Cost estimating tools

Cost estimating tools and techniques are the methods used to produce estimates of project costs. The common ones are as follows.

1. Analogous (top-down) estimating: uses actual cost of a previous similar project as the base. Quick and cheap but less accurate; suitable early.
2. Parametric modelling: uses statistical relationship between historical data and variables (cost per square metre, cost per function point, COCOMO for software). Accuracy depends on data quality.
3. Bottom-up estimating: estimate each work package or activity, then sum up the WBS. Accurate but time-consuming.
4. Three-point estimating (PERT): cost = (optimistic + 4 × most likely + pessimistic)/6.
5. Expert judgment: input from experienced people or consultants.
6. Reserve analysis: adds contingency reserve for known risks and management reserve for unknown ones.
7. Cost of quality: includes prevention, appraisal and failure costs.
8. Vendor bid analysis: compares bids and quotations from suppliers.
9. Project management estimating software: spreadsheets, MS Project, simulation and risk tools.
10. Group decision-making: brainstorming, Delphi technique.

WBS -> Work package estimates (bottom-up)
    -> + Reserves -> Cost baseline

Tips

Use more than one technique, document assumptions, include indirect costs and update estimates.

Example: For a data-centre project, the team uses a parametric rate (Rs per rack), bottom-up estimates for cabling and vendor quotes for servers, then adds 10% contingency.