4 Cost Estimating Techniques
By: Ray Myers, Jr., PMP
There are 4 cost estimating techniques discussed in the PMBOK:
Expert Judgment
- Influenced by variables such as labor rates, material costs, inflation, risk factors, etc.
- Guided by historical information and insights from prior similar projects
- May be used to determine whether to combine other estimating methods or reconcile differences between them
Analogous or Top-Down
- Uses the actual costs of a previous, similar project as the basis for the new estimate
- Adjustments may be made for known differences in project complexity
- Less costly and time consuming than the other techniques
- Most reliable of the estimating techniques when the previous projects are similar in nature
Bottom-up
- Uses the sum of the individual work components
- The cost of individual work packages or activities is summarized and rolled to higher levels for subsequent reporting and tracking purposes
- Accuracy is typically influenced by the size and complexity of the individual activity or work packages
Parametric
- Uses statistical relationships between historical data and other variables
- Uses project characteristics in a mathematical model to estimate costs
- Can produce higher levels of accuracy depending on the underlying data used in the model
About the Author: Ray Myers, Jr. is a PMP certified project manager with over 2o years experience planning and managing technology projects. Contact Ray at wwwpmservicesnw.com
Article source: www.pmservicesnw.com
