Cost estimate

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A cost estimate is an approximate prediction of how much money is needed to complete a project. It’s important to accurately estimate the costs as it will help you assess whether the project is feasible, i.e. if you have enough funds to back it. In short, accurate cost estimating helps you manage your project budget better. The project manager must include cost estimates for all resources, including materials, equipment, services, software, facilities, human resources etc. 

Costs can be divided in direct and indirect costs. Direct costs are those that you can allocate directly, such as salaries for project team members, materials, supplies, equipment, travel costs, subcontracts etc. Conversely, indirect costs cannot be allocated directly, but without them you won’t be able to perform the project. Indirect costs can include office space rent, or general and administrative costs.

Common project cost estimation techniques:

  • Analogous estimation: use actual costs of previous, similar projects to determine estimates for new projects, the more similar projects are the more accurate the estimate
  • Resource cost estimating: list of all resources needed for project and adding up their total costs
  • Bottom-up estimating: make estimates for individual tasks and activities, calculation of higher-level estimates based on the individual estimates, more detailed definition of individual tasks means more accurate estimate
  • Expert judgment: use knowledge and experience from past projects to make estimates for new projects, have a subject matter expert as advisor because they have a solid understanding of the project’s (technical) requirements

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