Guide to Cost Estimation in Project Cost Management

What is Cost Estimation?
Cost estimation is a core component of project cost management. It involves predicting the monetary resources required to complete a project. This prediction takes into account various factors, such as labor costs, material expenses, equipment costs, and other direct and indirect costs.

Why is Cost Estimation Important?
Cost estimation is critical because it allows project managers to plan their budget effectively. This, in turn, helps avoid overspending and ensures the project can be completed within the allocated funds. Cost estimation also helps in evaluating the financial feasibility of a project, which is critical for decision-making processes.

How Does Cost Estimation Work?
Cost estimation typically involves four key steps: 1. Defining the scope of the project 2. Determining the cost of each activity or task 3. Summing up the costs to get the total project estimation 4. Creating a baseline for controlling project costs.

Exam Tips: Answering Questions on Cost Estimation
1. Understand your formulas: Be sure you know how to calculate various cost estimates, such as bottom-up, analogous, and parametric.
2. Show your work: In exam, not only is the final answer important, but also the process used to arrive at that answer.
3. Use the right units: Make sure you read the question carefully and provide your response in the appropriate cost units (e.g., dollars, pounds, etc.).
4. Clarify assumptions: If a question includes assumptions about costs or other factors, be sure to explain how you’ve factored them into your cost estimate.
5. Practice: The more practice problems you solve, the more comfortable you will be on exam day.