Estimating

Estimating is a big part of shutdown planning� To prepare an accurate, thorough shutdown plan, you’ll need to estimate many things: how long it will take to do the work, how much the work will cost, the magnitude of the risk and uncertainty involved, what kind of resources will be required, and other aspects of the shutdown�

Without good estimates we have no way of knowing where we are at any point of time, and we have no way of predicting how much the shutdown will cost or how long it will take�

There are two major things that we estimate in a job: one is the cost or the money that will have to be spent to produce it; and the other is the time that the job will take to be completed� Whenever we are doing the estimates, we will not only be estimating the cost of doing the work but also the time that it will take to complete it�

Estimating the duration of shutdown activities involves identifying the activities and sequencing them in the correct order� Then, time estimates are assigned as baseline measurements and used to track the activities to ensure the shutdown is completed on time� Estimating activity duration is challenging� You can be on familiar ground for some activities and on totally unfamiliar ground for others� This process produces an output called an activity list, which is an extension of the work breakdown structure (WBS)� The  activity list should contain all the activities of the shutdown with a description of each activity so that team members understand what the work is and how it is to be executed�

Understanding the Activity Sequencing Process

We’ve identified the activities and now need to sequence them in a logical order and find out if dependencies exist among the activities� Here’s a classic example� Let’s say you’re going to paint your house, but unfortunately, it’s fallen into a little disrepair� The old paint is peeling and chipping and will need to be scraped before a coat of primer can be sprayed on the house� After the primer dries, the painting can commence� In this example, the primer activity depends on the scraping� You shouldn’t prime the house before scraping off the peeling paint� The painting activity depends on the primer activity in the same way� You really shouldn’t start painting until the primer has dried�

During activity sequencing, you will use a host of inputs and tools and techniques to produce the final outputs, a shutdown network diagram, and activity list updates�

Dependencies

Three of the inputs to activity sequencing are as follows: mandatory dependencies, discretionary dependencies, and external dependencies�

Mandatory Dependencies

Mandatory dependencies, also known as hard logic or hard dependencies, are defined by the type of work being performed� The nature of the work itself dictates the order the activities should be performed in�

Discretionary Dependencies

These are usually process-or procedure-driven, or “best practices” techniques based on past experience�

External Dependencies

External dependencies are those factors that are external to the shutdown� The weather forecast might be an external dependency in the painting job, because you wouldn’t want to start painting prior to a rainstorm�

Estimating Activity Durations

Keep in mind that when you’re estimating activity duration, you are estimating the length of time the activity will take to be completed, including any elapsed time needed from the beginning to the end of the activity� Activity duration estimating is performed using the following tools and techniques�

Expert Judgment

Activities are most accurately estimated by the staff members who will perform the activities� In this case, expert judgment is used by team members because of their experience with similar activities in the past�

Analogous Estimating

Analogous estimating, also called top-down estimating, is a form of expert judgment� With this technique, you will use the actual duration of a similar activity completed on a previous shutdown to determine the duration of the current activity-provided the information was documented and stored with the shutdown information on the previous shutdown� This technique is most useful when the previous activities you’re comparing are truly similar to the activity you’re estimating and don’t just appear to be similar�

Reserve Time (Contingency)

You might choose to add a percentage of time or a set number of work periods to the activity or the overall schedule� For example, we know it will take 100 h to run a new cable based on the qualitative estimate we came up with earlier� We also know that sometimes we hit problem areas when running the cable�

During the risk-planning process, we’ll look at risk management planning, risk identification, qualitative risk analysis, quantitative risk analysis, and risk response planning� At this stage, we need to identify all potential risks that exist for our shutdown, and we need to understand the probability of risk occurrence� We also want to know what the impact to the shutdown or product outcome will be if the risk does occur� Not all risk is bad, and not all risks have negative impacts, but you need to know about them� All risks are caused by something and therefore have consequences� Those consequences will likely impact one or more of the triple constraints�

Risks associated with the shutdown generally concern the shutdown objectives, which in turn impact time, cost, or quality, or any combination of the three�

The purpose for risk management planning is to create a risk management plan, which describes how you will define, monitor, and control risks throughout the shutdown� The risk management plan becomes part of the shutdown plan at the conclusion of the planning process�

Estimating Resource Requirements

The importance of resources varies from job to job� Types of resources include the following:

People: In most cases, the resources you will have to schedule are people resources� This is also the most difficult type of resource to schedule�

