How do we know what a project will cost?
Apart from project scope or schedule, all projects irrelevant of type or size need funds to complete the work. Every project has costs associated with them, which could be anything from labor to raw materials and someone, somewhere has to pay for that. What happens if you don’t have the correct amount of funds to complete the project scope? Your project is doomed
How do we know what a project will cost? We really don’t, until the project is complete. I sound more like a billing company than a project manager, we will tell you the cost after you have used the service but the truth is we can not know the final project cost until the project is complete because we can’t accurately predict the future. An old Muslim proverb describes this perfectly
Tie your camel (first), and then put your trust in Allah
What we can do is create an estimate. An estimate is more than pulling a random number out of the air, adding 20% for good measure (contingency), and then saying, “that’s the budget.” A real estimate changes, as the requirements become clearer. Project estimates start out broad, and as the project deliverables come into focus we’re able to more accurately define the estimates.
Each estimate should provide an acceptable range of variance, the conditions of the estimates, and any assumptions made by the estimator.
There are three major estimate types that project managers should rely on
- The ballpark estimate is also known as the rough order of magnitude (ROM). Range/confidence factor –20% to +75%
- The budget estimate (or top-down estimate) is a bit more accurate. Range –20% to +20%
- The definitive estimate (or bottom-up estimate) is the most accurate of the estimate types, but takes the most time to create. Range –10% to +10%
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