Project Cost

Management

4th
Lecture

Estimate Cost Process. (Inputs, Tools &

Techniques, Output)1
 Estimate Cost Definition

The process of defining an APPROXIMATION of the

monetary resources needed to complete project activities.

Approximation

Activity 1 Resource Cost

Activity 1 Resource Cost Project Cost

It determines the amount of cost required to complete project

work.
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 7.2 Estimate Cost Process
Estimate Cost

Estimate Costs is the process of developing an approximation of the cost of

resources needed to complete project work. The key benefit of this process is
that it determines the monetary resources required for the project. This
process is performed periodically throughout the project as needed. The
input, tools and techniques, and outputs of this process are depicted in Figure
7-4. Figure 7-5 depicts the data flow diagram of the process.

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 Estimate Cost Process

Inputs Tools & Techniques Outputs

1. Project management plan 1. Expert judgment 1. Cost management
● Cost management plan 2. Analogous estimating 2. Basis of estimates
3. Project documents
● Quality management 3. Parametric estimating updates
plan
4. Bottom-up estimating ● Assumption log
● Scope baseline
5. Three-point estimating ● Lessons learned
2. Project Documents register
6. Data analysis
● Lessons learned register ● Risk register
● Alternatives analysis
● Project schedule
● Reserve analysis
● Resources requirements
● Cost of quality
● Risk register
7. Project management
3. Enterprise environmental information system
factors
8. Decision making
4. Organizational process
assets

Figure 7-4. Estimates Cost : Input, Tools & Techniques, and Outputs 4
 Project
Estimate Cost Process
Management Plan

Project management plan ● Cost estimates

● Cost management plan ● Basis of estimates
● Quality management plan
● Scope baseline

7.2
Estimate
Project Costs Project
Documents Documents

Project documents
● Lesson learned register
● Project schedule
● Resource requirements Project documents updates
● Risk register ● Assumption log
● Lesson learned register
Enterprise / ● Risk register
Organization
● Enterprise environmental factors
● Organizational process assets

Figure 7-5. Estimates Cost : Data Flow Diagram 5

 7.2.1 Estimate Cost: Inputs
7.2.1.1 Project Management Plan
Described in Section 4.2.3.1. Project management plan documents include but are
not limited to:

• Cost Management plan.

• Quality Management Plan
• Scope baseline
• Project Scope statement
• Work Breakdown Structure
• WBS Dictionary

7.2.1.2 Project Documents

Project documents that can be considered as inputs for the process include but are not
limited to:

• Lessons learned register

• Project schedule
• Resource Requirements
• Risk Register 6
 7.2.1 Estimate Cost: Inputs
7.2.1.3 Enterprise Environmental Factors
The enterprise environmental factors that can influence the Estimate Costs process
include but are not limited to:

• Market condition
• Published commercial information
• Exchange rates and inflation
7.2.1.4 Organizational Process Assets
The organizational process assets that can influence the Estimate Costs process
include but are not limited to:

• Cost estimating policies,

• Cost estimating templates,
• Historical information and lessons learned repository

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 7.2.2 Estimate Cost: Tools and Techniques
7.2.2.1 Experts Judgment

Described in Section 4.1.2.1. Expertise should be considered from individuals or

groups with specialized knowledge or training in the following topics:

• Previous similar projects;

• Information in the industry, discipline, and application area; and
• Cost estimating method .

7.2.2.2 Analogous Estimating

7.2.2.3 Parametric Estimating

7.2.2.4 Bottom-up Estimating

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 7.2.2 Estimate Cost: Tools and Techniques
7.2.2.5 Three-Point Estimating
Described in Section 6.4.2.4. The accuracy of single-point cost estimates may be
improved by considering estimation uncertainty and risk and using three estimates to
define an approximate range for an activity’s cost:

• Most likely (cM). The cost of the activity, based on realistic effort
assessment for the required work any predicted expenses.
• Optimistic (c0). The cost based on analysis of the best-case scenario for
the activity.
• Pessimistic (cP). The cost based on analysis of the best-case scenario for
the activity.

Depending on the assumed distribution of values within the range of the three
estimates, the expected cost, cE, can be calculated using a formula. Two
commonly used formulas are triangular and beta distributions. The formulas are:
• Pessimistic (cP). cE = (c0 + cM + cP) /3
• Beta distribution. cE = (c0 + 4cM + cP) /6
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 7.2.2 Estimate Cost: Tools and Techniques
7.2.2.6 Data Analysis

• Alternatives analysis.
• Reserve analysis.
• Cost of quality.

7.2.2.7 Project Management Information System (PMIS)

7.2.2.8 Decision Making

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 7.2.3 Estimate Cost: Out Puts
7.2.3.1 Cost Estimates

7.2.3.2 Basis of Estimates

Supporting detail for cost estimates may include:

• Documentation of the basis of the estimate (i.e. how it was developed),

• Documentation of all assumptions made,
• Documentation of any known constraints,
• Documentation of identify risk included when estimating costs,
• Indication of the range of possible estimates (e.g. US$10,000(+10%) to
indicate that the item is expected to cost between a range of values, and
• Indication of the confidence level of the final estimate.
7.2.3.3 Project Documents Updates

• Assumption log.
• Lesson learned register.
• Risk register.
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 Estimate Cost Input Project Schedule

Project Schedule is output of develop schedule

Cost estimation is linked to the estimate activity

resources process
Project
Schedule
Cost is always time bound

Estimate Estimate Activity Estimate Cost

Activity Cost Duration

• Who will work • How long • How much

on the ach activities will project will
activities take cost (By
• Type & • Duration combining all
Quantity activities) 12
 Inputs------Estimate Cost Process
11.2.3.1 Risk Register
The risk register captures details of identified individual project risks. The
results of Perform Qualitative Risk Analysis, Plan Risk Responses, Implement Risk
Responses, and Monitor Risks are recorded in the risk register as those processes are
conducted throughout the project. The risk register may contain limited or extensive
risk information depending on project variables such as size and complexity.
On completion of the Identify Risks process, the content of the risk register may
include but is not limited to:
 List of identified risk. Each individual project risks is given a unique
identifier in the risk register. Identified risks are described in as much detail as
required to ensure unambiguous understanding. A structured risk statement may
be used to distinguish risks from their cause(s) and their effect(s).
 Potential risk owners. Where a potential risk owner has been identified
during the Identify Risks process, the risk owner is recorded in the risk register.
This will be confirmed during the Perform Qualitative Risk Analysis process.

 List of potential responses. Where a potential risk response has been

identified during the Identify Risk process, it is recorded in the risk register. This
will be confirmed during the Plan Risk Responses process. 13
 Risk Management – Risk Register

While planning a project that involves building a unique product

for a client, you decide to build a prototype in order to reduce the
risk of not meeting expectations. This is an example of what type
of risk response strategy?
a. Avoid
b. Transfer
c. Mitigate
d. Accept
 Mitigating requires you to decrease the probability or impact of
a particular risk. Creating a prototype could reduce the chance that
the risk triggers.

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Thank You