Project Cost Estimation Methods - Revision history

S184301: /* About Cost Estimation */

2022-03-22T21:20:05Z

About Cost Estimation

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	The definitive estimate is the PMBOK's most precise type of estimate. Its precision varies from -5 to +10 percent. This high degree of precision is generally only possible when the project has been meticulously planned and all required information for a credible estimate of the work is available. As a result, definite estimates are often established later in the project. This is referred to as "Progressive elaboration", here addressing the process of refining preliminary estimations during the life of a project. This approach typically includes bottom-op-, parametric-, & three point estimation<ref name="three"/>.		The definitive estimate is the PMBOK's most precise type of estimate. Its precision varies from -5 to +10 percent. This high degree of precision is generally only possible when the project has been meticulously planned and all required information for a credible estimate of the work is available. As a result, definite estimates are often established later in the project. This is referred to as "Progressive elaboration", here addressing the process of refining preliminary estimations during the life of a project. This approach typically includes bottom-op-, parametric-, & three point estimation<ref name="three"/>.

	===Cost ~~estimation~~ at ~~different stages~~===		===Cost Estimation at Different Stages===

	As mentioned, costs are calculated at various stages of the project <ref name="ref1"/> and cost estimation procedures are typically "carried out periodically during the duration of the project" according to PMBOK <ref name="three"/>. At the early stage of a project, when the project charter or business case is being prepared, a project manager must identify the resources necessary to finish. Due to the lack of data available at that stage, the project manager is likely to provide a ROM according to the project tasks and its complexity, rather than a precise estimate <ref name="three"/>. Although this estimate is not very precise, it gives the stakeholders and project manager a good idea about whether or not to proceed with the project.		As mentioned, costs are calculated at various stages of the project <ref name="ref1"/> and cost estimation procedures are typically "carried out periodically during the duration of the project" according to PMBOK <ref name="three"/>. At the early stage of a project, when the project charter or business case is being prepared, a project manager must identify the resources necessary to finish. Due to the lack of data available at that stage, the project manager is likely to provide a ROM according to the project tasks and its complexity, rather than a precise estimate <ref name="three"/>. Although this estimate is not very precise, it gives the stakeholders and project manager a good idea about whether or not to proceed with the project.

S184301: /* About Cost Estimation */

2022-03-22T19:18:38Z

About Cost Estimation

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	The ROM is a rough numerical estimate or approximation, established at the very early phases of a project when there is not much information available, such as during its inception or even earlier. In the case of the cost-benefit analysis, this would mean during the project selection process. This gives the decision makers the possibility to asses early on whether to proceed with the project or not. According to PMBOK, the accuracy range of ROM is -25 percent to +75 percent. The range was formerly stated as +/-50 percent in prior versions of the PMBOK, such as the 4th edition. As ROM estimations are rather inaccurate because of the wide range of probable results, they are usually replaced by more precise estimates, such as the definitive estimate. Analogous/ top-down estimation or expert judgment is most commonly used in this situation<ref name="three"/>.		The ROM is a rough numerical estimate or approximation, established at the very early phases of a project when there is not much information available, such as during its inception or even earlier. In the case of the cost-benefit analysis, this would mean during the project selection process. This gives the decision makers the possibility to asses early on whether to proceed with the project or not. According to PMBOK, the accuracy range of ROM is -25 percent to +75 percent. The range was formerly stated as +/-50 percent in prior versions of the PMBOK, such as the 4th edition. As ROM estimations are rather inaccurate because of the wide range of probable results, they are usually replaced by more precise estimates, such as the definitive estimate. Analogous/ top-down estimation or expert judgment is most commonly used in this situation<ref name="three"/>.

			[[File:BudgetImage.png\|400px\|thumb\|right\|Figure 1: Estimate Ranges ]]

	'''[[Budget Estimate]]'''		'''[[Budget Estimate]]'''

	The budget estimate is typically applied in the beginning phase of a project, when the final specifications of the project are still unclear, but there is a good understanding of the primary features and technical requirements. In this kind of situation, it can assist in finding a preliminary cost and budget strategy that is more accurate than that of the ROM, as it has a -10 percent to +25 percent accuracy. This approach also most commonly makes use of the top-down approach, as well as expert judgement<ref name="seven"/>.		The budget estimate is typically applied in the beginning phase of a project, when the final specifications of the project are still unclear, but there is a good understanding of the primary features and technical requirements. In this kind of situation, it can assist in finding a preliminary cost and budget strategy that is more accurate than that of the ROM, as it has a -10 percent to +25 percent accuracy. This approach also most commonly makes use of the top-down approach, as well as expert judgement<ref name="seven"/>.

