Estimating schedule activity costs involves developing an approximation of the costs of the resources needed to complete each schedule activity. In approximating costs, the estimator considers the possible causes of variation of the cost estimates, including risks. Cost estimating includes identifying and considering various costing alternatives. For example, in most application areas, additional work during a design phase is widely held to have the potential for reducing the cost of the execution phase and product operations. The cost estimating process considers whether the expected savings can offset the cost of the additional design work. Cost estimates are generally expressed in units of currency (dollars, euro, yen, etc.) to facilitate comparisons both within and across projects. In some cases, the estimator can use units of measure to estimate cost, such as staff hours or staff days, along with their cost estimates, to facilitate appropriate management control. Cost estimates can benefit from refinement during the course of the project to reflect the additional detail available. The accuracy of a project estimate will increase as the project progresses through the project life cycle. For example, a project in the initiation phase could have a rough order of magnitude (ROM) estimate in the range of -50 to +100%. Later in the project, as more information is known, estimates could narrow to a range of -10 to +15%. In some application areas, there are guidelines for when such refinements are made and for what degree of accuracy is expected. Sources of input information come in the form of outputs from the project processes in Chapters 4 through 6 and 9 through 12. Once received, all of this information will remain available as inputs to all three of the cost management processes. The costs for schedule activities are estimated for all resources that will be charged to the project. This includes, but is not limited to, labor, materials, equipment, services, and facilities, as well as special categories such as an inflation allowance or a contingency cost. A schedule activity cost estimate is a quantitative assessment of the likely costs of the resources required to complete the schedule activity. If the performing organization does not have formally trained project cost estimators, then the project team will need to supply both the resources and the expertise to perform project cost estimating activities.
.1 Enterprise Environmental Factors The Cost Estimating process considers:
.2 Organizational Process Assets Existing formal and informal cost estimating-related policies, procedures, and guidelines (Section 4.1.1) are considered in developing the cost management plan, selecting the cost estimating tools, and monitoring and reporting methods to be used.
.3 Project Scope Statement The project scope statement (Section 5.2.3.1) describes the business need, justification, requirements, and current boundaries for the project. It provides important information about project requirements that is considered during cost estimating. The project scope statement includes constraints, assumptions, and requirements. Constraints are specific factors that can limit cost estimating options. One of the most common constraints for many projects is a limited project budget. Other constraints can involve required delivery dates, available skilled resources, and organizational policies. Assumptions are factors that will be considered to be true, real, or certain. Requirements with contractual and legal implications can include health, safety, security, performance, environmental, insurance, intellectual property rights, equal employment opportunity, licenses, and permits – all of which are considered when developing the cost estimates. The project scope statement also provides the list of deliverables, and acceptance criteria for the project and its products, services, and results. All factors are considered when developing the project cost estimate. The product scope description, within the project scope statement, provides product and service descriptions, and important information about any technical issues or concerns that are considered during cost estimating. .4 Work Breakdown Structure The project’s work breakdown structure (WBS) (Section 5.3.3.2) provides the relationship among all the components of the project and the project deliverables (Section 4.4.3.1). .5 WBS Dictionary The WBS dictionary (Section 5.3.3.3) and related detailed statements of work provide an identification of the deliverables and a description of the work in each WBS component required to produce each deliverable. .6 Project Management Plan The project management plan (Section 4.3) provides the overall plan for executing, monitoring, and controlling the project, and includes subsidiary plans that provide guidance and direction for cost management planning and control. To the extent that other planning outputs are available, they are considered during cost estimating.
