bsbpmg504a manage project costs 7.1 estimate costs adapted from pmbok 4 th edition...

BSBPMG504A Manage Project Costs

7.1 Estimate Costs

Adapted from PMBOK 4th Edition

Initiation Planning Execution Close

Monitor

Control

• The process of developing an approximation of the monetary resources needed to complete project activities

• Cost estimates are a prediction based on the information known at any point in time

• Includes the identification and consideration of costing alternatives to initiate and complete the project

• Cost trade offs and risks need to be considered

• Occurs during Planning


7.1 Estimate Costs

• Inputs to Estimate CostsScope Baseline

Cost Management policies and procedures

Project Schedule

Human Resource Plan

Risk Register

• Tools and techniques to Estimate Costs


ReserveAnalysis

ExpertJudgementAnalogous

Estimating

ParametricEstimating

Estimating Software

Three-pointEstimates

Bottom-upEstimating

Vendor BidAnalysis


7.1 Estimate Costs

• Analogous EstimatingUses previous similar projects to estimate costs

Least costly and least time consuming, also least accurate

Accuracy improved when combined with Expert Judgement

Most common form of cost estimation

• Parametric EstimatingUses statistical relationships between historical project data

and variables for estimation of time and costs

Some industries publish estimating tables, prominent in the construction and engineering industries

Standard cost estimates for activitiesInitiation Planning Execution Close

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Control



7.1 Estimate Costs

• Bottom-up EstimatingStarts with the cost of individual activities or work packages

and builds a bottom up estimate

Detailed costs are rolled up to provide the overall budget

Accuracy is influence by the size and complexity of the project

• Three-Point Estimates - PERTCalculates the Expected activity cost based on the weighted

average of the Most Likely, Optimistic and Pessimistic estimates

Often more accurate than other methods and quantifies the range of uncertainty


Monitor

Control



7.1 Estimate Costs

• Reserve Analysis

Inclusion of contingency

Can be calculated for each activity

Can be calculated for entire project

Often a percentage based on risk or complexity

• Cost of Quality

Estimates cost of quality control and quality assurance activities

Enables tracking of these costs

More in Project Quality unitInitiation Planning Execution Close

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7.1 Estimate Costs

• Project Management Estimating Software

Cost estimating applications, spreadsheets and tools

Becoming widely accepted

• Vendor Bid Analysis

Looks at estimates made by vendors for components of the project

Normally only one component of project cost and other methods required to estimate other activities to provide the total cost

More in Procurement Unit Initiation Planning Execution Close

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Control



7.1 Estimate Costs

• Outputs of this process include –Activity Cost Estimates

– Quantitative assessments of the probably cost of the project work

Basis of Estimates – Information supporting the cost estimates

– Assumptions and Constraints

– Range of possible estimates

– Level of confidence in estimates

– Recommendations for contingency amounts

Project Document Updates– Most particularly updates to the Risk Register and Risk Management

Plan



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Control


7.1 Estimate Costs

• Cost estimates often include some form of range of possible results

• Most common form of range is plus or minus - e.g.

$10,000 +/- $500 – the activity could cost between $9,500 and $10,500

$10,000 +/- 20% - the activity could cost between $8,000 and $12,000



Monitor

Control

bsbpmg504a manage project costs 7.1 estimate costs adapted from pmbok 4 th edition...

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