Question

Name some methods of predicting costs.

Answer 1

Before developing a cost predicting tool companies must conduct a preliminary study to identify the company's present environment and needs; what are expectations of the organization? What are the data available currently? What are the resources available..etc

A good costing tool helps to design a correct solution against the present needs of the organization. The goal is to find the right balances between efficiency, accuracy, speed of the implementation of solution , the value of money and deliver good solutions that lighten on possible alternatives and leads the company to make the right choices.

There are three types of cost forecasting methods;

A-Analogy

The firtst method of cost prediction is analogy.Analogy is a technique used to estimate the cost based on past/historical data.It is actually comparison of new projects with past similar project done.Analogous does not require statistical adjustments.This technique is useful if you want to present a estimation without having huge informations.

There are 4 types of analogous estimating

1-Absolute value estimation

2-Three point estimate

3-Ratio estimate

4-Estimate range

B-Parametric Estimation

Parametric estimation is a technique by which cost are forcast by using specifically developed model that linked physical properties with product's variable costs.A parametric model is a set of mathamatical formulas that incorporates varibale parameters.For examble; A software company uses software parametric models and parametric estimation tool to find out their cost,staffing,and duration of their projects.The main disadvantage of parametric estimation is this technique required huge and complex data and very time consuming method

C-Analytical

Analytical estimation is the another method of csting technique.In this; projects breakes down into various tasks to complete it.It relies on a large set of economical techniqual data; material prices,setup time,length of the period,no of staff,machine work etc..For example the cost of administrative part is breaks down into the cost of recruitment,cost of salary of the management,cost associated with general services etc..The main advantage of using analytical estimation is the speed of application and low cost can use in any work environment.By the help of trained professionals a firm can easily forcaste cost by using this method.

These three are the most common types of predicting methods.But the use of predicting methods to find out the cost are very challeging task.