Lab 13 — Estimating Effort and Cost¶
At a glance
- Modules: 07 — Cost & Estimation
- Level: Intermediate
- Estimated time: 105–120 minutes
- Deliverable: A labour estimate, a three-point estimate, a risk-derived contingency, and a budget with a range
- Template: none — the costed estimate is a structure you build yourself; the cost and PERT worksheets check your arithmetic
- Answer key: Intermediate labs answer key — includes all arithmetic
Learning objectives¶
By the end of this lab you should be able to:
- Produce a bottom-up effort estimate and convert it to cost with stated assumptions.
- Apply a three-point estimate and explain what the resulting range means.
- Derive contingency from a risk register rather than from a round percentage.
- Present a budget as a range with its assumptions attached.
Scenario¶
This lab uses the Learning Management System (LMS) from Lab 03: a system for one university department, supporting course materials, assignment submission, and a gradebook for four lecturers and their students. Commercial video hosting and a mobile application are explicitly out of scope.
The department has approved a fixed budget for build only; hosting renewals will be funded from the department's operating budget after launch. Two staff will work on it part-time alongside teaching, and a part-time tester will be engaged.
Effort estimates from the team, in person-days:
| # | Activity | Effort (person-days) | Basis |
|---|---|---|---|
| 1 | Requirements and lecturer interviews | 6 | Four lecturers, one session each, plus write-up |
| 2 | Interface design | 8 | Eight screens at one day each |
| 3 | Gradebook build | 14 | Most complex component; multiple mark schemes |
| 4 | Assignment submission build | 10 | Upload, deadline enforcement, resubmission |
| 5 | Notifications | 5 | Email notification on deadline and grade release |
| 6 | Integration with student records | 8 | Read-only, one interface |
| 7 | Testing | 12 | Includes accessibility checks |
| 8 | Documentation and handover | 4 | Lecturer guide and administrator notes |
| Total | 67 |
Assumptions given to you:
| Assumption | Value |
|---|---|
| Productivity factor | 80% of paid time is project work |
| Blended rate | PKR 25,000 per paid person-day |
| Hosting | PKR 60,000 for the build period (3 months) |
| Tooling and licences | PKR 40,000 one-off |
| Post-launch hosting | Not in this budget; funded by the department |
| Contingency basis | Sum of expected exposure from the project's risk register |
| Management reserve | 10% of labour plus non-labour, controlled by the department, not the project |
The project's risk register contains five risks. They are invented for teaching:
| # | Risk | Probability | Impact if it occurs (PKR) |
|---|---|---|---|
| R1 | File storage limit discovered late, requiring rework of submission handling | 40% | 200,000 |
| R2 | Accessibility audit finds failures, requiring interface redesign | 50% | 120,000 |
| R3 | Notification provider's sandbox unavailable during build | 30% | 150,000 |
| R4 | The part-time tester's availability falls below plan, so review is done by developers | 60% | 100,000 |
| R5 | Hosting approval delayed beyond the build period | 20% | 250,000 |
For the gradebook activity, the team has produced three estimates: optimistic 10 days, most likely 14 days, pessimistic 26 days. The pessimistic case reflects a possible requirement that each lecturer may apply a different weighting scheme to the same assessment.
Your role¶
You are the project manager preparing the budget submission to the head of department. You are aware that the previous departmental IT project overran, and that your estimate will be scrutinised by someone who does not trust estimates.
Project information and assumptions¶
The scenario is part of the example-project library — read the full description there if you want the wider context.
- Use the effort figures as given. Do not re-estimate them; the lab is about conversion, uncertainty, and reserves, not about the estimates themselves.
- The productivity factor applies to paid time, not to effort.
- The management reserve is not yours to spend. Treat that distinction as part of the deliverable.
- Interest rates and inflation are out of scope; treat all figures as current prices.
Tasks¶
Task 1 — Convert effort into paid days¶
Calculate the paid person-days required from the effort total, showing the division. Explain in one sentence why paid days exceed effort days, and state what the difference represents in the working week of a part-time team member.
Task 2 — Cost the labour¶
Calculate total labour cost. Show the multiplication and state the rate assumption beside the result.
Task 3 — Add non-labour costs¶
Build a cost table:
| Component | Basis | Amount (PKR) |
|---|---|---|
| Labour | ||
| Hosting | ||
| Tooling and licences | ||
| Subtotal |
Then state explicitly what this subtotal excludes, and why the exclusion matters to the head of department rather than to you.
Task 4 — Derive contingency from the risks¶
Do not choose a percentage. Instead:
- Calculate each risk's expected exposure as probability × impact.
- Sum the exposures to produce the contingency figure.
- State which two risks contribute most, and what that implies for where you should spend prevention effort.
Then answer: why is this figure a contingency rather than padding, and what would you say to a reviewer who calls it "a 44% mark-up on labour"?
