6th Edition PMBOK® Guide–Process 7.2 Estimate Costs: Tools and Techniques

The cost management planning processes are fewer in number than the schedule planning processes because the schedule planning processes first require the scope developed in the scope management process group to be translated into action in the form of activities.   This is done in the “Define Activities” and “Sequence Activities” processes, which have as a by-product the Activities List and Activity Attributes.

This is the starting point for the Estimate Costs process whose main purpose is to take those activities in the Activities List and estimate their costs.   Once this is done, the totals of all the activities in each work package, and then each work package in the WBS, can be done in the following process “Determine Budget.”

Let’s discuss the inputs to this process before we go into specifics on the tools and techniques of the process itself. Project Management Plan

  • Cost management plan–the output of process 7.1 Plan Cost Management.   The specific guidelines that affect this process are:
    • Units of measure–this will be in dollars or the base currency of whatever country the project is being done in
    • Level of precision–how will the cost estimates be rounded up or down
    • Level of accuracy–what is the acceptable range, usually expressed in terms of plus or minus percentage, for determining realistic cost estimates.
  • Scope baseline–there are three separate documents that comprise the scope baseline, which are
    • Project scope statement–breaks down the scope from the requirements to the deliverables needed to fulfill those requirements; may contain some overall financial assumptions and constraints that will affect the budget
    • WBS (Work Breakdown Structure)–the scope is broken down further from the deliverables to the level of work packages, which then are broken down to the level of the activities needed to complete each work package.
    • WBS Dictionary–contains information on the work packages, and will be updated with the cost estimate of the work package during the course of this process
  • Quality management plan–information on cost of quality contained in this management plan may be used to evaluate the cost impact of quality-related activities on the project. Project Documents

These are listed according to the knowledge area they pertain to.

Integration Knowledge Area

  • Lessons learned register–this will be updated as a result of this process if there are any lessons learned during the cost estimating process that will be helpful to improve the accuracy and precision of the cost estimates

Schedule Knowledge Area

  • Project schedule–this is the output of process 6.5 Develop Schedule.   The duration estimates of each work package or activity (an output of process 6.4 Estimate Activity Durations), combined with the information on the resources needed (see resource requirements document below), will be used to create the cost estimates, especially if those resources are charged per unit of time.

Resource Knowledge Area

  • Resource requirements–this identifies the types and quantities of resources required for each work package or activity.   This, combined with the information contained in the project schedule of the duration estimates of each work package or activity (an output of process 6.4 Estimate Activity Durations), will be used to create the cost estimates during this process.

Risk Knowledge Area

  • Risk register–the risk register (an output of process 11.2 Identify Risks, and updated in every risk management planning process that follows it) contains information that can be used to estimate costs, especially when obtaining three-point estimates that include optimistic and pessimistic assumptions.  Enterprise Environmental Factors

  • Market conditions–these will determine the standard costs for resources that may be used on the project
  • Published commercial information–for any particular application area, there may be databases that contain standard human resource costs and standard costs for material and equipment that may be used on the project. Organizational Process Assets

  • Historical information and lessons learned repository, especially from similar projects to the one being done at present
  • Cost estimating policies and templates (should be included in the Cost Management Plan)

With these inputs, we are ready to discuss the tools and techniques of this process.   Some of these are “generic” tools and techniques used in any planning process, such as expert judgment, decision making, and the Project Management Information System (the software program such as Microsoft Project).   However, there are some that are specific to the duration and cost estimating processes, such as

  • analogous estimating
  • parametric estimating
  • bottom-up estimating
  • three-point estimating
  • data analysis techniques such as alternatives analysis, reserve analysis, and cost of quality

All of these will be discussed in the following post.


3 Responses

  1. These are not the T&T for estimate costs.

  2. Hi
    please considere to fix Tools and Techniques 7.2 : body of post is 7.1
    Thks, Great job!

  3. Posts for Tools & Techniques AND Outputs are repeats of the Inputs post for Process 7.2.

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