hi there i need help understanding this.

additional info- this is the case study:

Small Project Cost Estimating

Leah graduated from her degree in July 2012 with a degree in Business majoring in Project Management. She accepted a job as a project coordinator for Housing New Zealand in the Building Maintenance department. She has worked on fixed cost estimates for housing projects, where the work was uncomplicated to estimate, and she was working with experienced building teams and a supportive management team which allowed her to generate accurate quotes most of the time, a few quotes were +/-10% on the original quote but this was an acceptable margin for maintenance quotes such as these.

Leah was promoted to a new position within Housing New Zealand to the project office. Her new responsibility was to coordinate estimates for all major projects for the company.

The project was to build low cost housing units on land owned by Housing New Zealand. The cost of the houses was estimated to be $400,000. Leah had attended a Kick Off meeting to approve the Charter of the project, where the management team approved the budget overall budget of the project at $500,000 with a budget of the product at $400,000. This type of project had never been done before, but the management team where confident in the estimates using information from pervious projects.

A couple of senior contractors were worried about the materials required to build the low-cost housing to Council Standards for $400,000. But given the excitement of the moment, everyone agreed the project was worth doing and doable. This project was to have the highest project priority in the company.

Estimates were due in two weeks.

Leah started by compiling estimates for the project. The corresponding cost estimates seemed to be in error. The cost estimate was $80,000 over the management estimate; this represents about 20 percent overrun!

The time estimate from the developed project network was only four months over managements time estimate. Another meeting was scheduled with the significant stakeholders to check the estimates and to brainstorm for alternatives solutions; the cost and time estimates appeared to be reasonable. Some of the suggestions for the brainstorming session are listed below.

1. Change scope

2. Outsource the building

3. Use the priority matrix to get management to clarify their priorities

4. Cancel the project

5. Commission a break-even study for the build

Very little in the way of concrete savings was identified, although there was consensus that time could be compressed to the proposed dates, but at additional costs.

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