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Pitfalls in Cost Estimating

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What are some of the pitfalls in cost estimating? What steps can a project manager take to address potential cost overruns? What steps can a project manager take to make controlling costs easier? Can these steps also be leveraged to control other areas of a project, such as a project's scope or schedule? Explain your answer.

What is the relationship between risk management and quality management of a project? Why is it important to have both risk and quality management in place? What happens to a project's success if you focus too much on one and not enough on the other? Explain your answer.

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What are some of the pitfalls in cost estimating? What steps can a project manager take to address potential cost overruns? What steps can a project manager take to make controlling costs easier? Can these steps also be leveraged to control other areas of a project, such as a project's scope or schedule? Explain your answer.

Pitfalls in cost estimating include failing to correctly estimate costs, including overhead, which will result in a low bid, but ultimately your company will lose money. In the event a company overestimates costs, the bid will be too high and your company will probably not get the job. It is important to take into consideration accurate details of the project, including possible labor benefits, overtime, taxes, travel, and components needed for the job. Scope creep, where a project starts out in one direction and evolves is another pitfall.

A project manager can address potential cost overruns by clearly defining the scope of the work and looking at the project accurately and honestly. Requirements for the project must be outlined and documented. It is tempting at times to avoid looking objectively at the project when one is eager for business. Sometimes padding is added, unknowingly, by the task performer, which can result in problems with the estimate. Other times, the task performers are not actively consulted which results in inaccurate estimates. To avoid these potential cost overruns, project managers should include a cross-departmental steering committee of project stakeholders (Thornberry, 2002) to define requirements and ensure ...

Solution Summary

This solution discusses some pitfalls in cost estimating and steps that a project manager can take to address potential cost overruns. It also discusses the steps a project manager can take to make controlling costs easier. It outlines if these steps can also be leveraged to control other areas of a project, such as a project's scope or schedule.

It describes the relationship between risk management and quality management of a project. It explains the importantance to have both risk and quality management in place and describes what happens to a project's success if one focuses too much on one and not enough on the other. APA references are included.

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Questions

1. What pitfalls must you recognize when working with data that is utilized in the statistical analysis you are conducting?

2. What are the potential pitfalls in comparing a company's indirect cost to the rate of another firm?

2a. Why evaluate risk in analysis plan development?

3. What major challenges do you face in the role as a contracting officer, negotiation team leader or other leadership role as an Government acquisition procurement representative in successfully communicating your pricing basis with the contractor(s)?

4. What do you think are the major consequences and liabilities you face by doing inept, short cut homework with respect to market research on your acquisition procurement contract?

5. What are the elements associated with determining a fee based on an optimistic and a pessimistic estimate?

5a. What signals do you look for from the other parties that determine fairness in the decision you have or would make concerning equitable adjustments?

6. What is the most effective presentation methodology and style to address with the prospective contractor that the proposed price that they have presented is not realistic? (Assume that you really need this contractor because of the limited competition in your area and you have very little price leverage, but the price is still unreal.)

7. What inherent barriers exist to prevent you from ascertaining that there exists defective pricing? Discuss why these are difficult to assess and what one can do about them.

8. Improvement Curve Theory is an approach. How can you determine whether your approach to learning curve analysis will have merit (is worth the effort) in predicting the quantitative amount of improvement over a fixed amount of prescribed time?

9. What mathematical analysis, documentation and research covered in this course do you think have the most practical application and return on your investment of time as tools to derive a cost-effective and quality contract of services or material for the Government? Why?

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