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

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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

Tags: bottom up estimating, cost estimating techniques, expert judgement, parametric estimating, top down estimating

This entry was posted on September 1, 2010 at 3:48 pm and is filed under Cost, Planning. You can follow any responses to this entry through the RSS 2.0 feed.