Cost and Value Management in Projects, 2nd Edition

Chapter 3Cost Estimation

Learning Objectives

After completing this lesson, you should be able to:

• Evaluate the importance of cost estimation in projects.
• Identify the problems of cost estimation and the associated causes.
• Outline the characteristics of cost estimates and the various methods of cost estimation.
• List the various sources and categories of project costs.
• Discuss the cost estimation process through the project life cycle.
• Draw learning curves and use associated formulas to estimate costs of project activities.

An estimate is a view of the future at a particular point in time. This definition implies both a state of knowledge and the beliefs about some future situation, along with all the associated uncertainties. Estimates are not solid budgets, nor are they allocations of resources, although they may figure in the process of creating both. Instead, estimates should be viewed in concert as a snapshot of what may occur in the future. They need not be accurate, although it helps greatly if they are, as they are often the basis of some highly significant decisions.

Estimates can apply to all three aspects of a project: cost, schedule, and level of performance. However, merely stating that an estimate is a view of the future that contains uncertainty is not enough; to be of any real use, the requirements of an estimate are that it state:

1. The likely cost that will be incurred for the work to be performed.
2. The probable duration of the work to be performed.