How to estimate project cost effectively
Accurately estimating project cost will assist project manager s in avoiding overrun s and unforeseen expenditure. Making good cost estimates will help in creating a strong cost baseline, which will ultimately be used for measuring project cost performance.
Here are some of the guidelines for estimating project costs…
#1 Involve work package owners
When possible, the cost figures that go into cost estimating for individual work package owners should be provided by those who will actually provide the resources.
As always, it is the people who will do the work, provide the service, or supply the material that can best estimate what the associated costs will be. It is the Project Manager’s responsibility to compile those figures into realistic estimates.
For some projects, the project manager will be solely responsible for generating cost estimates. This may be e the case when some project in which the project manager is familiar with the activities required. It may be used for Projects with well-defined resource requirements.
The project manager should also come up with cost estimates for the project that is similar to past projects for which cost are well documented.
Even in such cases , the project manager may want to do a quick reality check with the resource supplier to make sure that incorrect assumptions have not been made.
#2 Gather relevant information
There is a need for you to gather relevant information, such as estimating publication and resource rates, that may help prepare the estimate for the project.
#3 Determine estimating techniques
As part of estimating cost activities for your project, you need to determine the estimating techniques that you are going to use.
You can make use of analogous estimating when you have a limited amount of detailed information about the project. You can use it when you a similar project to use for comparison, and the whole package owners preparing the estimates have the requisite expertise.
You can also make use of parametric estimating to estimate work packages when you have reliable parametric mode and the work conforms closely to the model.
you have to use bottom-up estimating later for the project lifecycle when more details of are available about the work package, you need more accurate estimates and you have time to invest in making the estimates. Also, we use bottom-up estimating for work packages with the highest level of uncertainty of risk and associated cost.
You also have to make sure that you wish the additional accuracy provided by bottom-up estimating against the additional cost of making the estimate.
There is a need for you to also make use of a combination of estimating techniques when you have a combination of circumstances for different deliverables in the WBS.
There is a need for you to look for alternatives for your cost estimates for the project. Some of the alternatives include the use of stock components versus custom made an estimation.
You can stretch the duration of an activity to eliminate overtime charges. You can consider leasing against purchasing of capital pieces of equipment. You can also consider outsourcing as opposed to handling the work in- house.
#5 Unit of measure
you also need to determine the unit of measure that will be used for the project. When doing this, you would now that estimates should all be in the same unit of measure. Also, the unit must be clearly defined and easily interpreted for the project.
#6 Consider the risk
You also need to consider risks that may impact the project. This is because you need to budget for risks that may likely impact the project success.
#7 Vital elements
You also have to make sure that your budget estimates include vital elements such as to estimate costs for all resources that will be charged for the project. Use the WBS and resource requirements documents to develop the estimates.
You need to determine the level of estimates for your project which has to do with the degree of uncertainty for a project.
You also need to consider a list of assumptions that were made while developing the estimates for the project.
A typical example…
You are estimating the cost of the company website project with a budget of $1000,000. Although you have a rough estimate for some of the work package owners. It is early in the project lifecycle. Therefore, you decided to use the analogous estimating technique.
After researching outsourcing coat and consulting several financial references, you apportion the money across major deliverables. After reviewing the individual estimates to the proper accounts, you should submit your cost estimates and a list of assumptions.
Now your take on this argument.
We would also like to hear what you feel about the topic we discussed today. Your feedback is very important to us. Feel free to drop your comments and recommendations. If you have a contrary opinion, you can drop that too.
You can also join our Facebook Page CRMNigeria for more updates. You can do that by clicking on the link or searching for our page on Facebook.
Click here to Download 5 E-Books that I have taken time to prepare for you.
These E-Books contain formulas that have helped many of my students to nail the PMP Exam at first attempt! You can also make use of this E-Books. If you have any question while using the material, feel free to shoot me a mail. I am committed to assisting you to nail your PMP exam. It’s a pledge. You can always count on me as a friend.
PS: For like seven years since I started blogging I have tried many platforms and tools. Some worked and some of them performed below expectation. Here are some of the tools that I will gladly recommend for you any day, any time.
PS: Click on the link below to sign up for my Online E-Course CRM Training. Make sure you confirm your subscription by clicking on the link sent to you. Thanks.
Adeniyi Salau (CCNA,CDMP, CEP, MOS, MCP, CSCU (Project 2016) is a Google and Beingcert Certified Digital Marketer, Project Manager and SEO Expert of repute with about a decade of Blogging and online marketing experience. He is always ready to share his experience with others.