You are on page 1of 1

The U.S.

Government Accountability Office (GAO) defines a cost estimate as, "the summation of
individual cost elements, using established methods and valid data, to estimate the future costs of a
program, based on what is known today." The GAO reports that "realistic cost estimating was
imperative when making wise decisions in acquiring new systems."[2] A cost estimate is often needed
to support evaluations of project feasibility or funding requirements in support of planning. A cost
estimate is often used to establish a budget as the cost constraint for a project or operation.
In project management, project cost management is a major functional division. Cost estimating is
one of three activities performed in project cost management.[3]
In cost engineering, cost estimation is a basic activity. A cost engineering reference book has
chapters on capital investment cost estimation and operating cost estimation. The fixed capital
investment provides the physical facilities. The working capital investment is a revolving fund to keep
the facilities operating.[4]
In system, product, or facility acquisition planning, a cost estimate is used to evaluate the required
funding and to compare with bids or tenders.
In construction contracting, a cost estimate is usually prepared to submit a bid or tender to compete
for a contract award.
In facility maintenance and operation, cost estimates are used to establish funding or budgets.
In an attempt to manage liability risk, some firms avoid the use of the word estimate and instead
refer to the estimate as an "Opinion of Probable Cost."[5]