Facilities: Shutdown work takes place in different locations� Planning rooms, porta cabin, temporary sheds, and toilets for workmen are but a few examples of facilities that a shutdown requires� The exact specifications as well as the precise time at which they are needed are some of the variables that

must be taken into account� The shutdown plan can provide the details required� The facility specification will also drive the schedule based on availability�

Equipment: Equipment is treated exactly in the same way as facilities� What is needed and when drive the activity schedule based on availability�

Money: Accountants would tell us that everything is eventually reduced to dollars, and that is true� The expenses typically include man, machine, material, facilities, and contracts�

Materials: Parts to be used in the fabrication of products and other physical deliverables are often part of the shutdown work, too; for example, the materials needed to replace the column trays�

Resource Planning

There are several questions you need to consider concerning the resources for your shutdown� As we have pointed out, adding resources doesn’t necessarily mean that you will shorten the time needed for various activities� Another factor to consider deals with the skill level of the resources�

Estimating Duration as a Function of Resource Availability

Three variables influence the duration estimate of an activity, and all of them influence each other� They are as follows:

• The duration itself • The total amount of work, as in man hours/days, that will be done

on the activity by a resource • The percent per day of his or her time that the resource can devote

to working on it

Estimating Cost

Now that we have estimated activity duration and resource requirements, we have the data we need to establish the cost of the shutdown� This is our first look at the dollars involved in doing the shutdown� We know the resources that will be required and the number of hours or volume of resources needed� Unit cost data can be applied to the amount of resource required to estimate cost�

When doing an estimate, you need to consider a few concepts� The first is that no matter how well you estimate cost, it is always an estimate� One of the reasons that so many shutdowns result in over budget is that people actually believe that they have done perfect estimating and that their baseline estimate is set in stone� Remember that it is always an estimate�

Some techniques that have proved to be quite suitable for initial planning estimates are outlined here�

Extrapolating Based on Similarity to Other Activities

Some of the activities in your WBS may be similar to activities completed in other shutdowns� Your or others’ recollections of those activities and their duration can be used to estimate the present activity’s duration� In some cases, this process may require extrapolating from the other activity to this one, but in any case, it does provide an estimate� In most cases, using the estimates from those activities provides estimates that are good enough�

Studying Historical Data

Every good shutdown management methodology contains a notebook that records the estimated and actual activity duration� This historical record can be used on other shutdowns� The recorded data becomes your knowledge base for estimating activity duration� This technique differs from the previous technique in that it uses a record, rather than depending on memory�

Historical data can be used in quite sophisticated ways� One of the organization has built an extensive database of activity duration history� They have recorded not only estimated and actual durations but also the characteristics of the activity, the skill set of the people working on it, and other variables that they found useful� When an activity duration estimate is needed, they go to their database with a complete definition of the activity and, with some rather sophisticated regression models, estimate the activity duration� They build products for the market, and it is very important for them to be able to estimate as accurately as possible� Again, our advice is that if there is value added for a particular tool or technique, use it�

Seeking Expert Advice

When the shutdown involves a breakthrough technology or a technology that is being used for the first time in the organization, there may not be any local experience or even professionals skilled in the technology within the organization� In these cases, you will have to appeal to outside authorities� Vendors may be a good source using that technology�

Detailed Cost Estimating Tools

As the preparation phase proceeds and more information is obtained on costs, the estimate is refined with an accuracy of about ±10%� In preparing an accurate cost estimate it must be ensured that unit prices are up-todate and accurate; either contingency allowances, for an estimated amount of emergent work, are included or, if not, the exclusions are clearly stated; all known or estimated nonproductive time is factored in; all assumptions are stated�

Cost estimating has different tools and techniques used to derive detail estimates: analogous estimating, parametric modeling, bottom-up estimating, computerized tools, and other cost-estimating methods� We’ll look at each of these inidividually�

Top-down estimates: These are appropriate when we are doing estimates early in the shutdown or at times when relatively inaccurate estimates are acceptable� These estimates are called rough order of magnitude or budget estimates� When the time comes to commit serious money to the shutdown, bottom-up estimates, often referred to as definitive estimates, should be used for jobs whose breakup is difficult to measure or quantify� A top-down estimate is one in which the entire shutdown of a unit or major jobs in the unit are estimated as a whole�

Analogous estimating: Remember that analogous estimating is a top-down estimating technique and is a form of expert judgment� It is a less accurate technique than the others we’ll look at�

Parametric modeling: The idea here is to find a parameter, or multiple parameters, that changes proportionately with shutdown costs and then plug that into the model to come up with a total shutdown cost� In order to use this technique, there must be a pattern that exists in the work so that you can use an estimate from that work element to derive the total shutdown estimate�

