Estimate Costs Process

Posted on March 12, 2009 by

0


Estimate Costs is one of the 42 project management processes described in the fourth edition PMBOK®. It’s one of the three Cost knowledge area processes, and one of the twenty Planning processes. The purpose of this process is to estimate how much money will be needed for the project activities. Although the purpose is straightforward, this process has more inputs, tools, and outputs than most—6 inputs, 9 tools and techniques and 3 outputs. It’s difficult to accurately estimate costs, especially at the beginning of a project, so these estimates are refined during the course of the project. Estimates at the beginning of a project could be over or under by 50% (called the rough order of magnitude), whereas later on the estimates may be within 10% of the actual costs.

The Human Resource Plan (from the Develop Human Resource Plan process) is used as a reference to help estimate costs associated with paying the people who are working on the project. The Scope Baseline (from the Create WBS process) contains information on the budget constraints in addition to the project activities and their inter-relationships. Like the Scope Baseline, the Project Schedule (from the Develop Schedule process) contains a large amount of information related to the needed resources and activity durations. Mitigation costs should also be calculated using the Risk Register (from the Identify Risks process) as a guide.

As mentioned, there are many tools that can be employed when estimating costs. When vendors are involved, there may need to be an overall analysis of what the project should cost. The costs of quality should also be considered. To read more about the tools of this process, please see earlier postings on TAPUniversity’s blog: PMP Exam – Cost Estimating Tools and Techniques (posted February 4, 2009), PMP Exam – PERT Formula (posted February 6, 2009) which is a weighted three-point estimating formula; and Reserve Analysis (posted February 11, 2009).

The major outputs of Estimate Costs are Activity Cost Estimates and Basis of Estimates. The Activity Cost Estimates are the actual estimates of expenses, and the Basis of Estimates is the supporting detail, such as the assumptions used for a particular estimate.