Cost Estimation Techniques for Projects

Cost estimation techniques are the methods that all the project managers use in order to calculate the total cost of a project before it even starts. How much the project will cost is a question that all the stakeholders will make when they are going to be informed about the project. So it is important to make use of numerous techniques in order to estimate fast and as accurate as possible the cost.

Abstract

The estimated cost includes, the cost of human hours that is why it is also necessary to estimate first the duration of the project, the cost of the equipment and the materials that are required for the project, as well as any contingency cost.

Estimating the cost of the project always include a lot of uncertainty. This uncertainty derives from the fact that every project is unique, so important role plays the experience of the manager with similar projects. Moreover, the planning horizon can affect the quality of estimation, meaning that the more distant the project is the less accurate the cost estimation. The complexity and the duration of the project can affect the uncertainty of the estimation too. The longer the duration of the project is, the bigger the uncertainty for the ¬cost estimation. Lastly, the people that are involved with the project always come with an uncertainty as for example if the members of the team have worked together before they will need less time to start performing as a team.

In this article there are going to be analyzed the most important techniques that project managers use in order to estimate the cost of a project. These techniques are the expert judgment technique, the analogous estimating, the parametric estimating, the three point estimating, the bottom up estimating, the reserve analysis and the vendor bid analysis.

These techniques differ to each other, to the point that some need more time to estimate the cost, others are cheaper than others and some are more accurate. Project managers have to consider all the parameters possible and use the appropriate technique for that moment or a combination of techniques.