5th Edition PMBOK® Guide—Chapter 7: Process 7.2 Estimate Costs


This process develops an estimate of the monetary resources needed to complete the project. The estimate should be reviewed and refined during the course of the project.

1. Inputs

The inputs come from other knowledge areas such as scope, time, human resource, and even risk management.

6.2 DEFINE ACTIVITIES
INPUTS
1. Cost Management Plan
  • Estimation method used
  • Level of accuracy required

This is an output of process 7.1 Plan Cost Management.

2. Human Resource Management Plan Provides personnel rates, and specifies rewards/recognition.

This is an output of process 9.1 Plan Human Resource Management.

3. Scope Baseline The scope management plan has three components of the scope baseline:

  • Project Scope Statement (output of 5.3 Define Scope)
  • WBS (output of 5.4 Create WBS)
  • WBS Dictionary (output of 5.4 Create WBS)
4. Project Schedule The quantity of resources required and the amount of time required are major factors in determining their cost. This is an output of process 6.6 Determine Schedule
5. Risk Register Used to estimate costs for risk responses. This is an output of process 11.2 Identify Risks.
6. EEFs
  • Market conditions
  • Published commercial information
7. OPAs
  • Cost estimating policies, templates
  • Lessons learned, historical information
TOOLS & TECHNIQUES
1. Expert Judgment Expert judgment can be used by using historical information to give duration estimates from similar projects. It can also used to reconcile different estimating methods.
2. Analogous Estimating Uses a measure from a previous similar project to estimate the duration or cost of the current project in a top-down approach.
3. Parametric Estimating Uses an algorithm to estimate the duration or cost of the current project based on historical data from previous similar projects.
4. Bottom-Up Estimating Estimates costs of individual work packages, and these estimates are then totaled or “rolled up” to higher levels.
5. Three-Point Estimating Accuracy of estimates may be improved by considering risk in order to create three estimates: the most-likely (cM), optimistic (cO), and pessimistic (cP) cost estimate. These three estimates are combined in either the triangular or beta distribution.
6. Reserve Analysis Duration estimates can use “contingency reserves” for risks in the risk register that the “known-unknowns” of the project.
7. Cost of Quality (COQ) Assumptions about the cost of quality may effect the cost estimates.
8. Project Management Software Automated tools used to create cost estimates.
9. Vendor Bid Analysis Responsive bids from qualified vendors should be analyzed to create cost estimates.
10. Group Decision-Making Techniques Team-based approaches can be useful for improving duration estimates.
OUTPUTS
1. Activity Cost Estimates Quantitative assessments of the probable costs to complete project.
2. Basis of Estimates Details supporting the activity cost estimates (output #1).
3. Project Documents Updates The risk register will be updated to include the estimated costs of risk responses.

2. Tools & Techniques

Many of these techniques used in the Cost Management knowledge area are similar to those used in creating the duration estimates in the Time Management knowledge areas. Some additional techniques not used in Time Management are the Cost of Quality and Vendor Bid Analysis, from the Quality and Procurements knowledge areas, respectively.

3. Outputs

The outputs are the estimates and the supporting data used to create the estimates. These outputs are then used in the next process 7.3 Determine Budget.

The tools & techniques used in this estimating process are important enough to require some posts to review them. The next post will cover those tools & techniques which are also used in Time Management, analogous estimating, parametric estimating, bottom -up estimating, and three-point estimating.

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