	~~[[File:BudgetImage.png\|400px\|thumb\|right\|Figure 1: Estimate Ranges ]]~~

	'''[[Definitive Estimate]]'''		'''[[Definitive Estimate]]'''

S184301: /* About Cost Estimation */

2022-03-22T19:18:23Z

About Cost Estimation

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	All three categories vary in terms of precision, project stages in which they are used, and tools and procedures accessible.		All three categories vary in terms of precision, project stages in which they are used, and tools and procedures accessible.

	~~[[File:BudgetImage.png\|400px\|thumb\|right\|Figure 1: Estimate Ranges ]]~~

	'''[[Rough Order of Magnitude]]'''		'''[[Rough Order of Magnitude]]'''
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	The budget estimate is typically applied in the beginning phase of a project, when the final specifications of the project are still unclear, but there is a good understanding of the primary features and technical requirements. In this kind of situation, it can assist in finding a preliminary cost and budget strategy that is more accurate than that of the ROM, as it has a -10 percent to +25 percent accuracy. This approach also most commonly makes use of the top-down approach, as well as expert judgement<ref name="seven"/>.		The budget estimate is typically applied in the beginning phase of a project, when the final specifications of the project are still unclear, but there is a good understanding of the primary features and technical requirements. In this kind of situation, it can assist in finding a preliminary cost and budget strategy that is more accurate than that of the ROM, as it has a -10 percent to +25 percent accuracy. This approach also most commonly makes use of the top-down approach, as well as expert judgement<ref name="seven"/>.

			[[File:BudgetImage.png\|400px\|thumb\|right\|Figure 1: Estimate Ranges ]]

	'''[[Definitive Estimate]]'''		'''[[Definitive Estimate]]'''

S184301: /* Project Cost Estimation Techniques */

2022-03-22T19:17:47Z

Project Cost Estimation Techniques

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	'''[[Three-point Estimation]]'''		'''[[Three-point Estimation]]'''
	[[File:TP.png\|~~550px~~\|thumb\|right\|Figure 2: Probability Density Curves of PERT & Triangular Distributions <ref name="eight"/>]]		[[File:TP.png\|350px\|thumb\|right\|Figure 2: Probability Density Curves of PERT & Triangular Distributions <ref name="eight"/>]]

	The three-point estimate approach is a simple but efficient way of evaluating work, time and cost. Three different estimates are employed here, which are usually gathered from experienced specialists:		The three-point estimate approach is a simple but efficient way of evaluating work, time and cost. Three different estimates are employed here, which are usually gathered from experienced specialists:

S184301: /* Abstract */

2022-03-22T19:12:01Z

Abstract

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	Prior to the start of a project, cost estimation is critical. It is an important phase in project management, since it is used to calculate and manage the project budget is often the most important parameter within the standard success criteria of cost, schedule, and performance targets. The cost of a project is usually estimated at the start of the project or sometimes even before. Afterwards, the cost is re-estimated on a regular basis to account for new information, scope changes, and the timetable of the project <ref name="two"/>. The cost of a project has the potential to impact nearly every area of the project, making it one of the most critical jobs for a project manager. A poorly written budget will result in incorrect asset allocation, unrealistic expectations, and, in the worst-case situation, project failure & customer disappointment. Simply put, the budget of a project is essential for its success. Cost estimation is one of the most helpful tools in a project manager's arsenal for creating an adequate budget. There are different methods of cost estimation available such as analogous estimation, parametric estimation, bottom up estimation, expert judgement, and three-point estimation. Each method has its own pros and cons for different projects. The application of each cost estimation method varies from project to project and the nature of the project. <ref name="ref1"/> Throughout the article, different kinds of cost estimating techniques will be examined, to determine which approach is most appropriate for different types of projects, as well as different stages of the project.<ref name="budget"/>.		Prior to the start of a project, cost estimation is critical. It is an important phase in project management, since it is used to calculate and manage the project budget, which is often the most important parameter within the standard success criteria of cost, schedule, and performance targets. The cost of a project is usually estimated at the start of the project or sometimes even before. Afterwards, the cost is re-estimated on a regular basis to account for new information, scope changes, and the timetable of the project <ref name="two"/>. The cost of a project has the potential to impact nearly every area of the project, making it one of the most critical jobs for a project manager. A poorly written budget will result in incorrect asset allocation, unrealistic expectations, and, in the worst-case situation, project failure & customer disappointment. Simply put, the budget of a project is essential for its success. Cost estimation is one of the most helpful tools in a project manager's arsenal for creating an adequate budget. There are different methods of cost estimation available such as analogous estimation, parametric estimation, bottom up estimation, expert judgement, and three-point estimation. Each method has its own pros and cons for different projects. The application of each cost estimation method varies from project to project and the nature of the project. <ref name="ref1"/> Throughout the article, different kinds of cost estimating techniques will be examined, to determine which approach is most appropriate for different types of projects, as well as different stages of the project.<ref name="budget"/>.

