Cost Estimation Methods in Project Management

Cost Estimation Methods in Project Management
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Goal and Initial Estimate

When it comes to cost estimation, a business is likely to aim to fulfill the project under a tighter deadline and with a smaller budget than what was estimated. Even with professional project management, a realistic estimate is likely a different figure from the goal. That should be taken into consideration whenever one utilizes any cost estimation method.

Project Inventory

In order to predict what the eventual outcome of a project will be, all of the factors going into the project must be taken into consideration. A project manager needs to have several separate lists that add up to the whole of the project. This isn’t a one-step process. This involves meetings, compromises and assignments.

Recurring and nonrecurring costs will be listed and established. They are easily charted once the project is mapped out.

In a single project scenario, the project manager then assigns workers to help in the estimating effort, puts together the conclusions of team and accepts the completed answer. It’s one that she then presents to the company.

Outside Opinion

Some companies feel that those working too close to a project can fail to see the forest from the trees. Instead of placing the cost estimation method in the hands of those who will complete the project, they seek expert advice from those who’ve mastered many similar projects. This estimation is considered expert advice, and it’s generally the standard that the company will expect from the project management team. Project managers who can exceed it are often handsomely rewarded.

Comparison Estimation

A comparison estimation is a fairly accurate cost estimation method. In it, an analogy is made between the project at hand and projects that were assigned of a similar nature in the past. This can be especially accurate if it involves the same team bringing the project to completion. This can give a project manager a slight edge in that she can usually improve on past project goals she’s achieved by fixing problems earlier on in the working process. Weaker workers can be assigned to different aspects of production, and futile working arrangements can be fixed.

Parametric Estimate

A parametric estimate is typically used for an analogy project. It’s a mathematical cost estimation method that is not used too frequently in the business world.

Overall Comparisons

Cost estimation methods are many; it would be impossible to list them all. However, the one that works best for a project manager depends on both his personality and goals. The expert opinion is good for a company because it gives the company an overall sense of what other companies would expect from the current project knowledge. This may give a project manager a bit less of the responsibility of telling a company that a project will take two months. If the expert is telling the company this information, the burden is not placed upon him. A project manager can look even more accomplished if he exceeds what an expert stated was possible and logical.

On the flip side, the comparison estimation is preferred by many project managers. Only competing against themselves is empowering to many who enjoy taking on besting themselves with each consecutive project.