One of the most important factors to the success of a project is how well the project is estimated, as well as how overall costs are managed during the execution phase by the project manager. Project costs and estimates are vital to the success of any organization to remain competitive in the market. Cost estimating for organizations rely heavily on resources that can sometimes be difficult to obtain. Forecasting and utilizing historical return costs are just a couple of ways that organizations rely on estimating. Experienced planners are often a sought trade within the market; this paper will discuss some often used project cost estimating techniques.
Types of Estimating
The first type of estimating is analogous. This type of estimating utilizes estimates from a previous project that is similar, and uses them to build estimates for the new project. While this type of estimating is beneficial to the planning process, caution must be used to ensure that estimates carried over from the previous project are fair and reasonable. Parametric estimation takes historical data inputs, makes calculated assumptions based on market and statistical data, and then formulates the estimate. This type of estimating is useful as it does use historical data, coupled with statistical data; however, assumptions made by the planner can be skewed and lead to inaccurate estimates in my opinion. The next type of estimating is bottom-up. Bottom-up estimating utilizes information from individual estimates through the Work Break Down structure. This type of estimating is one of the most common types of estimating because it uses estimates from the floor tasks.
These floor tasks are estimated by subject matter experts with years of experience, and can be very beneficial to ensuring that not only the estimate is accurate, but the scope of the task is correct. Another type of estimating is three-point estimating. Three-point estimating takes a look at the best, worst, and most realistic scenario to cost estimating the project. These three options obviously come with a premium on cost, time, or quality. Dependent on what the project objective is will more than likely determine what route to take in this process. From my work experience with project planning, cost estimating can be a very difficult task. Most organizations have a method or process in how to cost estimate. Some utilize checklists, while others may standard operating procedures as part of an organizational policy.
Regardless of what tools are available to a project team during the cost estimating process, knowing the overall goals and objectives of the project are keys to estimating a successful project. The burden of cost estimating is not normally the responsibility of one individual; it often lies within the project team. Multiple estimators from various skills are part of the process, and all types of estimating as discussed earlier are part of the process. Tools that my organization utilizes are bid specification review meetings that go over the material, labor, and rates that apply to the work being conducted during the project. In addition, an independent government estimate (IGE) is utilized to ensure that estimates are filled out thoroughly, and reviewed against the contractor’s estimates upon receipt. There are many other processes that can be used; however, these are the most commonly one’s used within government estimating.
Cost estimating is a very important part of the project planning process as it often dictates the duration of the project, and how much work can be accomplished during the project against the budget given for the project. Estimates of time and cost together allow the manager to develop a time-phased budget, which is imperative for project control (Larson & Gray, 2014, p. 131). While there are many different ways that estimates are created, there is no sure fire way in stating that one is better than the other.
While some may think that historical data is a more accurate way, there is not telling that the estimate and return costs from a previous project were fair and reasonable. If the previous project cost was overestimated, then the current project would continue to be overestimated; therefore not proving to be a cost benefit to the organization. Cost estimating drives the project plan, and organizations need to ensure they utilize all the tools and resources they have available to them to make the project a success.
Larson, E. W., & Gray, C. F. (2014). Project Management: The Managerial Process (6th ed.). McGraw-Hill.
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