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The first stage in the bottom-up cost estimating process is to compile a complete list of every known item that is going to cost money. This can prove difficult. But any item inadvertently left out of the cost estimates will result in an underestimate for the project as a whole. This can jeopardize planning and scheduling, and (if not realized in time) lead to serious problems and red faces when the time comes to hand the project over to the customer. And, of course, if the project has been sold for a fixed price, the additional work must be paid for not out of the budgeted project funds, but from the contractor's expected profits. Preparation of a work breakdown, complete with cost codes, is a logical way of considering the total project, and should reduce the risk of errors of omission. At the outset of a project, however, the work breakdown can usually only be compiled in fairly broad terms. Many of the smaller items will remain unknown or ill-defined until the project has advanced well into its engineering design phase. In many cases a detailed work breakdown will not be possible until long after the contract has been signed and everything has become a firm commitment. A fair degrees of judgment is therefore necessary in deciding what should go into the earliest version of a project task list. One very useful way of helping to prevent forgotten tasks is to use checklists. Every company with sufficient experience can develop these. A full checklist would include all possible factors – technical, commercial, statutory, environmental, social, and so on – that might eventually have a bearing on the work and its costs. Some checklists can be long and detailed documents: typically they list as many possibilities as the compiler can think up, so that they must inevitably include some irrelevancies and seem tedious. However, it is in this very wealth of detail that the importance and strength of checklists lie. The task list must include not only all the obvious items of project hardware, but also every associated software job. 'Software' is a familiar term in the context of computers and IT projects, but most projects quite remote from computer work have their own software content. Schedules for production inspection and testing, instruction and maintenance manuals, lists of recommended spares and consumable items may have to be specially written. These, together with any other documentation specified in the proposal or contract, are software tasks which must usually be allowed for in the estimated costs. Activities often forgotten during the estimating phase of manufacturing projects, only to be remembered too late for inclusion in the project budgets (and price), include incidental processes such as paint spraying, heat treatments, inspection and testing. In some firms these may be covered b y the general overhead rate, but in many others they will not, and must be listed among the direct cost estimates. Protective plating, silk screen printing, engraving and so on are frequently omitted from estimates.
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John Reynolds has been a practicing project manager for nearly 20 years and is the editor of an informational website rating project management software products. For more information on project management and project management software, visit Project Management Software Web.
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