Parametric estimates are based on some parametric relationship between the cost and the parameter that can be measured for the shutdown� In a parametric estimate, we use some measurable parameter that changes in the same way that cost does, for example, the inch diameter of a pipe� We then find an adjusting factor that will relate the parameter to the cost of the item being estimated�

Parametric and analogous estimating: These methods are used as types of top-down estimates� With the analogous estimating technique, we identify another shutdown or sub-shutdown that will be used as the basis of the estimate, and we scale it up or down to match the shutdown or sub-shutdown we are trying to estimate� If the actual cost of the basis shutdown is collected accurately and if there is a great deal of similarity between the basis shutdown and the shutdown being estimated, these estimates can be quite accurate� For example, a contractor is estimating a shutdown to build 15 houses� In the past, the contractor has built shutdowns with up to 10 houses� He could estimate the cost of the new shutdown by scaling up the 10-house shutdown by 1�5�

Bottom-Up Estimating

The bottom-up estimating technique is the opposite of top-down estimating� Here you will estimate every activity or work item individually and then roll up that estimate, or add them all together, to come up with a total shutdown estimate� This is a very accurate means of estimating, provided the

estimates at the work package level are accurate� However, it takes a considerable amount of time to perform bottom-up estimating as every work package must be assessed and estimated accurately to be included in the bottom-up calculation�

A bottom-up estimate is one in which the cost estimates are independently made for small individual details of the jobs� These individual cost estimates are then added together or rolled up to make the cost estimates for the entire shutdown� They can also be added up to create estimates for sub-shutdowns within the shutdown� We can think of a bottom-up estimate in terms of the WBS� If we were to estimate the cost of each task at the bottom of the WBS independently and add the individual estimates together, we would have a bottom-up estimate for the shutdown�

Bottom-up estimates for the shutdown are inherently more accurate than top-down estimates� This is intuitively true� It is mathematically true as well� When a large number of small details are individually estimated and added together, there is a chance that the individual detailed estimates will be either high or low� That is, some of the individual details will be underestimated, and some will be overestimated� When we add them together, some of the overestimates will cancel out some of the underestimates� The result is that the total shutdown estimate’s accuracy will improve simply by creating more detailed estimates� Of course, as small details are less likely to have forgotten details within them, overall estimates will improve considerably�

Computerized Tools

Shutdown management software can be a useful tool in cost estimating as are spreadsheet programs� Using software can make the job of cost estimating easy and fast�

Although all of these approaches are valid, some will work better than others� The best approach will depend upon factors such as the availability of historical data, estimating the skills of task performers or subject matter experts, and the amount of time available to prepare an estimate� You may want to try more than one approach, and then use your judgment to come up with the best estimate�

The cost baseline is the part of the shutdown concerned with the amount of money that is predicted to be spent� The three baselines are closely related, and changes to one of them will result in changes to the others� If a change is made in the shutdown scope baseline, either by adding or removing some of the work that is required, the schedule baseline and the cost baseline will probably have to be changed as well� It is foolish for managers to change the

shutdown scope without considering the effect on budgets or schedules, yet it is done by shutdown managers all the time�

Some care must be exercised when planning the cost baseline� As this is the basis for our performance measurement system, we must be careful that the budget is shown on the cost baseline at the same point in time where we expect the actual cost to occur� This can be quite a problem� Suppose we show the budgeted expenditure for an item we are purchasing to be on a particular date, say April 15� To the shutdown management planners, this is the date that the shutdown team completes the work that will make the purchase take place� In other words, the shutdown team decides what it needs to purchase and issues a purchase requisition to the purchasing department to actually buy it� The actual expenditure, the time when the money is actually spent, and the time when the company actually issues a check to the company supplying the parts to the shutdown team might be several months later� Because of the time delay, the actual cost will be below the budgeted cost for several months� This will, of course, have the effect of making the performance reports look better than they are� If there are many delays in the reporting of actual costs in the shutdown, the entire shutdown may look much better than it really is� Of course, sooner or later the actual costs are shown� Then the shutdown performance suddenly falls�

As any shutdown will have many risks, some of them will result in extra cost and work, and others will not� If our estimates for probability and impact were correct, at the end of the shutdown the budget for these risks should end up to be equal to the total expected value of all of the risks that actually took place in the shutdown�

This takes care of the identified risks, but what about the risks that come as a surprise and are not anticipated? These risks, the unidentified risks of the shutdown, must be budgeted as well� Unfortunately, the budget for these risks will be a bit of a guess� We can only rely on our past experience with other similar shutdowns to come up with this estimate� These budgets for unknown and unidentified risks are generally estimated very roughly as some percentage of the total shutdown� The percentage should be quite small, however�

Where the budget for unknown risks is higher than a very small percentage of the shutdown cost, there is a chance that the risk identification process was poorly done and that many of the risks that could have been identified were not� In this case, the budget for the unknown risks is frequently inflated as a way of compensating for this lack of identification� A much better solution would be to spend more time identifying the risks that can be identified, evaluating them properly, and setting aside a small amount of budget for the unknown risks�

There are many pitfalls in producing a good estimate for a shutdown� The deliverables may not all be identified, stakeholders may change their minds, shutdown team members may be optimistic or pessimistic, time may be

limited, and so forth� If the shutdown is poorly defined, there is not much of a possibility that the cost and schedule estimates are going to be anywhere near what the actual cost and scheduled time for the shutdown will be� Optimistic schedules can cause problems in estimating as well� Stakeholders or management frequently shorten schedules without adding budget to the shutdown� Generally we can look for increases in cost when schedules are shortened� An inaccurate WBS causes work tasks to be missed� When the individual estimates for the tasks are added up to make a bottom-up, definitive estimate for the shutdown, missed work tasks cause underestimation� Understating risks underestimates our cost and schedule estimates as well� Risks that are not identified and identified risks that have the wrong value for their estimated probability or impact cause management reserves and contingency budgets to be misstated� Cost inflation and failure to include appropriate overheads cause erroneous estimates� It is important to recognize wage and price increases that will occur during the shutdown and adjust estimates accordingly�

Estimating Pitfalls

Estimating is difficult� There are many things that can undermine the accuracy or validity of your estimates� Among the most common pitfalls are the following:

• Poorly defined scope of work: This can occur when the work is not broken down far enough or individual elements of work are misinterpreted�

• Omissions: Simply put, you forget something� • Rampant optimism: This is the rose-colored glasses syndrome

described previously, when the all-success scenario is used as the basis for the estimate�

• Padding: This is when the estimator includes a factor of safety without your knowledge, a cushion that ensures that he or she will meet or beat the estimate�

• Failure to assess risk and uncertainty: As mentioned earlier, neglecting or ignoring risk and uncertainty can result in estimates that are unrealistic�

• Time pressure: If someone comes up to you and says, “Give me a ballpark figure by the end of the day” and “Don’t worry, I won’t hold you to it,” look out! This almost always spells trouble�

• The task performer and the estimator are at two different skill levels� As people work at different levels of efficiency, sometimes affecting time and cost for a task significantly, try to take into consideration who’s going to do the work�

• External pressure: Many shutdown managers are given specific targets of cost, schedule, quality, or performance (and often more than one!)� If  you’re asked to meet unrealistic targets, you may not be able to fight it, but you should communicate what you believe is reasonably achievable�

• Failure to involve task performers: It’s ironic: an estimate developed without involving the task performer could be quite accurate, but that person may not feel compelled to meet the estimate, as “it’s your number, not mine,” so the estimate may appear wrong�

Contingency: The Misunderstood Component

There are a number of technical definitions for contingency-basically, any time, money, and/or effort added to the shutdown plan to allow for uncertainty, risk, unknowns, and errors�

A powerful combination of your knowledge of the shutdown, your sense of what you don’t know, your experiences on previous shutdowns, the documented experiences of countless other shutdown managers, and some good old-fashioned shutdown manager judgment of your own leads you to the conclusion that an estimating shortfall exists�

Cost Budgeting

Once you’ve done an estimate, you want to go into the cost budgeting phase� This phase is the time when you assign costs to tasks on the WBS� Cost budgeting is actually very formulaic� You take the needed resources and multiply the costs times the number of hours they are to be used� In the case of a one-time cost, such as hardware, you simply state that cost�

Cost budgeting gives the sponsor a final check on the costs of the shutdown� The underlying assumption is that you’ve got all the numbers right� Usually you’ll have the cost of a resource right, but often it’s tough to be exact on the total number of hours the resource is to be used� Remember that no matter what, you are still doing an estimate� Cost budgeting is different than estimating in that it is more detailed� However, the final output is still a best effort at expressing the cost of the shutdown�

Cost Control

The second issue deals with how you look at the numbers you’re receiving� If you’ve done a cost baseline, then you’ll have some figures against which you can measure your costs� What you’re looking for is a variance from the original costs� The two costs you have at this point are your baseline and the actual costs that have occurred during the shutdown� The baseline is the final estimate of the costs on the shutdown� Your job is to look at the two and determine if management action must be taken