	Note that this article mainly provides a discussion of when to use a selection of cost estimation methods. For further insight into the concrete application of these methods, it is recommended to do further research through the annotated bibliography and references.		Note that this article mainly provides a discussion of when to use a selection of cost estimation methods. For further insight into the concrete application of these methods, it is recommended to do further research through the annotated bibliography and references.

S184301: /* Limitations */

2022-03-22T19:06:01Z

Limitations

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	== Limitations ==		== Limitations ==

	Although the project cost estimation ~~techniques~~ provide a good way of calculating the overall cost of the project, the different techniques have some limitations as well. Applications of each techniques varies from project to project and their complexities. In case of analogous estimation, it is applicable at the very basic level of the project and it does not provide the most precise estimates. It is appropriate at initial planning phases of the project rather than in execution phases. On the other hand, Parametric estimation undoubtedly is a more accurate estimation technique, but it consumes more time and resources in ~~preparing~~ the model and ~~gather~~ historical data from ~~the~~ past projects to apply on current project for estimation.		Although the project cost estimation technique provide a good way of calculating the overall cost of the project, the different techniques have some limitations as well. Applications of each techniques varies from project to project and their complexities. In the case of analogous estimation, it is applicable at the very basic level of the project, and it does not provide the most precise estimates. It is more appropriate at initial planning phases of the project rather than in execution phases. On the other hand, Parametric estimation undoubtedly is a more accurate estimation technique, but it consumes more time and resources in the preparation of the model and gathering historical data from past projects to apply to current project for estimation.

	Bottom up estimation also has limitations in certain dimensions, as it does not provide the accurate estimate of the project as its estimate based on the sum of the activities of the project. It ignores the additional effort required of integrating the activities, while executing the enterprise and complex projects. ~~Besides that~~, it can be very time consuming to break down the project into smaller tasks. Expert judgement also has some disadvantages as experts may be prone to downplaying the fact that a task took longer than anticipated in the past. Besides the fact that it is time consuming, expert judgment can be costly as the company sometimes needs to hire ~~an expert from the outside~~. Lastly, in the three-point estimation, there are not any major limitations, but it can be very time consuming to provide an estimate for both the optimistic, pessimistic and most likely scenario.		Bottom up estimation also has limitations in certain dimensions, as it does not provide the accurate estimate of the project as its estimate is based on the sum of the activities of the project. It ignores the additional effort required for integrating the activities, while executing the enterprise and complex projects. Furthermore, it can be very time consuming to break down the project into smaller tasks. Expert judgement also has some disadvantages, as experts may be prone to downplaying the fact that a task took longer than anticipated in the past. Besides the fact that it is time consuming, expert judgment can be costly as the company sometimes needs to hire experts as consultants. Lastly, in the three-point estimation, there are not any major limitations, but it can be very time consuming to provide an estimate for both the optimistic, pessimistic and most likely scenario.

