5 Common Cost Estimate type for Projects
There are some things that poor estimates will do to your project. A high-cost estimate may discourage sponsors from pursuing projects that have the potential for success, while estimates that are too low can waste serious resources on a project that ultimately prove unfeasible.
As a Project Manager, it is your responsibility to estimate project as accurately as possible. Mastering the techniques for estimating project cost will help you effectively control project costs.
#1 Rough order of magnitude
These are developed without any detailed base data and often based on high-level historical data, expert judgement or a costing level. Rough order of magnitude is generally made early in the project. The accuracy level of ROM is -50percent to +100percent.
These are often used for appropriation. The accuracy level is -10percent to +25percent.
#3 Range of estimate
These are often used as an alternative to ROM where the accuracy of the estimate is not well known. So, rather than $10million +30percent the estimate can be stated as $7million to $13million.
#4 Appropriate estimates
This cost estimate is based on more information than ROM estimates, but still, lack the details required for huh accuracy. An appropriate estimate may be possible if the project is similar to previous ones with reliable historical data for costing or where a proven costing model is applicable. The accuracy level for this is +10percent.
#5 Definitive Estimate
This is based on detailed information about project work. A definitive estimate is developed by estimating the cost of each work package in the WBS. The accuracy level for this is -5percent to +10percent.
#6 Phased Estimate
His allows the use of ROM or approximate estimate for later part of work, while work that must be done earlier in the project. Lifecycle is estimated at a definite level. The accuracy level for this is +5percent to +15percent. In the window closest to the present time, +35percent is farther into the future.
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