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7.2 Cost Estimating

Introduction

Cost estimating involves developing an approximation (estimate) of the costs of the resources needed to complete project activities.

Considerations in cost estimating:

  • Distinguish between cost estimating and pricing
  • identifying and considering the various costing alternatives

7.2.1 Inputs

  1. Work breakdown structure
  2. Resource requirements
  3. Resource rates
  4. Activity duration estimates
  5. Historical information
  6. Chart of accounts

7.2.2 Tools & Techniques

  1. Analogous estimating
  2. Parametric modeling
  3. Bottom-up estimating
  4. Computerized tools

7.2.3 Outputs

  1. Cost estimates
  2. Supporting detail
  3. Cost management plan

 

 

 

 

 


7.2.1 Cost Estimating - Inputs

7.2.1.1 Work breakdown structure

The WBS will be used to organize the cost estimates and to ensure that all identified work has been estimated.

 

7.2.1.2 Resource requirements

Refer to resource requirements.

 

7.2.1.3 Resource rates

The individual or group preparing the estimates must know the unit rates for each resource in order to calculate project costs. If actual rates are not known the rates themselves need to estimated.

 

7.2.1.4 Activity duration estimates

Activity duration estimates will affect cost estimates on any project where the project budget includes an allowance for the cost of financing.

 

7.2.1.5 Historical information

Refer to historical information under activity duration estimating.

 

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7.2.2 Cost Estimating - Tools and techniques

7.2.2.1 Analogous estimating

Refer to analogous estimating.

 

7.2.2.2 Parametric modeling

This involves using project characteristics in a mathematical model to predict project costs. Examples are cost per square foot to build a house and software development cost models.

The reliability depends on:

 

7.2.2.3 Bottom-up estimating

This technique involves estimating the cost of individual work items then summarizing or rolling up the individual estimates to get a project total.

 

7.2.2.4 Computerized tools

Project management software and spreadsheets are widely used.

 

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7.2.3 Cost Estimating - Outputs

7.2.3.1 Cost estimates

Cost estimates are quantitative estimates of the likely costs of resources required to complete project activities.

 

7.2.3.2 Supporting detail

This should include:

 

7.2.3.3 Cost management plan

This describes how cost variations will be managed.

 

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