Norm versus Quantity

                                                                                                                                                                                           Lesson # 1:  The majority of cost overruns are the direct result of malpractices in budgeting work and fundamental misinterpretations of statistical (historical) data.

ALL norms (manhours/tonne) in CERA Databank show a distinct downward trend with increasing quantity (tonnes). Historic data collected from numerous international projects show this to be true. If your historic data/cost estimating norms do not produce a similar curved shape, your chance of surviving the future competition is slim. Why? Because the descending norm/quantity relationship offers a better description of how manhours and costs are generated in projects infinitely better than single point estimates do.

Study the curve and ask yourself if this correlation may explain some of the unforeseen cost overruns you have experienced in your career.  Or, maybe you now see why your company lost a contract to a competitor?

In modern project control work these curves ultimately govern the selection of technology and development concept, in addition to being the overall contract strategy denominator. Thirty years experience from some of the larges and most complex projects in the world show that: The majority of cost overruns in projects are the result of budgeting error and/or budget-incompatible contract strategy.

For decades focus has been on Cost Control and Earned Value Analysis issues but the devastating cost overruns have continued. If your budget is undersized, the best project control system it he world cannot help you. Garbage in equals garbage out.

To better understand this we recommend one of our courses in capital cost estimating (Coming).

                                              Edited May 2005