 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

7.2.2 Tools & Techniques

7.2.3 Outputs

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.

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:

• accuracy of data used to develop such models
• quantifiable parameters
• scalability of the model

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.

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.

• They may be presented in summary or in detail.
• Costs must be estimated for all resources that will be charged to the project.
• These are generally expressed in units of currency to faciltate comparisons.
• Cost estimates may benefit from being refined during the course of the project.

7.2.3.2 Supporting detail

This should include:

• a description of the scope of work estimated
• basis of the estimate
• assumptions
• indication of the range of possible results

7.2.3.3 Cost management plan

This describes how cost variations will be managed.