Cost Estimating

Estimating schedule activity costs involves developing an approximation of the costs of the resources needed to complete each schedule activity. In approximating costs, the estimator considers the possible causes of variation of the cost estimates, including risks.

Cost estimating includes identifying and considering various costing alternatives. For example, in most application areas, additional work during a design phase is widely held to have the potential for reducing the cost of the execution phase and product operations. The cost estimating process considers whether the expected savings can offset the cost of the additional design work.

Cost estimates are generally expressed in units of currency (dollars, euro, yen, etc.) to facilitate comparisons both within and across projects. In some cases, the estimator can use units of measure to estimate cost, such as staff hours or staff days, along with their cost estimates, to facilitate appropriate management control.

Cost estimates can benefit from refinement during the course of the project to reflect the additional detail 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 to +100%. Later in the project, as more information is known, estimates could narrow to a range of -10 to +15%. In some application areas, there are guidelines for when such refinements are made and for what degree of accuracy is expected.

Sources of input information come in the form of outputs from the project processes in Chapters 4 through 6 and 9 through 12. Once received, all of this information will remain available as inputs to all three of the cost management processes.

The costs for schedule activities 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 a contingency cost. A schedule activity cost estimate is a quantitative assessment of the likely costs of the resources required to complete the schedule activity.

If the performing organization does not have formally trained project cost estimators, then the project team will need to supply both the resources and the expertise to perform project cost estimating activities.