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Project Planning as a Basis for Cost Estimating

written by: Ronda Bowen • edited by: Michele McDonough • updated: 11/17/2009

This article discusses the importance of project planning as a basis for cost estimation.

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    Project Planning as an Important Step Toward Estimating

    Project planning is an important basis for cost estimating. An accurate plan will provide an accurate cost estimate. Proper planning will reveal tasks, durations, resources required and other factors that will be taken into account during the cost estimation process. Before cost estimation can occur, project managers should have a detailed account of the milestones and tasks that need to be undertaken for project success. One way project managers can obtain this knowledge is by decomposing the milestones into work units. For information on decomposition, you may wish to read my series on the topic. You may even wish to have already constructed the work breakdown structure for the project.

    Second, you will need to have an accurate estimate of resources required for the project. You will only be able to estimate resources once you have determined the necessary tasks and estimated the project's duration. Procurement resources, such as technology or space will have a cost associated with them - either a rental fee, or a purchase price. Human resources will have an hourly rate or salary associated with them. By determining which resources your project will require, the time it will take to complete the project, and any fixed costs associated with the project, you will be almost ready to estimate the project cost.

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    Cost Estimating

    picture There are several methods for estimating cost. Cost estimation can be done either by hand, or by utilizing an estimation software program like EstimatorPal. One method is the estimate by analogy. This method of estimation looks at similar project and then bases the current project estimate off of these other projects. A second method depends upon expertise. An expert who is familiar with the type of project a team is undertaking performs an analysis and estimation depending upon her knowledge. A third method depends upon the use of algorithms and formulae. Examples of this method include the PERT Formula or summing the estimates for the various tasks (bottom-up estimating).

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    Further Reading:

    For more information on cost estimating, the following articles are available:

    "A Summary of PMBOK Practices - Cost Management" by Ronda Roberts

    "When to Use a PERT Formula" by Ronda Roberts


    "Google Spreadsheets Project: Creating a Project Budget" by KEllis.