Process: Estimate Costs
Process Group: Planning
Knowledge Area: Project Cost Management
Purpose
The Estimate Costs process involves developing an approximation of the monetary resources needed to complete project activities. It supports budgeting and financial planning by determining how much each project component will cost based on scope, schedule, and resource requirements.
Inputs
- Project Management Plan – Especially the cost management plan, scope baseline, and schedule baseline.
- Project Documents – Activity list, resource requirements, risk register, lessons learned register, and assumptions log.
- Enterprise Environmental Factors (EEFs) – Market conditions, exchange rates, labor rates, and cost estimation databases.
- Organizational Process Assets (OPAs) – Historical cost data, estimation tools, and organizational cost policies.
Tools and Techniques
- Expert Judgment – Provided by subject matter experts or those with past cost estimating experience.
- Analogous Estimating – Uses historical data from similar projects to estimate costs.
- Parametric Estimating – Applies statistical models or unit cost data to estimate activity costs (e.g., cost per square foot).
- Bottom-Up Estimating – Aggregates detailed estimates from the work package level.
- Three-Point Estimating – Accounts for uncertainty using optimistic, most likely, and pessimistic cost values.
- Data Analysis – Includes reserve analysis to account for contingency and potential cost risk.
- Project Management Information System (PMIS) – Used for cost modeling and data integration.
- Decision Making – Involves team input to refine estimates and validate assumptions.
Outputs
- Cost Estimates – Estimated cost for each activity or work package, including direct and indirect costs.
- Basis of Estimates – Documentation explaining how estimates were developed, including assumptions, ranges, and confidence levels.
- Project Document Updates – Updates to assumptions, lessons learned, and risk data based on cost insights.
Role in the Process Group and Knowledge Area
- As part of the Planning Process Group, Estimate Costs transforms resource and schedule data into financial projections.
- Within Project Cost Management, it provides the data necessary to build the overall project budget and monitor cost performance.
Why It Matters
- Enables Budgeting – Supports the development of an accurate and realistic cost baseline.
- Informs Decision Making – Helps stakeholders evaluate trade-offs and funding options.
- Improves Forecasting – Lays the groundwork for cost control and variance analysis.
- Reduces Risk – Increases cost predictability by incorporating uncertainty and historical data.