	== Comparison of Cost Estimation Techniques ==		== Comparison of Cost Estimation Techniques ==

S184301: /* Project Cost Estimation Techniques */

2022-03-22T19:02:28Z

Project Cost Estimation Techniques

S184301: /* About Cost Estimation */

2022-03-22T18:56:52Z

About Cost Estimation

S184301: /* Abstract */

2022-03-22T18:51:29Z

Abstract

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	Prior to the start of a project, cost estimation is critical. It is an important phase in project management since it is used to calculate and manage the project budget~~, which~~ is often the most important parameter within the standard success criteria of cost, schedule, and performance targets. The cost of a project is ~~for the first time~~ estimated ~~upon~~ the start of the project or sometimes even before. Afterwards, the cost is re-estimated on a regular basis to account for new information, scope changes, and the project~~'s timetable~~ <ref name="two"/>. The cost of a project has the potential to impact nearly every area of the project, making it one of the most critical jobs for a project manager. A poorly written budget will result in incorrect asset allocation, unrealistic expectations, and, in the worst-case situation, project failure & customer disappointment. Simply ~~said~~, a project~~'s budget must be accurate~~ for ~~it to succeed~~. Cost estimation is one of the most helpful tools in a project manager's arsenal for creating an adequate budget. There are different methods of cost estimation available ~~in the literature~~ such as analogous estimation, parametric estimation, bottom up estimation, expert judgement, and three-point estimation. Each method has its own pros and cons for different projects. The application of each cost estimation method varies from project to project and the nature of the project. <ref name="ref1"/> Throughout the article different ~~kind~~ of cost estimating techniques will be examined to determine which approach is most appropriate for different types of projects, as well as different stages of the project.<ref name="budget"/>.		Prior to the start of a project, cost estimation is critical. It is an important phase in project management, since it is used to calculate and manage the project budget is often the most important parameter within the standard success criteria of cost, schedule, and performance targets. The cost of a project is usually estimated at the start of the project or sometimes even before. Afterwards, the cost is re-estimated on a regular basis to account for new information, scope changes, and the timetable of the project <ref name="two"/>. The cost of a project has the potential to impact nearly every area of the project, making it one of the most critical jobs for a project manager. A poorly written budget will result in incorrect asset allocation, unrealistic expectations, and, in the worst-case situation, project failure & customer disappointment. Simply put, the budget of a project is essential for its success. Cost estimation is one of the most helpful tools in a project manager's arsenal for creating an adequate budget. There are different methods of cost estimation available such as analogous estimation, parametric estimation, bottom up estimation, expert judgement, and three-point estimation. Each method has its own pros and cons for different projects. The application of each cost estimation method varies from project to project and the nature of the project. <ref name="ref1"/> Throughout the article, different kinds of cost estimating techniques will be examined, to determine which approach is most appropriate for different types of projects, as well as different stages of the project.<ref name="budget"/>.

	Note that this article ~~only~~ provides a discussion of selection of cost estimation methods. For further insight into the concrete application of these methods, it is recommended to do further ~~reading in~~ the annotated bibliography and references.		Note that this article mainly provides a discussion of when to use a selection of cost estimation methods. For further insight into the concrete application of these methods, it is recommended to do further research through the annotated bibliography and references.

	== About Cost Estimation ==		== About Cost Estimation ==

S184301: /* Cost estimation at different stages */

2022-03-22T17:56:25Z

Cost estimation at different stages

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	===Cost estimation at different stages===		===Cost estimation at different stages===

	As mentioned, costs are calculated at various stages of the project <ref name="ref1"/> and cost estimation procedures are according to PMBOK typically "carried out periodically during the duration of the project"<ref name="three"/>. At the early stage of a project, when the project charter or business case is being prepared, a project manager must identify the resources necessary to finish. Due to the lack of data available at that stage, the project manager is likely to provide a ROM according to the project tasks and its complexity rather than ~~a budget estime or~~ a precise estimate <ref name="three"/>. Although this estimate is not very precise, it gives the stakeholders and project manager a good idea about whether or not to proceed with the project.		As mentioned, costs are calculated at various stages of the project <ref name="ref1"/> and cost estimation procedures are according to PMBOK typically "carried out periodically during the duration of the project"<ref name="three"/>. At the early stage of a project, when the project charter or business case is being prepared, a project manager must identify the resources necessary to finish. Due to the lack of data available at that stage, the project manager is likely to provide a ROM according to the project tasks and its complexity rather than a precise estimate <ref name="three"/>. Although this estimate is not very precise, it gives the stakeholders and project manager a good idea about whether or not to proceed with the project.
	As further information becomes available later in the project, the ROM is replaced with a more precise budget estimate, and lastly a definite estimate. Of course this may vary from project to project, and some may skip the budget estimate or start directly with the definite estimate.		As further information becomes available later in the project, the ROM is replaced with a more precise budget estimate, and lastly a definite estimate. Of course this may vary from project to project, and some may skip the budget estimate or start directly with the definite estimate.

