- Year not given
Cost estimating and types of estimates
Short answer
Cost estimating predicts the monetary resources needed for project activities. Types include rough order of magnitude (accuracy -25% to +75%), budgetary (-10% to +25%), and definitive (-5% to +10%). Other classifications are top-down, bottom-up, parametric, and three-point estimates.
What do you mean by cost estimating? Describe it by explaining various types of cost estimates.
Cost estimating is the process of developing an approximation of the monetary resources needed to complete project activities. It is a prediction based on the information available at a given time, and it is refined as more becomes known. Estimates cover labour, materials, equipment, services, facilities, contingency and other costs.
Types of cost estimates (Schwalbe)
| Type | When | Purpose | Accuracy |
|---|---|---|---|
| Rough order of magnitude (ROM) | Very early (concept), 3-5 years before completion | Select projects, provide a ballpark figure | −25% to +75% |
| Budgetary estimate | Early, 1-2 years out | Allocate money into the budget | −10% to +25% |
| Definitive estimate | Later, less than 1 year out | Provide details for purchases, make final decisions, form the cost baseline | −5% to +10% |
Other classification:
- Top-down (analogous): uses the cost of similar past projects.
- Bottom-up: estimate each work package, then add.
- Parametric: unit rate × quantity (e.g. cost per line of code, per function point).
- Three-point (PERT) estimate.
- Reserve analysis: contingency and management reserve.
Estimate
range
|\
| \___
| \____
+------------------> time
ROM Budget Definitive
(range narrows, so accuracy improves)
Cost estimating steps
- Understand the scope (WBS) and resources.
- Choose a technique.
- Estimate the costs of work packages.
- Add contingency.
- Review and approve; document assumptions.
Key points
- Estimates should be updated through the life cycle.
- Document the basis and assumptions.
- Involve the people doing the work.
Example: A rough estimate for a college ERP is Rs 30-50 lakh (ROM); after proposals it is Rs 40 lakh (budgetary); after detailed design, a definitive estimate of Rs 42 lakh is used as the baseline.
✓ Answer checked by Claude Opus 5.5 (high effort)
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