When creating a budget for a job, project management must be able to engage properly in the process of cost estimating. This is a calculated projection of the cost for the materials required by the project. The materials considered in cost estimating can be any resources required for the job such as raw materials or employee wages.
It is critical for a true approximation of the production costs that those in project management take into account all resources which might be used. Neglecting certain materials could result in cost estimating which is too low. This increases the likelihood that the budget will be exceeded.
Accurate cost estimating by project management needs to be done often when creating a bid for the project. Too high of an estimate, and the bid could be lost to another company. A bid which is falsely low will result in unanticipated costs the client will have to pay, and that could damage the chances of future business with that customer. Knowing the true price of the project is important for anyone in management in order to create a budget for the job and to make bids.
This term is defined in the 3rd edition of the PMBOK but not in the 4th.