Determining the Project Costs PMBOK

One of the first questions a project manager is likely to be asked when a project is launched is, "How much to finish?" That question can only be answered through progressive elaboration. In order to answer the question, the project manager, or the project estimator as the case may be, first needs to examine the costs of the resources needed to complete each activity in the project. Resources, of course, are people, but also things: equipment, material, training, even pizza if the project demands it.

On top of the cost of the resources, there's also all the variances that must be considered: project risks, fluctuations in the cost of materials, the appropriate human resources for each activity, and oddball elements, like shipping, insurance, inflation, and monies for testing and evaluations.

Estimates, as Figure 7-1 depicts, usually come in one of three flavors through a series of refinements. As more details are acquired as the project progresses, the estimates are refined. Industry guidelines and organizational policies may define how the estimates are refined.

• Rough order of magnitude This estimate is "rough" and is used during the initiating processes and in top-down estimates. The range of variance for the estimate can be from -25 percent to +75 percent.

• Budget estimate This estimate is also somewhat broad, and is used early in the planning processes and also in top-down estimates. The range of variance for the estimate can be from -10 percent to +25 percent.

• Definitive estimate This estimate type is one of the most accurate. It's used late in the planning processes, and is associated with bottom-up estimating. You need the work breakdown structure (WBS) in order to create the definitive estimate. The range of variance for the estimate can be from -5 percent to +10 percent.

Figure 7-1

There are three generally accepted types of cost estimates.

Figure 7-1

There are three generally accepted types of cost estimates.

Project Management Made Easy

Project Management Made Easy

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.

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