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	== Project Cost Estimation Techniques ==		== Project Cost Estimation Techniques ==

	The choice of project managers cost estimations techniques ~~are~~ influenced by a number of factors. This ~~amongst others~~ includes the size and scope of the project, the availability of data from previous projects and the stage which the project is in. Some companies may also require that all projects must be funded in line with strict principles, while others may depend on the project manager's expertise. Many firms tend to depend on estimates in the early stages of project development, rather than more accurate forecasts. All these factors directly influence whether a ROM, a budget estimate or a definite estimate is being made. Five of the most commonly applied techniques for ~~doing~~ such estimates are described in the following section <ref name="three"/>:		The choice of project managers cost estimations techniques is influenced by a number of factors. This includes the size and scope of the project, the availability of data from previous projects, and the stage which the project is in. Some companies may also require that all projects must be funded in line with strict principles, while others may depend on the project manager's expertise. Many firms tend to depend on estimates in the early stages of project development, rather than more accurate forecasts. All these factors directly influence whether a ROM, a budget estimate or a definite estimate is being made. Five of the most commonly applied techniques for completing such estimates are described in the following section <ref name="three"/>:

	'''[[Analogous Estimating]]'''		'''[[Analogous Estimating]]'''

	Analogous estimating, also referred to as top-down estimating, is the process of applying previously observed cost figures and variables to new projects or segments of projects. The ~~kind~~ and structure of the referenced project activities must be similar to the present project in order to ensure accuracy. This method determines the predicted resource needs of a present project by analyzing the past data in terms of numbers and parameters. For the present project, the past values are used, and they may be changed to account for variations in project scope or its complexity. Analogous estimating falls under the category of gross value estimation, as is is often used when ~~doing~~ estimates without having a lot of information ~~available~~. Comparable estimates are used when a project has access to previous data on similar types of work but lacks the specifics and resources ~~to make~~ more exact estimates <ref name="three"/>.		Analogous estimating, also referred to as top-down estimating, is the process of applying previously observed cost figures and variables to new projects or segments of projects. The type and structure of the referenced project activities must be similar to the present project in order to ensure accuracy. This method determines the predicted resource needs of a present project by analyzing the past data in terms of numbers and parameters. For the present project, the past values are used, and they may be changed to account for variations in project scope or its complexity. Analogous estimating falls under the category of gross value estimation, as is is often used when completing estimates without having a lot of available information. Comparable estimates are used when a project has access to previous data on similar types of work, but lacks the specifics and resources for more exact estimates <ref name="three"/>.

	'''[[Bottom Up Estimating]]'''		'''[[Bottom Up Estimating]]'''

	Bottom-up estimate is a method for calculating the cost of work units at the lowest possible level of detail. The cost estimates for all project components are then combined to arrive at a total project cost estimate. Generally, these estimations are often made after breaking down the project into smaller work packages and even individual tasks. Whereas there is no specific rule on who should do these estimates, it is typical to ask actively involved stakeholders to do so. As a result, the bottom-up estimating technique often produces substantially more accurate results than analogous estimations. Getting these estimates on the lowest level and integrating them, on the other hand, often demands significant resources and may become a political minefield, particularly for big or complicated projects <ref name="three"/>. This level of detail can however ~~easier~~ be achieved by breaking the project down using a Work Breakdown Structure (WBS) tool[http://wiki.doing-projects.org/index.php/Work_Breakdown_Structure_(WBS)_in_Project_Management].		Bottom-up estimate is a method for calculating the cost of work units at the lowest possible level of detail. The cost estimates for all project components are then combined to arrive at a total project cost estimate. Generally, these estimations are often made after breaking down the project into smaller work packages and even individual tasks. Whereas there is no specific rule on who should do these estimates, it is typical to ask actively involved stakeholders to do so. As a result, the bottom-up estimating technique often produces substantially more accurate results than analogous estimations. Getting these estimates on the lowest level and integrating them, on the other hand, often demands significant resources and may become a political minefield, particularly for big or complicated projects <ref name="three"/>. This level of detail can however be achieved more easily by breaking the project down using a Work Breakdown Structure (WBS) tool[http://wiki.doing-projects.org/index.php/Work_Breakdown_Structure_(WBS)_in_Project_Management].

