Project Management: A Systems Approach to Planning, Scheduling, and Controlling, Tenth Edition

Pricing and Estimating

14.0 INTRODUCTION

PMBOK^® Guide, 4th Edition

6.3.2.4 Bottom-Up Estimating

6.4.2 Activity Duration Estimating

With the complexities involved, it is not surprising that many business managers consider pricing an art. Having information on customer cost budgets and competitive pricing would certainly help. However, the reality is that whatever information is available to one bidder is generally available to the others.

A disciplined approach helps in developing all the input for a rational pricing recommendation. A side benefit of using a disciplined management process is that it leads to the documentation of the many factors and assumptions involved at a later time. These can be compared and analyzed, contributing to the learning experiences that make up the managerial skills needed for effective business decisions.

Estimates are not blind luck. They are well-thought-out decisions based on either the best available information, some type of cost estimating relationship, or some type of cost model. Cost estimating relationships (CERs) are generally the output of cost models. Typical CERs might be:

• Mathematical equations based on regression analysis
• Cost–quantity relationships such as learning curves
• Cost–cost relationships
• Cost–noncost relationships based on ...