Discuss different types of cost estimates and methods for preparing them.|Legit essays
Posted: February 19th, 2023
Discuss different types of cost estimates and methods for preparing them.
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Cost estimates are an essential part of project management, helping to determine the budget, timelines, and resources needed for successful project completion. There are different types of cost estimates, each serving a different purpose, and various methods used for preparing them. Here are some of the most common types and methods:
- Order of Magnitude Estimate: This type of estimate is also known as Rough Order of Magnitude (ROM) and is used to determine the feasibility of a project or to make high-level decisions. It is based on limited information and is typically accurate within +/-50% to +/-100% of the actual costs. The method used for this type of estimate is expert judgment, analogous estimating, or parametric estimating.
- Budget Estimate: A budget estimate is more detailed than an Order of Magnitude Estimate and is used to allocate funds for a project. The accuracy of this estimate is within +/-10% to +/-25% of the actual costs. The methods used for this type of estimate are analogous estimating, parametric estimating, and bottom-up estimating.
- Definitive Estimate: A Definitive Estimate is the most accurate type of estimate, used in the execution phase of a project. This estimate is based on detailed information about project activities, and the accuracy level of this estimate is within +/-5% to +/-10% of the actual costs. The methods used for this type of estimate are bottom-up estimating, three-point estimating, and expert judgment.
- Parametric Estimating: Parametric estimating is a statistical technique used to calculate costs based on historical data, such as cost per unit of output, material costs, or labor costs. This method is most effective when there is a significant amount of historical data available.
- Analogous Estimating: Analogous estimating is a method that uses information from similar projects to estimate costs. This method is useful when there is limited information available, and the project being estimated is similar to a past project.
- Bottom-Up Estimating: Bottom-up estimating is a detailed method that involves estimating the cost of each component of a project and then adding them up to determine the total cost of the project. This method is most accurate but also requires a significant amount of time and resources.
- Three-Point Estimating: Three-point estimating involves estimating the most likely cost of a project as well as optimistic and pessimistic estimates. This method takes into account the risks associated with a project and can be useful in determining contingency funds for unexpected costs.