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.
Note:
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
- Establish the activity duration estimate
- Check the resource rates which apply to the activity
- If necessary, convert unitis of time
- Multiple the estimate duration by the rate for the activity.
Project Cost Estimation: Six Inputs
The six inputs are:
- Work breakdown Structure (WBS)
- Resource requirements and rates
- Corporate chart of accounts
- Activity duration estimates
- Historical information and workflow
- 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
- identify major elements of the project
- decompose elements into tasks, work packages and detailed activities
- lowest level items are tangible and can be measured. <- THIS IS THE MOST IMPORTANT STEP
- Verify completeness by having someone review it.
