The Chief Information Officer's Body of Knowledge: People, Process, and Technology

Chapter 17

Project Cost Estimation

Subbu Murthy

The purpose of estimating a project varies from assessing feasibility to actually budgeting and managing the project. In the early stages (see Figure 17.1), the purpose of estimating the cost of a project is to assess the feasibility of implementing it or to choose among different alternatives, such as various design options or vendors. Early-stage estimates are typically rough-order-magnitude (ROM) estimates, which can be developed quickly but are not very accurate estimates of the true project costs. Estimates typically are expressed in ranges to account for the inaccuracies.

Figure 17.1 Purpose of Cost Estimation

In the planning stages, the purpose of cost estimation is to establish budgets and allocate them across multiple categories. These allocations may need to conform to both financial and technical structures established within the enterprise. These estimates are more accurate than ROM estimates but often have significant contingency built into them (as much as 25 percent) to account for scope creep, design changes, and other exigencies. During execution, the purpose of cost estimation is to assess planned expenditures with respect to scope changes and getting more granular estimates on project components, and on occasion to assess whether to continue with a project or terminate it. These estimates are more detailed and ...