Project Cost Estimation

Benefits of understanding cost estimating

  • Will use methods which fit project.
  • Cost estimates will be as accurate as possible
  • Calculate estimates more quickly

Cost Benefit Issues

Cost Benefit
Time to gather information High level of accuracy
High salaries required to hire experienced and knowledgeable staff Quickness
Purchase of estimating software Quicker estimating with more accurate results
Risk of less accurate estimates Saving time & money by using estimates for similar projects

Inputs to Cost Estimating
Four sources of historical info:

  • project files
  • project team knowledge
  • commercial cost-estimating databases
  • estimating publications

Three types
1. Analogous estimating
– also known as “top down”

  • less costly to estimate using this method
  • it is less accurate

It is of benefit when:

  • new and previous projects are similar
  • individuals doing the estimate have the expertise
  • estimating team has adequate information about the previous project(s).

2. Parametric model
– also known as formula based

Can use this when:

  • project has quantifiable parameters
  • the parametric model is scalable
  • accurate historical data has been used to develop an appropriate model.

Parameters of project must be quantifiable to use this method.
The parametric model must be scalable as well.

3. Bottom Up

Activity Duration Estimates

  • include a range of results
  • convert units of time to a common units (ie. hors)
  • allow for down time (ie. holidays etc.)

Estimating costs for estimate

  1. Establish the activity duration estimate
  2. Check the resource rates which apply to the activity
  3. If necessary, convert unitis of time
  4. Multiple the estimate duration by the rate for the activity.


Project Cost Estimation: Six Inputs

The six inputs are:

  1. Work breakdown Structure (WBS)
  2. Resource requirements and rates
  3. Corporate chart of accounts
  4. Activity duration estimates
  5. Historical information and workflow
  6. Risks

Work Breakdown Structure

  • organises your cost estimates
  • identifies each project activity which generates cost
  • be able to represent your project in a graphical form.

Decomposition of WBS

  1. identify major elements of the project
  2. decompose elements into tasks, work packages and detailed activities
  3. lowest level items are tangible and can be measured. <- THIS IS THE MOST IMPORTANT STEP
  4. Verify completeness by having someone review it.


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