Search the Web for a project cost estimating or cost management tool, or a proje

Question

Search the Web for a project cost estimating or cost management tool, or a project portfolio management tool. Select the tool, and perform research on it, using at least two resources. Post a summary of all of the features of the product, and how they compare to comparable functionality in Microsoft Project. Be sure to include all references for your information with your post as well as the URL for the product site itself. Be sure to read the posts of other students so that you do not select a cost estimating tool that another student has already selected. You may "claim" a tool by posting the name of the tool first. This "claim" will receive a grade of 0. Reading and accessing all required materials before posting a response to this forum will result in a higher-quality post (and, most likely, a better grade). Click on "Add a new discussion topic" to enter your post.

Explanation / Answer

In the Estimate Costs process, the cost of each project activity is estimated. An interesting thing about this process is that it also uses the same three tools used in the Estimate Activity Duration process. In the estimate activity duration process, you were determining the time taken by each activity and now, in estimating costs process, you have to calculate the total cost of the project.

Since I have written a blog post explaining three common tools between these two processes, I thought it would make more sense if I write a separate blog post for estimating costs process because of the similarities between these two processes.

In this process, the cost of each activity is determined, which includes the cost of human hours, the cost of equipment, and the cost of materials used. It also includes the contingency cost that is the cost to cover the identified risks.

In this blog post, we are going to discuss 4 tools to estimate costs in project management:

Analogous Estimating
Parametric Estimating
Bottom up Estimating
Three point Estimating

Analogous Estimating

This technique is used to estimate the project cost when very little detail about the project is available. Therefore, this technique does not provide a very reliable estimation. The primary benefits of this technique are: it is very fast, less costly, and provides a quick result.

In Analogous Estimation, the cost of the project is guessed by comparing it with any similar project previously completed by your organization. Here you will look into your organization’s historical records (i.e. in Organizational Process Assets) for previously completed projects. You will select the project which is closest to your project. Once you get it, by using your expert judgment you will determine the cost estimate of your current project.

The Analogous Estimating is also known as The Top-Down Estimating.

Parametric Estimating

This technique also uses historical information to calculate the cost estimates. However, there is a difference between this technique and the analogous estimation technique.

Parametric Estimation technique uses historical information along with statistical data. It takes variables from the similar project and applies them to the current project. For example, in the previous project, you will see that what the cost of concreting per cubic meter was. Then you will calculate the concrete requirement for your project and multiply it with the cost obtained from the previous project to get the total cost of concreting for your current project. In the same way you can calculate the cost of other parameters (men, materials, and equipment) as well.

The accuracy of this process is better than the analogous estimation.

Three-Point Estimating

This technique is used to reduce the biases and uncertainties in estimating assumptions. Instead of finding one estimate, three estimates are determined and then their average is taken to reduce the uncertainties, risks, and biases.

PERT (Program Evaluation And Review Technique) is the most commonly used method in three point estimation technique.

Three PEART estimates are as follows:

Most Likely Cost (Cm): This cost estimate considers everything goes as normal.
Pessimistic Cost (Cp): This considers the worst case and it assumes that almost everything goes wrong.
Optimistic Cost (Co): This estimate considers the best case and assumes that everything goes better than planned.

PERT Estimate formula is:

Ce = (Co + 4Cm + Cp)/6

Where, Ce = Expected Cost

Estimates derived from this technique are better than the two techniques discussed above and provide a more accurate estimate.

Bottom-up Estimating

The Bottom-Up Estimating technique is also known as the “definitive technique”. This estimation technique is the most accurate, time-consuming, and costly technique to estimate the cost. In this technique, the cost of each single activity is determined with the greatest level of detail at the bottom level and then rolls up to calculate the total project cost.

In other words:

Here, the total project work is broken down into the smallest work components. Its cost is estimated and then finally, it is aggregated to get the cost estimate of the project.

Summary
Analogous Estimation

It is the fastest technique to estimate cost but less accurate.
This technique can be used with limited information available about the project.