.1 Analogous Estimating Analogous cost estimating means using the actual cost of previous, similar projects as the basis for estimating the cost of the current project. Analogous cost estimating is frequently used to estimate costs when there is a limited amount of detailed information about the project (e.g., in the early phases). Analogous cost estimating uses expert judgment. Analogous cost estimating is generally less costly than other techniques, but it is also generally less accurate. It is most reliable when previous projects are similar in fact, and not just in appearance, and the persons or groups preparing the estimates have the needed expertise. .2 Determine Resource Cost Rates The person determining the rates or the group preparing the estimates must know the unit cost rates, such as staff cost per hour and bulk material cost per cubic yard, for each resource to estimate schedule activity costs. Gathering quotes (Section 12.3) is one method of obtaining rates. For products, services, or results to be obtained under contract, standard rates with escalation factors can be included in the contract. Obtaining data from commercial databases and seller published price lists is another source of cost rates. If the actual rates are not known, then the rates themselves will have to be estimated. .3 Bottom-up Estimating This technique involves estimating the cost of individual work packages or individual schedule activities with the lowest level of detail. This detailed cost is then summarized or “rolled up” to higher levels for reporting and tracking purposes. The cost and accuracy of bottom-up cost estimating is typically motivated by the size and complexity of the individual schedule activity or work package. Generally, activities with smaller associated effort increase the accuracy of the schedule activity cost estimates. .4 Parametric Estimating Parametric estimating is a technique that uses a statistical relationship between historical data and other variables (e.g., square footage in construction, lines of code in software development, required labor hours) to calculate a cost estimate for a schedule activity resource. This technique can produce higher levels of accuracy depending upon the sophistication, as well as the underlying resource quantity and cost data built into the model. A cost-related example involves multiplying the planned quantity of work to be performed by the historical cost per unit to obtain the estimated cost. .5 Project Management Software Project management software, such as cost estimating software applications, computerized spreadsheets, and simulation and statistical tools, are widely used to assist with cost estimating. Such tools can simplify the use of some cost estimating techniques and thereby facilitate rapid consideration of various cost estimate alternatives. .6 Vendor Bid Analysis Other cost estimating methods include vendor bid analysis and an analysis of what the project should cost. In cases where projects are won under competitive processes, additional cost estimating work can be required of the project team to examine the price of individual deliverables, and derive a cost that supports the final total project cost. .7 Reserve Analysis Many cost estimators include reserves, also called contingency allowances, as costs in many schedule activity cost estimates. This has the inherent problem of potentially overstating the cost estimate for the schedule activity. Contingency reserves are estimated costs to be used at the discretion of the project manager to deal with anticipated, but not certain, events. These events are “known unknowns” and are part of the project scope and cost baselines. One option to manage cost contingency reserves is to aggregate each schedule activity’s cost contingency reserve for a group of related activities into a single contingency reserve that is assigned to a schedule activity. This schedule activity may be a zero duration activity that is placed across the network path for that group of schedule activities, and is used to hold the cost contingency reserve. An example of this solution to managing cost contingency reserves is to assign them at the work package level to a zero duration activity, which spans from the start to the end of the work package subnetwork. As the schedule activities progress, the contingency reserve, as measured by resource consumption of the non-zero duration schedule activities, can be adjusted. As a result, the activity cost variances for the related group of schedule activities are more accurate because they are based on cost estimates that are not pessimistic. Alternatively, the schedule activity may be a buffer activity in the critical chain method, and is intentionally placed directly at the end of the network path for that group of schedule activities. As the schedule activities progress, the contingency reserve, as measured by resource consumption of the non-buffer schedule activities, can be adjusted. As a result, the activity cost variances for the related group of schedule activities are more accurate because they are based on cost estimates that are not pessimistic. .8 Cost of Quality Cost of quality (Section 8.1.2.4) can also be used to prepare the schedule activity cost estimate.
.1 Activity Cost Estimates An activity cost estimate is a quantitative assessment of the likely costs of the resources required to complete schedule activities. This type of estimate can be presented in summary form or in detail. Costs are estimated for all resources that are applied to the activity cost estimate. This includes, but is not limited to, labor, materials, equipment, services, facilities, information technology, and special categories such as an inflation allowance or cost contingency reserve. .2 Activity Cost Estimate Supporting Detail The amount and type of additional details supporting the schedule activity cost estimate vary by application area. Regardless of the level of detail, the supporting documentation should provide a clear, professional, and complete picture by which the cost estimate was derived. Supporting detail for the activity cost estimates should include:
.3 Requested Changes The Cost Estimating process may generate requested changes (Section 4.4.3.2) that may affect the cost management plan (Chapter 7 introductory material), activity resource requirements (Section 6.3.3.1), and other components of the project management plan. Requested changes are processed for review and disposition through the Integrated Change Control process (Section 4.6). .4 Cost Management Plan (Updates) If approved change requests (Section 4.4.1.4) result from the Cost Estimating process, then the cost management plan component of the project management plan (Chapter 7 introductory material) is updated if those approved changes impact the management of costs. |
Regardless of what method is used to estimate project costs, supporting detail should be provided.
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