Posted: March 12th, 2023

cost management case study

Source: Kerzner, H. (2013). Project management: Case studies (4th ed.). Wiley.

Estimating Problem

Directions

Students submit 3 case study papers that explore a project schedule and cost topic. Submit a
PDF copy of a 2- to 4-page paper (excluding title and reference page) using APA format in
Blackboard. Each paper is worth 50 points for a cumulative total of 150 points. Case study
papers are due by 11:59 pm Sunday.

Read the case study narrative and identify a project schedule or cost topic from the first third of
the course that applies to the case study. Your paper should present a specific best practice,
process, or tool that would assist the case study. Your short paper will not resolve the entire
case study; but it should address your narrow topic with some details.

Case Study

Barbara just received the good news: She was assigned as the project manager for a project
that her company won as part of competitive bidding. Whenever a request for proposal (RFP)
comes into Barbara’s company, a committee composed mainly of senior managers reviews the
RFP. If the decision is made to bid on the job, the RFP is turned over to the Proposal
Department. Part of the Proposal Department is an estimating group that is responsible for
estimating all work. If the estimating group has no previous history concerning some of the
deliverables or work packages and is unsure about the time and cost for the work, the
estimating team will then ask the functional managers for assistance with estimating.

Project managers like Barbara do not often participate in the bidding process. Usually, their
first knowledge about the project comes after the contract is awarded to their company and
they are assigned as the project manager. Some project managers are highly optimistic and
trust the estimates that were submitted in the bid implicitly unless, of course, a significant span
of time has elapsed between the date of submittal of the proposal and the final contract award
date. Barbara, however, is somewhat pessimistic. She believes that accepting the estimates
as they were submitted in the proposal is like playing Russian roulette. As such, Barbara
prefers to review the estimates.

One of the most critical work packages in the project was estimated at twelve weeks using one
grade 7 employee full time. Barbara had performed this task on previous projects and it
required one person full time for fourteen weeks. Barbara asked the estimating group how they
arrived at this estimate. The estimating group responded that they used the three-point
estimate where the optimistic time was four weeks, the most likely time was thirteen weeks,
and the pessimistic time was sixteen weeks.

Barbara believed that the three-point estimate was way off of the mark. The only way that this
work package could ever be completed in four weeks would be for a very small project
nowhere near the complexity of Barbara’s project. Therefore, the estimating group was not
considering any complexity factors when using the three-point estimate. Had the estimating
group used the triangular distribution where each of the three estimates had an equal

Source: Kerzner, H. (2013). Project management: Case studies (4th ed.). Wiley.

likelihood of occurrence, the final estimate would have been thirteen weeks. This was closer to
the fourteen weeks that Barbara thought the work package would take. While a difference of 1
week seems small, it could have a serious impact on Barbara’s project and incur penalties for
late delivery.

Barbara was now still confused and decided to talk to Peter, the employee that was assigned
to do this task. Barbara had worked with Peter on previous projects. Peter was a grade 9
employee and considered to be an expert in this work package. As part of the discussions with
Barbara, Peter made the following comments:

“I have seen estimating data bases that include this type of work package and they all
estimate the work package at about 14 weeks. I do not understand why our estimating
group prefers to use the three point estimate.”

“Does the typical data base account for project complexity when considering the estimates?”
asked Barbara. Peter responded:

“Some data bases have techniques for considering complexity, but mostly they just assume
an average complexity level. When complexity is important, as it is in our project, analogy
estimating would be better. Using analogy estimating and comparing the complexity of the
work package on this project to the similar works packages I have completed, I would say
that 16–17 weeks is closer to reality, and let’s hope I do not get removed from the project to
put out a fire somewhere else in the company. That would be terrible. It is impossible for
me to get it done in 12 weeks. And adding more people to this work package will not
shorten the schedule. It may even make it worse.”

Barbara then asked Peter one more question:

“Peter, you are a grade 9 and considered as the subject matter expert. If a grade 7 had
been assigned, as the estimating group had said, how long would it have taken the grade 7
to do the job?”

“Probably about 20 weeks or so” responded Peter.