an Associated Operable Procedure. Retrieved from http://www.icoste.org/Roundup0406/Lichtenberg.pdf