	'''[[Parametric Estimating]]'''		'''[[Parametric Estimating]]'''

	Parametric estimating is a statistical approach for determining the cost, budget or duration required to complete a project, an activity, or a portion of a project. It uses a relationship between variables (a unit cost/duration and the number of units) to provide an accurate estimate. The size of the present project is then scaled in accordance with the observed association. For instance, in the construction of a highway, the cost and timing for constructing a mile in a previous project might be used to estimate the resources and timetable for the current project. This, however, requires statistical proof of the association as well as a comparison of the two projects' features <ref name="three"/>.		Parametric estimating is a statistical approach for determining the cost, budget or duration required to complete a project, an activity, or a portion of a project. It uses a relationship between variables (a unit cost/duration and the number of units) to provide an accurate estimate. The size of the present project is then scaled in accordance with the observed association. For instance, in the construction of a highway, the cost and timing for constructing a mile in a previous project might be used to estimate the resources and timetable for the current project. This, however, requires statistical proof of the association as well as a comparison of the two projects' features <ref name="three"/>.
	Like analogous estimating, parametric estimating requires historical data, but it differs from analogous estimating in its algorithmic approach and its use of additional quantitative parameters. At the same time, it ~~addresses~~ for the difference between new and old data. Depending on the ~~sophistication and~~ underlying data built into the model, a high accuracy can be achieved.		Like analogous estimating, parametric estimating requires historical data, but it differs from analogous estimating in its algorithmic approach and its use of additional quantitative parameters. At the same time, it accounts for the difference between new and old data. Depending on the level of underlying data built into the model, a high accuracy can be achieved.


	'''[[Expert Judgement]]'''		'''[[Expert Judgement]]'''

	The precision of this technique is highly dependent on the quantity and expertise of the professionals participating, the understanding of the activities planned and phases, and the ~~kind~~ of project. If the primary stakeholder and team are familiar with the type of work that will be performed on the project, expert judgement may be used to provide an estimate. This involves a working knowledge of the project's topic and its environment, such as the organisation and the industry <ref name="four"/>.		The precision of this technique is highly dependent on the quantity and expertise of the professionals participating, the understanding of the activities planned and phases, and the type of project. If the primary stakeholder and team are familiar with the type of work that will be performed on the project, expert judgement may be used to provide an estimate. This involves a working knowledge of the project's topic and its environment, such as the organisation and the industry <ref name="four"/>.

	Expert judgement can be done in two ways:		Expert judgement can be done in two ways:
	* Estimation of the ROM at the outset of a project. As there are often not many team member at the beginning, and precise estimates are not available due to inexistence of data~~, estimates~~ are often times performed by a top-down estimation approach		* Estimation of the ROM at the outset of a project. As there are often not many team member at the beginning, and precise estimates are not available due to inexistence of data. Estimates are often times performed by a top-down estimation approach.

	* Dividing the project into smaller tasks by the use of a WBS, and asking the people in charge of different tasks of the project, to ~~make an estimate of~~ how much time and resources they think it will take to produce the deliverables that are outlined. It is often times possible to get quite precise findings from this kind of expert judgement.		* Dividing the project into smaller tasks through the use of a WBS, and asking the people in charge of different tasks of the project to create estimates for how much time and how many resources they think it will take to produce the deliverables that are outlined. It is often times possible to get quite precise findings from this kind of expert judgement.

