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

# Cost estimating and types of estimates

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-types
- Whole chapter: https://www.bctengineer.com/md/semester_7/ict_project_management/chapter-9

## Question

What do you mean by cost estimating? Describe it by explaining various types of cost 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.

## Answer

**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.

```text
Estimate
range
  |\
  | \___
  |     \____
  +------------------> time
  ROM  Budget  Definitive
(range narrows, so accuracy improves)
```

#### Cost estimating steps
1. Understand the scope (WBS) and resources.
2. Choose a technique.
3. Estimate the costs of work packages.
4. Add contingency.
5. 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.

## Check yourself

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

1. What is the accuracy range of a rough order of magnitude estimate?
   A. -5% to +10%
   B. -10% to +25%
   C. -25% to +75%
   D. 0% to +5%
   Answer: C. ROM is very early and has the widest range: -25% to +75%. (Key point: ROM accuracy)

2. What is a definitive estimate used for?
   A. Selecting projects
   B. Concept ballpark
   C. Purchases and final decisions; it forms the cost baseline
   D. Allocating money in the early budget
   Answer: C. Definitive estimates (-5% to +10%) give details for purchasing and form the baseline. (Key point: Definitive estimate)

3. What is bottom-up estimating?
   A. Use cost of similar past projects
   B. Estimate each work package, then add
   C. Use unit rate times quantity
   D. Add contingency only
   Answer: B. Bottom-up sums work package estimates; analogous uses past projects; parametric uses rates. (Key point: Bottom-up)

## Related in ICT Project Management

- [Cost estimating tools](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Acost-estimating-tools) — ICT Project Management, chapter 9
- [Project cost versus product cost](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Aproject-vs-product-cost) — ICT Project Management, chapter 9
- [Cost budgeting](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Acost-budgeting) — ICT Project Management, chapter 9
- [Cost of quality](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Acost-of-quality) — ICT Project Management, chapter 10

## 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
- [Types of estimates and when prepared](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Atypes-of-estimates-circumstances) — Estimating and Costing, chapter 3, asked 4×
- [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×
- [Estimating storm water quantity](https://www.bctengineer.com/question.md?key=semester_6%2Fsanitary_engineering%3Astorm-water-quantity-estimation) — Sanitary Engineering, chapter 2, asked 3×