An Overview of Project Resource Cost Estimation
Estimate Costs is a crucial process in project cost management, much like a chef estimating the cost of ingredients for a meal. It involves developing an approximation of the monetary resources required to complete project work. This process, akin to a chef adjusting the recipe based on available resources, is performed periodically throughout the project as required, and its primary benefit is the determination of the financial resources needed for the project.
A cost estimate is a quantitative assessment of the probable costs for resources needed to complete an activity. These estimates are predictions based on the information available at a specific point in time and are typically expressed in units of currency. However, in some cases, cost estimates may use other units of measure like staff hours or staff days to eliminate the effects of currency fluctuations and facilitate comparisons.
The process of cost estimation involves identifying and considering different costing alternatives. Cost trade-offs and risks, such as the decision to make versus buy, buy versus lease, and resource sharing, should be considered in cost estimates. Considering these factors can help achieve optimal costs for the project.
Cost estimates for a project should be reviewed and refined as the project progresses to incorporate additional details and tested assumptions. The accuracy of a project estimate increases as the project moves through the project life cycle. For instance, a project in the initiation phase may have a rough order of magnitude estimate with a range of -25% to +75%. As more information becomes available later in the project, definitive estimates could narrow the accuracy range to -5% to +10%.
Costs for all resources that will be charged to the project need to be estimated. These resources include labor, materials, equipment, services, and facilities. Special categories for cost estimation may include an inflation allowance, cost of financing, or contingency costs.
Finally, cost estimates can be presented at the activity level or in a summarized form, much like a chef can present a detailed recipe or a simple meal plan. The choice between these presentation methods depends on the level of detail required for project planning and control, ensuring the project is as well-prepared and cost-effective as a well-planned meal.