	Expert judgement, in addition to being an estimating approach in and of itself, is also inherent in the other estimation procedures such as the top-down and bottom-up estimation, which are quite similar to the two approaches just described.		Expert judgement, in addition to being an estimating approach in and of itself, is also inherent in the other estimation procedures such as the top-down and bottom-up estimation, which are quite similar to the two approaches just described.
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	[[File:TP.png\|550px\|thumb\|right\|Figure 2: Probability Density Curves of PERT & Triangular Distributions <ref name="eight"/>]]		[[File:TP.png\|550px\|thumb\|right\|Figure 2: Probability Density Curves of PERT & Triangular Distributions <ref name="eight"/>]]

	The three-point estimate approach is a simple, but efficient way of evaluating work, time and cost. Three different estimates are employed here, which are usually gathered from experienced specialists:		The three-point estimate approach is a simple but efficient way of evaluating work, time and cost. Three different estimates are employed here, which are usually gathered from experienced specialists:

	* ''Most likely estimate''		* ''Most likely estimate''

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	== About Cost Estimation ==		== About Cost Estimation ==

	A cost estimation is a calculated estimate of the number of resources necessary to accomplish a project or components of a project, which is typically done by dividing the projects into more manageable parts. Cost estimates are used to allocate funding to the deliverables and work packages of the project. These ~~kind~~ of cost estimates are usually stated in monetary terms, to enable comparisons across ~~project~~. They can however also be stated in alternative units such as staff hours or staff days, if the monetary values are not appropriate or ~~irrelevant~~. The estimate of project costs is one of the most critical components of project planning and management. The reason for this being that every project relies upon three main components: scope, budget and timeline. Budget is ~~here~~ often times one of the most essential things in order to gain approval of upper management or the person funding the project. The budget is typically very difficult to estimate accurately in the beginning of a project, due to lack of information and data, and estimates ~~are~~ typically ~~increasing im~~ accuracy as the project progresses. Therefore, cost estimation is divided into three different overall categories, according to PMBOK®, which is a set of standard terminology and guidelines for project management <ref name="three"/>:		A cost estimation is a calculated estimate of the number of resources necessary to accomplish a project or components of a project, which is typically done by dividing the projects into more manageable parts. Cost estimates are used to allocate funding to the deliverables and work packages of the project. These kinds of cost estimates are usually stated in monetary terms, to enable comparisons across projects. They can however also be stated in alternative units, such as staff hours or staff days, if the monetary values are not appropriate or relevant. The estimate of project costs is one of the most critical components of project planning and management. The reason for this being that every project relies upon three main components: scope, budget and timeline. Budget is often times one of the most essential things in order to gain approval from upper management or the person funding the project. The budget is typically very difficult to estimate accurately in the beginning of a project, due to lack of information and data, and estimates typically increase in accuracy as the project progresses. Therefore, cost estimation is divided into three different overall categories, according to PMBOK®, which is a set of standard terminology and guidelines for project management <ref name="three"/>:

	* Rough order of magnitude (ROM)		* Rough order of magnitude (ROM)
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	'''[[Rough Order of Magnitude]]'''		'''[[Rough Order of Magnitude]]'''

	The ROM is a rough numerical estimate or approximation, established at the very early phases of a project when there is not much information available, such as during its inception or even earlier – In the case of the cost-benefit analysis, this would mean during the project selection process. This gives the decision makers the possibility early on ~~to asses~~ whether to proceed with the project or not. According to PMBOK, ~~The~~ accuracy range of ROM is -25 percent to +75 percent. The range was formerly stated as +/-50 percent in prior versions of the PMBOK, such as the 4th edition. As ROM estimations are rather inaccurate because of the wide range of probable results, they are usually replaced by more precise estimates, such as the definitive estimate. Analogous/ top-down estimation or expert judgment is most commonly used ~~here~~<ref name="three"/>.		The ROM is a rough numerical estimate or approximation, established at the very early phases of a project when there is not much information available, such as during its inception or even earlier. In the case of the cost-benefit analysis, this would mean during the project selection process. This gives the decision makers the possibility to asses early on whether to proceed with the project or not. According to PMBOK, the accuracy range of ROM is -25 percent to +75 percent. The range was formerly stated as +/-50 percent in prior versions of the PMBOK, such as the 4th edition. As ROM estimations are rather inaccurate because of the wide range of probable results, they are usually replaced by more precise estimates, such as the definitive estimate. Analogous/ top-down estimation or expert judgment is most commonly used in this situation<ref name="three"/>.

