Estimate Costs Process Outputs

One of the outputs of the Estimate Costs process is activity cost estimates. These are quantitative amounts—usually stated in monetary units—that reflect the cost of the resources needed to complete the project activities. The tools and techniques I just described help you derive these estimates. Resources in this case include human resources, material, equipment, information technology needs, and so on, as well as any contingency reserve amounts and inflation factors (if you're using them).

The remaining outputs of the Estimate Costs process are basis of estimates and project document updates. Basis of estimates is the supporting detail for the activity cost estimates and includes any information that describes how the estimates were developed, what assumptions were made during the Estimate Costs process, and any other details you think are needed. According to the PMBOK® Guide, the basis of estimates should include at least the following:

■ A description of how the estimate was developed or the basis for the estimate.

■ A description of the assumptions made about the estimates or the method used to determine them.

■ A description of the constraints.

■ A range of possible results. You should state the cost estimates within ranges such as $5000 ± 10%.

■ The confidence level regarding the final estimates.

Real World Scenario

This Older House

Janie is an accomplished project manager. She and her husband recently purchased an 80-year-old home in need of several repairs and modern updates. She decided to put her project management skills to work on the house project. First, they hired a general contractor to oversee all the individual projects needed to bring the house up-to-date. Janie worked with the general contractor to construct a WBS, and she ended up with 23 work packages. With each work package (or multiple work packages in some cases) assigned to a subcontractor, it was easy to track who was responsible for completing the work and for determining duration estimates. Janie and the general contractor worked together to determine schedule dependencies and make certain the work was performed in the correct order and that each subcontractor knew when their activity was to begin and end.

Some of the cost estimates for certain work packages were easy to determine using the parametric estimating method. Others required expert judgment and the experience of the general contractor (analogous techniques) to determine a cost estimate. Resource rates for laborers for some of the work packages were agreed to when the subcontractors bid on the work. Once Janie had all the cost estimates, she used the bottom-up estimating technique to come up with an overall cost estimate for the project. She added a contingency reserve in addition to the overall estimate for unforeseen risk events.

The last output of this process is project document updates. Cost variances will occur and estimates will be refined as you get further into your project. As a result, you'll update cost estimates and ultimately the project budget to reflect these changes. The risk register may also require an update after cost estimates are complete.

Estimate Costs uses several techniques to make an accurate assessment of the project costs. In practice, using a combination of techniques is your best bet to come up with the most reliable cost estimates. The activity cost estimates will become an input to the Determine Budget process, which allows you to establish a baseline for project costs to track against.

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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