Estimate Costs Process in PMBOK 6

Project activities require a certain amount of effort and cost to achieve the intended result. The cost estimation process is also based on estimating the financial resources needed to complete project activities. In other words, cost estimation is the definition of how to calculate project costs. In this way, we will see more or less what cost we can face at the end of the project. 

Estimate costs is a process of planning process group and cost management knowledge area. It should be noted that it is an iterative process and should be revisited throughout the project. As it gets elaborated progressively, we should make estimations roughly at first place and as the project evolves we should make a more detailed estimation by taking rolling wave planning in consideration.

Types of Cost Estimates

Cost estimates can be grouped in many parallel ways changing by the paramater we sought for. However according to the most common one, there are three types of cost estimates. These are rough order of magnitude (ROM) estimate; budget estimate; and definitive estimate.

Cost Estimation Methods

As with other forecasting processes, analog forecasting is used when estimating activity costs, if we have the opportunity to obtain data from similar processes or similar activities that have been implemented before. This method is advantageous because it gives results quickly.

If we know the parameters about the outputs of specific activities, then we can use the parametric estimation technique. For a detailed and more reliable estimation, we can use bottom-up estimation if we know the attributes and requirements of all activities. Another estimation technique is 3 point estimation where we determine optimistic, pessimistic, and most likely values to estimate an approximate value.

Outputs Created in Estimate Costs Process

  • Cost estimates
  • Basis of estimates

Inputs of Estimate Costs Proces

Tools & Techniques of Estimate Costs Process

  • Alternatives analysis
  • Reserve analysis
  • Cost of quality
  • Project management information system (PMIS)
  • Voting
  • Expert judgment
  • Analogous estimating
  • Parametric estimating
  • Bottom-up estimating
  • Three-point estimating