Task 5 — Apply the three-point estimate¶
Calculate the expected value of the gradebook activity using the standard approximation:
(optimistic + 4 × most likely + pessimistic) ÷ 6
Show the arithmetic. Then answer:
- How does the result compare with the original 14-day figure?
- What should you do with the difference, and why is the answer not "add it to the total"?
- What information would reduce the pessimistic case, and who could supply it?
Task 6 — Add management reserve and total the budget¶
- Calculate the management reserve as 10% of labour plus non-labour.
- Calculate the total budget.
- State, in one sentence each, who controls the contingency and who controls the management reserve, and why the two must be kept separate.
Task 7 — Present a range, not a point¶
Using your figures, produce the budget as a range:
| Scenario | Basis | Amount (PKR) |
|---|---|---|
| Low | No risk materialises; pessimistic gradebook case does not arise | |
| Expected | Contingency included at expected exposure | |
| High | Two highest-exposure risks materialise at full impact, in addition to expected |
For the high scenario, state which two risks you assumed and why those two.
Task 8 — Write the one-paragraph defence¶
Write a paragraph of no more than 150 words defending the estimate to a reviewer who believes the previous project's overrun shows that estimates cannot be trusted. Include at least one specific number from your own work, and state what you will do if the estimate turns out to be wrong.
Deliverable¶
- Paid person-days with working.
- Labour cost with the rate assumption.
- The cost table and the exclusion statement.
- The contingency derivation with the five exposures, their sum, and the two dominant risks.
- The three-point calculation and its three answers.
- The management reserve, the total budget, and the control statement.
- A three-scenario range table.
- The 150-word defence.
Hints and guidance¶
- Divide by the productivity factor; do not multiply by it. 67 ÷ 0.8 = 83.75, not 67 × 0.8.
- Contingency is an output. If your figure happens to be a round percentage of labour, that is a coincidence — and if you wrote the percentage first, you have produced padding.
- The three-point result is an input to a decision, not a total to be added. Decide what the difference changes: the scope, the sequence, or the reserve.
- A range is more defensible than a point. A reviewer cannot argue with "between 2.6 and 3.1 million, and here is what moves it" nearly as easily as with a single number.
- Say what you will do if you are wrong. Saying nothing invites the reviewer to assume you will hide it.
Self-check criteria¶
| Check | How to verify it |
|---|---|
| Division, not multiplication | 67 ÷ 0.8 = 83.75 paid days |
| Labour arithmetic correct | 83.75 × 25,000 = 2,093,750, or 84 × 25,000 = 2,100,000 if you rounded — state which you did |
| Every amount has a basis | No figure appears without a source or an assumption |
| Exclusions stated | Post-launch hosting is named as excluded, with the consequence |
| Contingency derived | Five exposures calculated, summed, and the dominant two identified |
| Three-point arithmetic correct | (10 + 4 × 14 + 26) ÷ 6 = 15.33 days |
| Reserves are separated by control | Contingency vs management reserve, with owners named |
| Range has a stated basis per row | Each scenario says what drives it |
Reflection¶
- Your paid person-days are roughly a quarter more than the effort estimate. A reviewer calls that padding. What is your answer, and does it depend on the team being part-time?
- The pessimistic gradebook case comes from a requirement that might exist, not from extra work. What is the cheapest way to resolve it, and when should you do it?
- Which two risks would you spend prevention money on, and what would you expect to get for it?
- The department approved a fixed budget. What do you ask for if your range's high scenario exceeds it, and what do you offer in return?
Check your numbers
- Paid person-days: 67 ÷ 0.8 = 83.75 (about 84).
- Labour: 83.75 × 25,000 = PKR 2,093,750 (or 2,100,000 if rounded to 84 days — either is acceptable if you state which you used).
- Non-labour: 60,000 + 40,000 = 100,000.
- Subtotal: ≈ PKR 2,193,750 (or 2,200,000 with rounding).
- Contingency: 80,000 + 60,000 + 45,000 + 60,000 + 50,000 = PKR 295,000.
- Management reserve: 10% of ≈ 2,193,750 = ≈ PKR 219,375 (or 220,000 with rounding).
- Total: ≈ PKR 2,708,125 (or 2,715,000 with rounding).
- Three-point estimate: (10 + 56 + 26) ÷ 6 = 15.33 person-days, about 1.3 days above the 14-day figure.
Check your own rounding choice is applied consistently, and that you have stated it. Full working is in the Intermediate labs answer key.
Extension challenge¶
Rebuild the estimate using function points instead of a bottom-up activity list. Count the transaction and data functions in the LMS description, note where you would need the IFPUG complexity ratings and value adjustment factor, and state what a function point count would give you that your bottom-up estimate cannot. Then answer: for which of the two would you sign a fixed-price contract, and why?