---
title: "Cost estimating tools"
subject: "ICT Project Management"
chapter: 9
key: "semester_7/ict_project_management:cost-estimating-tools"
source: https://www.bctengineer.com/q/semester_7/ict_project_management/cost-estimating-tools
site: BCT Engineering
---

# Cost estimating tools

ICT Project Management · Chapter 9: Project Cost Management

- Asked in: year not given
- Video: [How to Estimate Project Costs: A Method for Cost Estimation](https://www.youtube.com/watch?v=YQ2Wi3Jh3X0) — Online PM Courses - Mike Clayton
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/ict_project_management/cost-estimating-tools
- Whole chapter: https://www.bctengineer.com/md/semester_7/ict_project_management/chapter-9

## Question

What are the cost estimating tools?

## Short answer

Common tools include analogous (top-down) estimating, parametric modeling, bottom-up estimating, three-point (PERT) estimates, expert judgment, reserve analysis, cost of quality, vendor bid analysis, and project management software.

## Answer

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.

| Tool | Accuracy | Effort | Stage |
|---|---|---|---|
| Analogous | Low | Low | Concept |
| Parametric | Medium | Medium | Planning |
| Bottom-up | High | High | Detail |
| Three-point | Medium | Medium | Uncertain tasks |

```text
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.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What characterises analogous estimating?
   A. Uses statistical models
   B. Uses actual cost of a similar previous project; quick but less accurate
   C. Sums work packages
   D. Slow but highly accurate
   Answer: B. Analogous (top-down) is quick and cheap but less accurate, suited early. (Key point: Analogous)

2. What does parametric modelling use?
   A. Statistical relationship between historical data and variables, like COCOMO
   B. Work package sums
   C. Vendor bids only
   D. Expert opinions only
   Answer: A. Parametric uses historical data, e.g. cost per function point. (Key point: Parametric)

3. What does reserve analysis add?
   A. Only management reserve
   B. Vendor margins
   C. A single padding in each task
   D. Contingency reserve for known risks and management reserve for unknown ones
   Answer: D. Contingency covers known risks; management reserve covers unknown ones. (Key point: Reserve analysis)

4. What is the three-point cost formula?
   A. (4 x optimistic + most likely + pessimistic)/6
   B. (optimistic + most likely + pessimistic)/3
   C. (optimistic + 4 x most likely + pessimistic)/6
   D. (optimistic + pessimistic)/2
   Answer: C. PERT weights the most likely value by 4 and divides by 6. (Key point: Three-point cost)

## Related in ICT Project Management

- [Cost estimating and types of estimates](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Acost-estimating-types) — ICT Project Management, chapter 9

## Related in other subjects

- [Purposes of estimating; estimate never actual cost](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Apurposes-estimate-never-actual) — Estimating and Costing, chapter 1
- [Bill of quantities and abstract of cost](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Aboq-abstract-of-cost) — Estimating and Costing, chapter 2, asked 2×
- [Estimated cost is never the actual cost](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Aest-cost-never-equal-actual) — Estimating and Costing, chapter 1
- [Compare estimated cost and actual cost](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Acompare-estimated-actual-cost) — Estimating and Costing, chapter 1