	'''[[Budget Estimate]]'''		'''[[Budget Estimate]]'''

	The budget estimate is typically applied in the beginning phase of a project, when the final specifications of the project are still unclear, but there is a good understanding of the primary features and technical requirements. ~~It here assists~~ in finding a preliminary cost and budget strategy, that is more accurate than that of the ROM, ~~with~~ a -10 percent to +25 percent accuracy. This approach also most commonly makes use of the top-down approach, as well as expert judgement<ref name="seven"/>.		The budget estimate is typically applied in the beginning phase of a project, when the final specifications of the project are still unclear, but there is a good understanding of the primary features and technical requirements. In this kind of situation, it can assist in finding a preliminary cost and budget strategy that is more accurate than that of the ROM, as it has a -10 percent to +25 percent accuracy. This approach also most commonly makes use of the top-down approach, as well as expert judgement<ref name="seven"/>.

	'''[[Definitive Estimate]]'''		'''[[Definitive Estimate]]'''

	The definitive estimate is the PMBOK's most precise ~~sort~~ of estimate. Its precision varies from -5 to +10 percent. This high degree of precision is generally only possible when the project has been meticulously planned and all required information for a credible estimate of the work is available. As a result, definite estimates are often established later in the project. This is ~~often refered~~ to as "Progressive elaboration", here addressing the process of refining preliminary estimations during the life of a project. This approach typically includes bottom-op-, parametric-, & three point estimation<ref name="three"/>.		The definitive estimate is the PMBOK's most precise type of estimate. Its precision varies from -5 to +10 percent. This high degree of precision is generally only possible when the project has been meticulously planned and all required information for a credible estimate of the work is available. As a result, definite estimates are often established later in the project. This is referred to as "Progressive elaboration", here addressing the process of refining preliminary estimations during the life of a project. This approach typically includes bottom-op-, parametric-, & three point estimation<ref name="three"/>.

	===Cost estimation at different stages===		===Cost estimation at different stages===

	As mentioned, costs are calculated at various stages of the project <ref name="ref1"/> and cost estimation procedures are ~~according to PMBOK~~ typically "carried out periodically during the duration of the project"<ref name="three"/>. At the early stage of a project, when the project charter or business case is being prepared, a project manager must identify the resources necessary to finish. Due to the lack of data available at that stage, the project manager is likely to provide a ROM according to the project tasks and its complexity rather than a precise estimate <ref name="three"/>. Although this estimate is not very precise, it gives the stakeholders and project manager a good idea about whether or not to proceed with the project.		As mentioned, costs are calculated at various stages of the project <ref name="ref1"/> and cost estimation procedures are typically "carried out periodically during the duration of the project" according to PMBOK <ref name="three"/>. At the early stage of a project, when the project charter or business case is being prepared, a project manager must identify the resources necessary to finish. Due to the lack of data available at that stage, the project manager is likely to provide a ROM according to the project tasks and its complexity, rather than a precise estimate <ref name="three"/>. Although this estimate is not very precise, it gives the stakeholders and project manager a good idea about whether or not to proceed with the project.
	As further information becomes available later in the project, the ROM is replaced with a more precise budget estimate, and lastly a definite estimate. Of course this may vary from project to project, and some may skip the budget estimate or start directly with the definite estimate.		As further information becomes available later in the project, the ROM is replaced with a more precise budget estimate, and lastly a definite estimate. Of course this may vary from project to project, and some may skip the budget estimate or start directly with the definite estimate.

	Following the project's inception phase, the budget will be reassessed using the approaches described in this article throughout the different phases. Costs are often re-estimated in succeeding stages, as relevant new info and details become available or as the scope of the project or timetable changes. One of the most typical reasons for re-estimating costs is ~~when~~ the ~~project's~~ controlling indicators indicate that the initial budget baseline cannot be fulfilled.		Following the project's inception phase, the budget will be reassessed using the approaches described in this article throughout the different phases. Costs are often re-estimated in succeeding stages, as relevant new info and details become available or as the scope of the project or timetable changes. One of the most typical reasons for re-estimating costs is that the controlling indicators of the project indicate that the initial budget baseline cannot be fulfilled.

	== Project Cost Estimation Techniques ==		== Project Cost Estimation Techniques ==