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Estimate Costs in Project Management

Jun 11, 2024

Estimate Costs in Project Management

Overview

  • Process: Developing an approximation of the monetary resources needed to complete project activities.
  • Key Benefit: Determines the amount of cost required to complete project work.

Refinement of Cost Estimates

  • Estimates should be reviewed and refined during the project's lifecycle.
  • Initiation Phase: Rough order of magnitude estimate range: -25% to +75%.
  • Later Stages: Definitive estimates accuracy range: -5% to +10%.

Inputs, Tools, Techniques & Outputs

Inputs

  1. Cost Management Plan
    • Method for managing and controlling project costs.
    • Level of accuracy required for activity cost estimates.
  2. Human Resource Management Plan
    • Project staffing attributes, personnel rates, rewards, and recognition details.
  3. Scope Baseline
  4. Project Schedule
    • Type, quantity, and duration of resources.
  5. Risk Register
    • Risk response costs affecting activity and overall project costs.
  6. Enterprise Environmental Factors
  7. Organizational Process Assets

Tools and Techniques

  1. Expert Judgment
    • Based on historical data and prior projects.
  2. Analogous Estimating
    • Uses scope, cost, budget, and duration from previous projects for current projects.
  3. Parametric Estimating
    • Statistical relationship between historical data and other variables.
  4. Bottom-Up Estimating
    • Estimating individual components of work.
  5. Three-Point Estimating
  6. Reserve Analysis
    • Includes contingency reserves to account for cost uncertainty.
  7. Cost of Quality
    • Assumptions about costs related to quality.
  8. Project Management Software
    • Tools: software applications, spreadsheets, simulations, statistical tools.
  9. Vendor Bid Analysis
    • Analysis based on vendor bids.
  10. Group Decision-Making Techniques
    • Techniques: brainstorming, Delphi, nominal group techniques.

Outputs

  1. Activity Cost Estimates
    • Quantitative assessments of probable costs for project work.
  2. Basis of Estimates
    • Supporting detail for cost estimates by application area.
  3. Project Documents Updates
    • Examples: Updated risk register.

Summary

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