Estimate Costs Process

Cost estimating is one of the most important parts of project management. In order to create a good project budget, we need to know more or less how much individual project activities will cost us. Although it is often impossible to know exactly these costs, we have some tools to make as close estimates as possible.

In order to create a good project budget, we need to know more or less how much individual project activities will cost us. Although it is often impossible to know exactly these costs, we have some tools to make as close estimates as possible. One of the most important steps in estimating the cost of a project is to break it down into individual tasks or activities. Once we have this list, we can begin to estimate the cost of each task by looking at similar past projects or consulting with subject matter experts. We can also use a variety of software tools to help us calculate the cost of different resources required for each task. By doing all this detective work, we can come up with a good estimate for the overall cost of our project.

In the cost estimation process, it is aimed to approximate cost estimation for each of the project activities and to obtain cost estimates output in order to create a project budget. As the monetary resources that should be allocated to human resources are estimated, physical resource costs should also be taken into account when making the necessary estimation.

Cost estimates, which are the main output of the process, show estimates of the costs required to complete all the activities involved in the project, as well as reserve estimates. Cost estimates include all indirect or direct factors that make up the cost, such as inflation, exchange rate difference, labor, materials, and taxes. It is one of the three estimation processes along with estimate activity durations and estimate activity resources.

Estimate costs is an iterative process in a project's lifecycle, you may do rough estimations at the beginning of the project however when things start to elaborate you need to make more detailed estimations. The estimate costs process belongs to;
  • planning process group 
  • cost management knowledge area 
In PMBOK 7 estimating is a part of 
Inputs to the Estimate Costs Process
Historical information and lessons learned repository
A cost management plan is typically used as input when making cost estimates. In addition, the scope baseline should be included in the process as input in its entirety. Because important information such as constraints and assumptions are obtained from the scope notification contained in the scope baseline, while useful information about the work to be done is obtained from the work breakdown structure.

We see that the tools and techniques typically used in other forecasting processes are also used in this process when estimating. These can be sorted as 3-point estimation, analog estimation, parametric estimation, and bottom-up estimation. In addition, it is recommended by PMI to conduct backup analysis to determine reserve backups and to use decision-making and alternative analysis techniques for decision-making processes.

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