How To Estimate Cost For Projects
I have written some article relating to cost management in the past. In this article, I want to look at the ways that you can estimate cost for projects as well as some of the factors that should be considered when project managers have to consider how much it will cost to complete their project from the beginning to the end. Follow me as we are going to consider that in this article.
Estimate cost is the process of developing an approximation of the cost of resources needed to complete project work. The key benefit of this process is that it determines the monetary resources required for the project.
This process is performed periodically throughout the project as well.
A cost estimate is a quantitative assessment of the likely costs for resources required to complete the activity. It is a prediction that is based on the information known at a given period of time. Cost estimate includes the identification consideration of costing alternatives to initiate and complete the project. Cost trade-offs and risks should be considered such as make versus buy, and the sharing of resources in order to achieve optimal cost for the project.
Cost estimates for projects are generally expressed in the unit of some currencies. Although in some instances, other units of measures such as staff hours or staff days are used to facilitate comparisons by eliminating the efforts of currency fluctuations.
Cost estimates should be reviewed and refined during the course of the project to reflect additional details as it becomes available and assumptions are tested. The accuracy of a project estimate will increase as the project progresses through the project life cycle.
For instance, a project in the start-up phase may have a rough order of magnitude in the range of -25% to +75%. Later in the project, as more information is known, the definitive estimate could narrow the range of accuracy to -5% to +10%.
In some organisations, there are guidelines for when such refinements can be made and the degree of confidence or accuracy that is expected.
Costs are assigned for all resources that will be charged to the project. This include labour, materials, equipment, services and facilities, as well as special categories such as inflation, allowances, cost of financing, or contingency costs. Cost estimates may be presented at the activity level or in summary form.
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