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Meaningful cost estimation starts with the decelopment of the Bill Of Quantities (BOQ)
At this stage of planning we have;
Work Breakdown Structure (WBS)
Work Packages
WBS dictionaries
From these we can extract out the manpower, material, equipment and other work requirements required for the successful completion of work. These are consolidated into the Bill Of Quantities (BOQ), which becomes the basis for cost estimation.
Types of Costs Estimated
Types of Costs Estimated
Cost estimation covers all types of project costs, including:
Direct costs: Labor, materials, equipment
Indirect costs: Overheads, utilities, administration
Variable & fixed costs
Capital expenditures (CapEx) and Operational expenditures (OpEx)
Cost of quality (prevention, appraisal, failure costs)
Risk-related costs (contingency reserves)
Estimate Costs is the process of developing an approximation of the monetary resources required to complete project work.
Purpose
Purpose
Determine the financial resources needed for each activity or work package
Provide a foundation for budgeting, funding, and cost control
Support decision-making and trade-offs (scope, schedule, quality vs cost)
Key Inputs
Key Inputs
Scope baseline (WBS, deliverables, user stories)
Bill Of Quantities (BOQ)
Project schedule
Resource requirements
Enterprise Environmental Factors (EEF) (market rates, inflation)
Organizational Process Assets (OPA) (historical data, templates)
Common Estimation Techniques
Common Estimation Techniques
1. Analogous Estimating (Top-down)
1. Analogous Estimating (Top-down)
Uses data from similar past projects
Fast but less accurate
Useful in early stages
2. Parametric Estimating
2. Parametric Estimating
Uses statistical relationships
Example: Cost per square meter × total area
3. Bottom-up Estimating
Estimate at activity/work package level, then aggregate
Most accurate but time-consuming
4. Three-point Estimating
Uses:
Optimistic (O)
Most likely (M)
Pessimistic (P)
Formula (PERT): (O + 4M + P) / 6
5. Expert Judgment
Inputs from experienced professionals
6. Reserve Analysis
Adds contingency reserves for identified risks
Management reserves handled at a higher level
Two types of three point estimation
Two types of three point estimation
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