This post is about project cost estimation. A topic that is often overlooked. Some think project cost estimation is complex. Others simply wing it!
Here’s some simple advice that will give you greater confidence and help mitigate project cost risk.
Wisdom of the Crowd
During the 1990s I made many complex cost estimates — often assessing work that had already been done — for large multi-£M engineering projects. I used analytical estimating techniques. An important feature of this work measurement method is that the job must be broken down into smaller individual tasks.
In so doing I reduced the impact of errors because any errors introduced through my estimates — based on my skill and experience — were in essence random and therefore compensated each other.
In other words, many is smarter than a few.
Project Cost Estimation
This is a key reason for preparing reliable time and cost estimates for your project.
Typically estimating uncertainties translate into project schedule or cost risk. Whilst improved customer requirements — good foundations — will inevitably help the project organisation perform as planned it is paramount that schedule and cost estimates are not artificially low (or high.)
Therefore, when preparing a project plan a number of approaches should be employed to arrive at an estimate.
For example, historical cost data, defined Work Breakdown Structure or Product Breakdown Structure — possibly standardised across projects — and a systematic understanding of the types of cost associated with feasibility, development, and deployment.
However, you can greatly improve the quality of your estimates by breaking down those areas you are least confident about into many parts. A lack of data will increase the uncertainty of the cost model equation.
Therefore, more data points should be included since the use of more relevant data will inevitably increase the validity of your estimating model.
How do you approach project cost estimation?
What estimating techniques do you use?