Parametric Estimation

This technique uses the statistical relationship between historical data and variables; e.g. cost of painting of wall per square foot.
It is more accurate than the analogous estimation.

Three-point Estimation

This technique uses three estimates to calculate the average estimate. The three estimates are the most likely cost, the pessimistic cost and the optimistic cost.
It reduces the biases, risks, and uncertainties from the estimation.
It is more accurate than the Analogous and Parametric estimating techniques.

Bottom-up Estimation

This technique is the most accurate technique of all the techniques discussed above.
This technique can only be used when every detail about the project is available.
This is very time-consuming and costly technique, but gives reliable and most accurate result.

Cost Estimating Page 1 of 2 SDLC: Related Links

COST ESTIMATING

Project underestimation of resources and costs is one of the most common contributors to project failure. As such, project managers should be knowledgeable of and consider the various industry techniques and tools in the definition and execution of project cost estimation. As defined by the Project Management Body of Knowledge (PMBOK), cost estimation is the iterative process of developing an approximation of the monetary resources needed to complete project activities. Project teams should estimate costs for all resources that will be charged to the project. This includes but is not limited to:

• Labor

• Materials

• Equipment

• Services

• Software

• Hardware

• Facilities

• Contingency Costs

The following list includes common tools and techniques used in project cost estimation:

• Expert Judgment – use of knowledge gained from past project management experience. Expert judgment, in conjunction with objective estimation techniques, provides valuable information about the organizational environment and information from prior comparable projects.

• Analogous Estimating – use of the metrics from a previous, similar project as the basis of estimation for the current project. Analogous estimating takes the actual cost of previous, similar projects as a baseline and then adjusts for known differences (such as size, complexity, scope, duration, etc.).

• Parametric Estimating – use of a statistical relationship between historical data and other variables (for example, lines of code in software development) to calculate an estimate for activity parameters, such as scope, cost, budget, and duration. Used correctly, this technique can produce high levels of accuracy.

• Bottom-Up Estimating – estimating all individual work packages/activities with the greatest level of detail, summarizing higher-level estimates with the combination of the individual estimates. The accuracy of bottom-up estimating is optimized when individual work packages/activities are defined in detail.

• Three-Point Estimates – use of three estimates to determine a range for an activity’s cost: the best-case estimate, the most likely estimate, and the worst-case estimate.

• Reserve Analysis – determination of contingency reserves to account for cost uncertainty.

• Project Management Estimating Software – use of project management cost estimating software applications, computerized spreadsheets, simulation, and statistical tools. Such tools can allow for rapid consideration of multiple cost estimate alternatives.

• Vendor Bid Analysis – determination of what the project should cost based on a review of vendor bids/proposals. This technique may be used in conjunction with other cost estimation techniques to ensure that cost estimates are comprehensive.

Cost Estimating Page 2 of 2 SDLC: Related Links

Whereas the execution of appropriate cost estimation techniques certainly contributes to the accuracy of cost estimates, other project management knowledge areas also play an important role in cost estimation accuracy. For example:

• Quality Management – If team members do not agree clearly upon deliverable quality criteria early in the project, they may take longer to meet expectations, unnecessarily resulting in a schedule delay and corresponding cost overruns.

• Communications Management – If team members do not clearly understand their roles and responsibilities on the project, project work may take longer to complete, thus delaying the schedule and increasing costs.

• Scope Management – If requirements are ambiguous, team members may deliver products that do not meet expectations, resulting in unnecessary rework, schedule delays, and corresponding cost overruns.

• Human Resource Management – If team personnel do not possess the required skills or experience to perform project work, it may take them longer to complete the work, causing schedule delays and cost overruns.

• Risk Management – If team members do not proactively conduct risk management, cost-impacting issues that could have been prevented may emerge.

• Procurement Management – If procurements do not include terms and conditions that proactively mitigate State risk (such as fixed-price contracts and deliverable acceptance criteria), the project may experience increased costs later in the project due to changing project and market conditions.

• Time Management – If team members do not accurately estimate the time to perform activities, the project may experience schedule delays and cost

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.