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Project Cost Estimating Factors

  • Plan Cost Management—7.1
  • Estimate Costs—7.2
  • Determine Budget—7.3

Plan Cost Management

The first process in the cost management knowledge area is plan cost management. This process defines the policies and procedures for planning, managing, and controlling project costs. This process provides guidance on how costs will be managed throughout the project, taking into account stakeholder requirements for managing costs. All of the subsequent processes in the cost management knowledge area depend on the plan developed in this process. Table 4.13 shows the inputs, tools and techniques, and outputs for the plan cost management process.

TABLE 4.13 Plan Cost Management Inputs, Tools and Techniques, and Outputs

Inputs

Tools and Techniques

Outputs

Project management plan

Expert judgment

Cost management plan

Project charter

Analytical techniques

Enterprise environmental factors

Meetings

Organizational process assets

Estimate Costs

The estimate cost process associates an expected cost of performing work to each activity. Cost estimates can include labor, materials, equipment, and any other direct costs for project activities. Based on the activity resource and duration estimates, the cost estimates express the cost, normally in monetary amounts, of completing the work of the project. As with all other project documents, the cost estimates can change through the project as conditions change. Different events can cause the cost for any activity to go up or down and may require the cost estimates for the project to change. Table 4.14 shows the inputs, tools and techniques, and outputs for the estimate cost process.

TABLE 4.14 Estimate Cost Inputs, Tools and Techniques, and Outputs

Inputs

Tools and Techniques

Outputs

Cost management plan

Expert judgment

Activity cost estimates

Human resource management plan

Analogous estimating

Basis of estimates

Scope baseline

Parametric estimating

Project documents updates

Project schedule

Bottom-up estimating

Risk register

Three-point estimating

Enterprise environmental factors

Reserve analysis

Organizational process assets

Cost of quality

Project management software

Vendor bid analysis

Group decision-making
techniques

Cost estimates are compiled into the project budget. You probably recognize several estimating techniques from other processes. Three of the techniques used in the estimate costs process are the same basic techniques used in the estimate activity durations process. The other technique, bottom-up estimating, is also used in the estimate activity resources process. Although they are the same techniques, they are applied to different criteria and bear revisiting.

  • Analogous estimating—This uses actual cost values from similar activities. These activities can be from the same project or another project.
  • Parametric estimating—This calculates cost estimates by multiplying the quantity of work or result of work, such as square feet or hours, by a known rate, such as $30 per square foot or $45 per hour. This type of estimate works best for standardized, and often repeated, activities.
  • Three-point estimating—This uses three estimate values for each activity:

    • Most likely—The cost most likely to occur
    • Optimistic—The cost of the activity if everything goes as planned, or better
    • Pessimistic—The cost of the activity in a worst-case scenario
  • Bottom-up estimating—This technique calculates cost estimates by adding the costs of each individual work package. The technique starts at the most detailed level and rolls up the costs until a total cost for the project is obtained.

Determine Budget

After you know the costs to accomplish the work of the project, you can create the project budget. The determine budget process aggregates the activity cost estimates into a single document for the project. The resulting project budget expands on the preliminary budget from the project charter and provides far more detail. Table 4.15 shows the inputs, tools and techniques, and outputs for the determine budget process.

TABLE 4.15 Determine Budget Inputs, Tools and Techniques, and Outputs

Inputs

Tools and Techniques

Outputs

Cost management plan

Cost aggregation

Cost baseline

Scope baseline

Reserve analysis

Project funding requirements

Activity cost estimates

Expert judgment

Project documents updates

Basis of estimates

Historical relationships

Project schedule

Funding limit reconciliation

Resource calendars

Risk register

Agreements

Organizational process assets

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