Question

Making cost estimates using activity levels outside of the relevant range:

• can result in less accurate cost estimates.

• means the cost estimates will be relevant.

• is generally regarded as the best approach to making cost estimates.

• can result in more accurate cost estimates.

Answer 1

A cost estimate is the approximation of the cost of a program, project, or operation. The cost estimate is the product of the cost estimating process. The cost estimate has a single total value and may have identifiable component values.

A problem with a cost overrun can be avoided with a credible, reliable, and accurate cost estimate. A cost estimator is the professional who prepares cost estimates.

There are different types of cost estimators, whose title may be preceded by a modifier, such as building estimator, or electrical estimator, or chief estimator.

METHODS

1. Expert Judgement
2. Analogous Estimating
3. Parametric Estimating
4. Bottom-up Estimating
5. Three-point Estimating
6. Data Analysis (Alternative analysis/Reserve analysis)
7. Project Management Information system

Activity Cost Estimates are a valuable project management tool for determining the costs for a project. Much like how a project’s work is broken down into activities and work packages, the activity cost estimate breaks the project’s costs down to the activity level in order to improve the reliability and accuracy of the estimate.

The activity cost estimate considers each project activity and the costs associated with completing the activity. These costs include direct costs for project resources, indirect costs which may be passed on to the project, and the amount held in contingency reserve for the activity. A given activity may have many resources allocated to it which all must be accounted for as part of the estimate for that activity.

One characteristic of the activity cost estimate is documenting how the estimate was determined. This is usually done by either analogous or parametric estimating. Analogous estimating is done using similar past projects or activities to estimate cost. Parametric estimating is done by determining and using a unit cost calculated over a duration or quantity of units. Parametric estimating is usually more accurate and should result in a higher confidence level.

Another characteristic of the activity cost estimate is that it often uses a range for the activity’s cost estimate as well as a confidence level. At different stages of project planning some activities may be more well-defined which may result in a much higher confidence level than that of an activity with more unknowns. It is important to note that like most project management documentation, the activity cost estimate should continue to be revised and improved throughout the project’s lifecycle.

In general, the more information and detail that is available for an activity, the more accurate the activity cost estimate will be. Once activity cost estimates are completed for all of a project’s activities, these can then be used to develop the overall project cost estimate.