Project Cost Estimation Techniques

In this article we will discuss about - 
a) Analogous Estimating
b) Expert Judgment Estimating
c) Bottom Up Analysis
d) Work breakdown structure

We will explain each of the following estimating techniques, and how each can be used to determine task duration and resource effort within a project.
Project Estimation Techniques

Project estimation approaches assist project teams in effectively estimating critical project parameters such as cost and scope.
Management can use these estimation strategies to give clients more accurate projections and budget the finances and resources they'll require for a project's success.
It's hard to organize a project without reliable estimations. There's no way to ensure you'll have the necessary personnel, materials, or tools accessible when you need them if you don't know how long the project will take or what assets you'll need.
The application of project estimation techniques benefits six main areas of a project namely
  • Quality - concerned with the completion of project outputs.
  • Time - allows you to manage customer expectations about when critical deliverables should be delivered.
  • Cost - involves estimating the amount of money you'll need for the project and when you'll need it.
  • Scope - is the total amount of work required to complete a project or produce a product.
  • Resources - It might be anything from tools to people to supplies to subcontractors to software.
  • Risk - Any unforeseen incident that could have a positive or negative influence on your project is referred to as project risk.

The following are the explanations of the aforementioned estimating techniques:

a) Analogous Estimating

Analogous estimation is the process of estimating how long or how much a current project will take or cost based on previous projects.
To estimate project length, comparative or analogous estimating employs historical project data and a top-down strategy. If similar projects took an average of six months to complete, you'd expect the present one to take the same amount of time. Then, to acquire your lower-level work estimates, divide those six months into tasks and activities.
Analogy Cost Estimation is a technique for estimating a cost for an analogous system or subsystem based on previous data. The proposed system's cost is then calculated by changing the historical cost of the current system to account for any variations between the two systems.
The cost estimator must identify the major cost drivers, assess how the old and new items are related, and estimate how each cost driver influences the total cost.

b) Expert Judgment Estimating

Expert judgment is one of the most widely used estimation procedures since it is rapid and simple. To estimate projects, this method relies on the expertise and intuition of specialists.
During the creation of cost estimates, expert judgment (EJ) is frequently used. Cost estimators must make a number of assumptions and judgments about the price of a new product.
However, in a concurrent engineering context, the usage of expert judgment ( EJ) is frequently frowned upon, as it is not generally recognized or understood by non-cost estimators.
Develop a contact list and competence assessment for each stakeholder on the subject expertise, and make sure you have a good communication strategy in place so you can reach out to experts on time.
Ascertain that you get expert advice at the proper time.

c) Bottom Up Analysis

Bottom-up estimating allows you to break down a project into its constituent elements, review each one for a detailed estimate, and then assign the performance of those tasks to your team. This ensures a more accurate project and gives your team the confidence to complete it.
You begin by estimating each task or feature of the project individually. Then you add all of the individual estimates together to create the total project estimate.
Bottom-up estimating is a management strategy for establishing a project's overall cost or timeframe by reviewing the work at the most basic level of detail, combining all of this information, and then developing an overall budget and deadline for a project that may be delegated to team members.

Bottom-up estimating has a number of advantages.
  • Bottom-up estimating gives a more complete picture of the project's elements.
  • Reduction in overall risk
  • Versatility
  • Error mitigation
The maturity of the project, product, or service, as well as the quality of the data collected in the organization, will determine the level of detail available to you. A bottom-up strategy is usually not the best way to go for very immature projects with limited definition.

d) Work breakdown structure

Essentially, a work breakdown structure allows you to look at your project from the top down and break it down into the tasks and subtasks that will get you there. It's a useful tool for defining a thorough cost or time estimate and providing assistance for developing and controlling a timetable.
A work breakdown structure (WBS) is a tool used in traditional project management and systems engineering to organize a project's deliverable and tasks into a hierarchy.
If you estimate your projects in units, such as weeks, days, or hours, a work breakdown structure can help you immediately see if your estimate will exceed the cost or deadline you set.
For example, if I needed to save money or time on creating that sitemap, I could probably eliminate the some procedural steps like test the existing structure with 5 site users, from my sitemap output ,though that could be risky and I might not want to do that.

In conclusion, estimation techniques for project management are an important aspect of the planning process but the most important is how deploy these crucial techniques.

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