W14.1_SSG_Re-estimate project Cost using PERT method


PROBLEM DEFINITION

Currently we are in the start beginning of Execution phase of Topside EPCI project. The baseline duration has been setup. Prior to Kick of Meeting, management is asking project team to estimate the duration of the project in worst case, normal situation, best case and find the estimate cost that is “technically justified”.

DEVELOPMENT OF FEASIBLE ALTERNATIVES

There are some methods applicable to perform risk assessment. One of the methods is PERT (Project Evaluation and Review Technique). This method basically using weighted average of three numbers as follow:

  • The most optimist case (O) where everything is goes right
  • The most pessimist case (P) where everything is goes wrong
  • Most likely case (M) where normal problem and opportunities is applied.

Basic formula of this method is summarized in the formula 1. as follow:

Z = (O + 4M + P)/6

Where:

  • Z = applicable value of Estimate
  • O = optimist case
  • M = Most likely
  • P = Pessimist case

Figure 1. PERT (solid line) vs. Triangle (dotted line)

DEVELOPMENT OF OUTCOMES FOR EACH ALTERNATIVE

Using PERT method, every activity is measured and the value of three numbers (optimist, most likely, and pessimist) are identified and quantified.  The applicable value (Z) is achieved by using formula 1.

Figure 2. Base cost and Z value of each activities.

As seen in the figure.2, the total cost by applying PERT method is increasing from 396.7 M USD (base case) to 424.4 M USD.

 

SELECTION OF CRITERIA

By using the PERT method, it is possible to find the cost of each activity that highly potentially happen during the execution phase by considering of optimist, most likely, and pessimist case. It’s foreseen that each activity has different cost even with most likely ones.

Since the three value (optimist, pessimist, and most likely) is based on the expert judgment (SME), the weighted average of those judgment value is technically accepted.

ANALYSIS FOR THE ALTERNATIVES

Figure.3. S Curve and Monthly Cost (Base case) and PERT applied

Based on above Cost profile on figure.3, it is seen that cost of the project increase following the duration extension. The cost each month is varied following the activities in that months.

SELECTION ON THE PREFERRED ALTERNATIVES

As per request of the management is to identify the cost of the project using case of optimistic, most likely, pessimistic, and “technically justified”. Based on the theory and application above,  the PERT method is applicable.

In summary, the total cost that “technically” justified for the project increasing from 396.7 M USD (base case) to 424.4 M USD.

PERFORMANCE MONITORING AND POST EVALUATION RESULT

The result of PERT assessment is need to be updated periodically i.e. quarterly. This is important in order all assumption that is made in beginning of the project still valid

REFERENCES

Giammalvo, P.D.  (2013). AACE Certification Preparation  Course-2nd day module. (pp 63-66). Jakarta.

Mochal, T.  (2007). Use PERT technique for more accurate estimates. Retrieved on November 29,2013 from  http://www.techrepublic.com/blog/it-consultant/use-pert-technique-for-more-accurate-estimates/

PM Knowledge Center (2013). The Program Evaluation and Review Technique (PERT): Incorporating activity time variability in a project schedule. Retrieved on November 29,2013 from  http://www.pmknowledgecenter.com/node/59

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1 Comment

Filed under Sutoyo S, Week 14

One response to “W14.1_SSG_Re-estimate project Cost using PERT method

  1. EXCELLENT, Pak Sutoyo!!!

    BR,
    Dr. PDG, Geneva, Switzerland

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