Alternative Solutions for Improved Cost Estimation Process

in IT Projects using MADMA

 

FEATURED PAPER

By Vinith Rajan

SKEMA Business School

Lille, France and India

 


 

ABSTRACT

The Calculation and the maintenance of Cost estimation/Cost management in the IT projects are becoming difficult day by day due to the increased complexity of the projects. The cost estimation is previously done by a standard format. Which give the idea to the estimator a rough estimate of the project which is no longer valid for the uncertainty projects. The main purpose of the cost estimation is “The maker can decide whether the undertaking or item is practical to producer before the assembling procedure”[1]. In this paper, we have used the Multi-Attribute Decision Making analysis and with that the additive weighing technique to determine the alternative solution from the better solution to the least solutions that should be integrated into the project cost estimation. Based on the analysis the project cost estimator should know more about the cost estimation techniques and the better estimation technique and the model to use for the cost estimation. Since the better-improved process of the cost estimation/cost management in the IT projects will govern the project officials to finish the project in time, with the scope and the defined cost.

Keywords: Cost estimating, Cost management, Project budget, Resource planning, Cost estimating methods.

INTRODUCTION

Cost management/Cost estimating in an IT project is concerned mostly with the process, methods followed and the phases of the project. All the projects irrespective of a large or medium or small needs to be processed under certain constraints. Cost is one of the mainly focused constraints that need to be controlled while managing the project. The Cost management includes “the process required to ensure that the project is completed within the cost estimation done prior to the project”[2]. The Cost estimating is the practice of “forecasting the cost of completing a project with a defined scope it is used to authorize a project’s budget and manage its Cost”[3]. Cost estimating may seem like a painful process, but this is a crucial one because it is important in defining the parameters of a project. Cost management takes place throughout the lifecycle of the project from the initial phase to the closure phase, it is directly related to the project management which includes the “activities like Planning, estimating, budgeting, Financing, funding, managing, and controlling costs so the project can be completed within cost constraints”[4]. The goal of the Resource Estimating is to “have a resource for each activity” in the project[5].The High performing organizations successfully finished the projects by 89% where the low performing organization completes only 36% which uses 12 times more resources than High- performing firms because of poor cost management and estimation. Organizations lose about $109 million every year for every $1 billion invested in projects which gives us a huge loss margin[6].

According to the KPMG Canada Survey (1997) focused on the IT projects in Canada’s leading 1450 public and private sector organizations has given the result as “61% of the projects undertaken in IT is a failure and more than 30% of the projects have blown up on their cost to complete the project”. Another survey report, The Chaos Report (1995), revealed that “31.1% of projects have been canceled before they have been completed due to poor cost estimation and management”[7]. Further results indicate 52.7% of projects will cost over 189% of their initial estimate which showcases the serious problem of lack of cost estimating and cost management technique and the process followed in it. PRINCE 2 is the very least used methodology amount the project managers and 44% of the project managers use no software for estimating their projects[8]. As a result of IT CORTEX, the IT project cost management is highly unsuccessful than successful, about one out of five IT projects gets the satisfaction of successful completion6. “The larger the project becomes the more likely the failure”.

The FIVE WHY’S starting with a problem and ask “why” it is occurring and continues until you reach the root cause of the problem. (i)Omit problem scope from the estimate, which would be the leading cause of every wrong estimation and the cost overruns. (ii)Omit possible risks from the analysis, both internally and externally. (iii)The unrealistic and optimistic assumption made by the estimators leads to the cause of overruns, these three reasons contribute to the 74% of cost growths according to the RAND STUDY. (iv)Use historical low escalation projections, are the cause for 11.2% of cost growths. (v)Estimation not done by a bona fide estimator is the root cause of these problems[9]. For these kinds of complex nature projects, it is essential to have a standard methodology and process for cost estimation and cost management so that the causes for this misinterpretation will be minimized.

Based on the Glenn Butts analysis on how we underestimate the cost. The five why’s analysis is made to find out the root cause of the problem by asking the why statements for every cause, shown in figure 1.0

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Editor’s note: This paper was prepared for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director paul.gardiner@skema.edu.

How to cite this paper: Rajan, V. (2019). Alternative Solutions for Improved Cost Estimation Process in IT Projects using MADMA, PM World Journal, Vol. VIII, Issue VII, August.  Available online at https://pmworldlibrary.net/wp-content/uploads/2019/08/pmwj84-Aug2019-Rajan-alternatives-for-improved-IT-project-cost-estimation.pdf

 


 

About the Author


Vinith Rajan

France and Republic of India

 

 

 

VINITH RAJAN, MSC in “Project and Programme Management and Business Development” at SKEMA Business School, Lille Campus. As a part of a key module “The International Contract Management” qualification requirement under the direct supervision of Professor. Paul D Giammalvo, PhD, CDT, CCP, MScPM, MRICS, GPM-m Senior Technical Advisor, PT Mitrata Citragraha, the course director and the professor Paul Gardiner, the program Director, this student paper has been produced with the purpose of getting it published with The PM World Journal. He graduated from the Hindusthan Institute of Technology, Coimbatore, Tamil Nadu, India and holds a bachelor’s degree in Computer Science Engineering. He has worked at Consensus Technology Private limited as a Business Associate Intern in the year 2017 and also worked at Cable Partners as a Customer Service Associate in the year 2017. He has a background in Software/Information Technology. He speaks fluent English, Tamil, Malayalam and Conversational level French.

Vinith can be contacted at vinith.rajan@skema.edu or LinkedIn: https://www.linkedin.com/in/vinith-rajan-65151a158/

 

[1] (Blog- MIE solutions, David Ferguson), February 8, 2011- Purpose of cost estimating. https://blog.mie-solutions.com/2011/02/08/purpose-of-cost-estimating/

[2] (Blog- cost engineering), 28th December: The role of cost estimating in project management http://www.costengineering.eu/blog-article/the-role-of-cost-estimating-in-project-management

[3] (Blog- smart sheet): The ultimate guide of project costing, An overview of cost estimation. https://www.smartsheet.com/ultimate-guide-project-cost-estimating

[4] (Blog- cost management), 23rd February : Cost management explained in four steps http://www.costmanagement.eu/blog-article/198-cost-management-explained-in-4-steps

[5] Bpayne and Adrienne Watt, Chapter 11 resource planning project management https://opentextbc.ca/projectmanagement/chapter/chapter-11-resource-planning-project-management/

[6] Guest Contributor, October 14, 2015: Project Failure statistics: the shocking truth http://www.projectmanagementworks.co.uk/project-failure-statistics/

[7] (KPMG survey 1997, Chaos report 1995): Failure rate statistics over IT projects failure rate, http://www.it-cortex.com/Stat_Failure_Rate.htm

[8] Rachel Burger, (September 26th,2016): 20 surprising project management statistics           https://blog.capterra.com/surprising-project-management-statistics/

[9] Glenn Butts, February – 2010, Megaprojects estimates a history of denial- http://www.build-project-management-competency.com/wp-content/uploads/2010/09/Glenn.Butts-Mega-Projects-Estimates.pdf