1. BSBPMG504A Manage Project Costs 7.1 Estimate Costs Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control The process of developing an approximation of the monetary resources needed to complete project activities Cost estimates are a prediction based on the information known at any point in time Includes the identification and consideration of costing alternatives to initiate and complete the project Cost trade offs and risks need to be considered Occurs during Planning

2. BSBPMG504A Manage Project Costs 7.1 Estimate Costs Inputs to Estimate Costs Scope Baseline Cost Management policies and procedures Project Schedule Human Resource Plan Risk Register Tools and techniques to Estimate Costs Adapted from PMBOK 4 th Edition Reserve Analysis Expert Judgement Analogous Estimating Parametric Estimating Software Three-point Estimates Bottom-up Estimating Vendor Bid Analysis

3. BSBPMG504A Manage Project Costs 7.1 Estimate Costs Analogous Estimating Uses previous similar projects to estimate costs Least costly and least time consuming, also least accurate Accuracy improved when combined with Expert Judgement Most common form of cost estimation Parametric Estimating Uses statistical relationships between historical project data and variables for estimation of time and costs Some industries publish estimating tables, prominent in the construction and engineering industries Standard cost estimates for activities InitiationPlanning ExecutionClose Monitor Control Adapted from PMBOK 4 th Edition

4. BSBPMG504A Manage Project Costs 7.1 Estimate Costs Bottom-up Estimating Starts with the cost of individual activities or work packages and builds a bottom up estimate Detailed costs are rolled up to provide the overall budget Accuracy is influence by the size and complexity of the project Three-Point Estimates - PERT Calculates the Expected activity cost based on the weighted average of the Most Likely, Optimistic and Pessimistic estimates Often more accurate than other methods and quantifies the range of uncertainty InitiationPlanning ExecutionClose Monitor Control Adapted from PMBOK 4 th Edition

5. BSBPMG504A Manage Project Costs 7.1 Estimate Costs Reserve Analysis Inclusion of contingency Can be calculated for each activity Can be calculated for entire project Often a percentage based on risk or complexity Cost of Quality Estimates cost of quality control and quality assurance activities Enables tracking of these costs More in Project Quality unit InitiationPlanning ExecutionClose Monitor Control Adapted from PMBOK 4 th Edition

6. BSBPMG504A Manage Project Costs 7.1 Estimate Costs Project Management Estimating Software Cost estimating applications, spreadsheets and tools Becoming widely accepted Vendor Bid Analysis Looks at estimates made by vendors for components of the project Normally only one component of project cost and other methods required to estimate other activities to provide the total cost More in Procurement Unit InitiationPlanning ExecutionClose Monitor Control Adapted from PMBOK 4 th Edition

7. BSBPMG504A Manage Project Costs 7.1 Estimate Costs Outputs of this process include – Activity Cost Estimates –Quantitative assessments of the probably cost of the project work Basis of Estimates –Information supporting the cost estimates –Assumptions and Constraints –Range of possible estimates –Level of confidence in estimates –Recommendations for contingency amounts Project Document Updates –Most particularly updates to the Risk Register and Risk Management Plan Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control

8. BSBPMG504A Manage Project Costs 7.1 Estimate Costs Cost estimates often include some form of range of possible results Most common form of range is plus or minus - e.g. $10,000 +/- $500 – the activity could cost between $9,500 and $10,500 $10,000 +/- 20% - the activity could cost between $8,000 and $12,000 Adapted from PMBOK 4 th Edition InitiationPlanning ExecutionClose Monitor Control