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Introduction


- Estimate Costs Process is concerned with coming up with the cost estimation of the project based on the activities listed in the schedule.
- Resource estimation includes cost of human and material resources. It also factors-in inflation allowance and contingency costs.
- This process needs to be revisited as more specific details are available in the project life cycle in order to make the estimate reliable since initially the estimate is rough order magnitude.
- Cost Estimates can be expressed in a specific currency or can be specified in hours in order to facilitate comparison since currency can have fluctuating rate.
- Cost Estimation can be done at the activity level or can be summarized at the project-level.
- Cost Estimation includes the consideration of alternatives like make v/s buy or lease.

Inputs


- Cost Management Plan: The process to perform the cost estimation process, what tools and techniques to use are specified here.
- Human Resource Plan: Holds staffing attributes, personnel rates and related rewards and recognitions necessary to be factored in the estimate costs process.
- Project Schedule: This has the project activity list, activity duration, resource requirements among other details vital for cost estimation.
- Risk Register: Since Estimate Costs Process needs to factor-in contingency costs, risk register is a key input to this process.
- Scope Baseline: Includes the scope statement, WBS and WBS Dictionary. The scope statement might include legal, license or permit costs to be factored in the cost estimate.
- Enterprise Environmental Factors: As part of planning process as well as looking at resource cost using commercial databases, enterprise environmental factors are useful.
- Organizational Process Assets: Lessons learnt, processes, policies and formats related to cost estimation are utilized.

Tools & Techniques


- Expert Judgment: Since this is a vital process, prior experience is vital in coming up with accurate estimates.
- Bottom-Up Estimating: Involves estimation at activity level in order to be rolled up to the work package and project-level to come up with accurate estimates.
- Analogous Estimating: This is a top-down approach and usually needs expert judgment to come up with accurate estimate.
- Parametric Estimating: When the base model is factored and accurate, this approach can be used effectively to extrapolate and get accurate estimates. E.g. Square Footage in Construction.
- Three-Point Estimating: Needs three values – Optimistic, Pessimistic and Most likely to come up with the actual estimate –
> Triangular Distribution: cE = (cO + cM + cP) / 3
> Beta Distribution (from a traditional PERT analysis): cE = (cO + 4cM + cP) / 6
- Reserve Analysis: Cost Estimates must be produced for –
> Contingency Reserves: Known-Unknowns, a percent of the project budget, part of cost baseline
> Management Reserves: Unknown-Uknowns, part of project budget, not part of cost baseline, so, involves change to baseline when used.
- Cost of Quality: An estimate of Cost of conformance and non-conformance to quality must also be added to cost estimate.
- Project Management Software: Project management software applications, computerized spreadsheets, simulation, and statistical tools are used to assist with cost estimating.
- Vendor Bid Analysis: From the bids provided by different vendors, it is easy to do cost estimates for certain components.
- Group Decision-Making Techniques: Increases team buy-in by accounting technical inputs for estimate accuracy E.g., Delphi, Brainstorming

Outputs


- Activity Cost Estimates: Cost Estimates can be at the activity level or at the summary level. Includes both direct and indirect costs.
- Basis of Estimates: Supporting Details like Assumptions, Constraints, Rough Order Magnitude etc.
- Project Document Updates: May involve updates to other project documents like risk register and any related project documents.

Match the Following


1. Management Reserve - a. Square Footage
2. Contingency Reserve - b. Needs Cost Re-Baseline
3. Bottom-Up Estimating - c. Quicker technique
4. Top-Down Estimating - d. Computerized Spreadsheets
5. Project Management Software – e. Personnel Rates
6. Parametric Estimating – f. Percentage of Project Budget
7. Human Resource Management Plan – g. Accurate

Match the Following (Answers)


1. Management Reserve - b. Needs Cost Re-Baseline
2. Contingency Reserve - f. Percentage of Project Budget
3. Bottom-Up Estimating - g. Accurate
4. Top-Down Estimating - c. Quicker technique
5. Project Management Software – d. Computerized Spreadsheets
6. Parametric Estimating – a. Square Footage
7. Human Resource Management Plan – e. Personnel Rates