Estimate Costs is the process of developing an approximation of the monetary resources needed to complete project activities. It includes the identification and consideration of costing alternatives to initiate and complete the project. Cost trade offs and risks must be considered, such as make versus buy, buy versus lease, and the sharing of resources in order to achieve optimal costs for the project.
Cost estimates are generally expressed in units of some currency (i.e., dollars, euro, yen, etc.), although in some instances other units of measure, such as staff hours or staff days, are used to facilitate comparisons both within and across projects.
Cost estimates should be refined during the course of the project to reflect additional detail as it becomes available. The accuracy of a project estimate will increase as the project progresses through the project life cycle. For example, a project in the initiation phase could have a rough order of magnitude (ROM) estimate in the range of ±50%. Later in the project, as more information is known, estimates could narrow to a range of ±10%. In some organizations, there are guidelines for when such refinements can be made and the degree of accuracy that is expected.
Sources of input information are derived from the outputs of project processes in other knowledge areas. Once received, all of this information will remain available as inputs to all three of the cost management processes.
Costs are estimated for all resources that will be charged to the project. This includes, but is not limited to, labor, materials, equipment, services, and facilities, as well as special categories such as an inflation allowance or contingency costs. A cost estimate is a quantitative assessment of the likely costs for resources required to complete the schedule activity.
Table 7-2. Estimate Costs: Inputs, Tools & Techniques, and Outputs
Tools & Techniques
1. Scope baseline 2 Project schedule
3. Human resource plan
4. Risk register
5. Enterprise environmental factors
6. Organizational process assets v J
1. Analogous estimating
2. Parametric estimating
3. Bottom-up estimating
4. Reserve analysis
5. Cost of quality
6. Project management estimating software
7. Vendor bid analysis
2. Basis of estimates
3. Project document updates v J
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.