Cost estimating is one of the important processes in project management. The cost estimate creates the baseline of the project cost during the different stages of its development. The cost estimate is usually given during the project development stage and it provides a prediction to the entire cost of the project based on available data.
In a world that is constrained by limited funds, it is crucial for project managers to estimate costs of their project. In fact, the more accurate the project managers are in estimating the cost of their project, the better they will be at managing the budget.
Estimate costs are the process of developing an approximate monetary resource (budget) needed in order to complete the project activities. It is necessary to determine the amount of cost that is required to complete the work. Aside from determining the cost, it is also necessary to allow the project manager to weigh the benefits against the cost to find out if the project is sensible or not. It also allows the project manager to determine if there are other necessary funds to support the project. Lastly, it serves as a guideline to ensure that you have enough funds to complete the project.
The estimate costs process is beneficial in creating the budget of the project. The project budget should be detailed and time-phased. To estimate the project cost, project managers need to use information like the cost management plan, human resource management plan, scope baseline, risk register, organizational process assets and enterprise environmental factors. Moreover, tools such as analog estimating, parametric estimating, bottom-up estimating and three-point estimating are also used aside from the cost of quality, reserve analysis, vendor bid analysis, project management software, group decision-making techniques and expert judgment. The end result of this process is to determine the activity cost estimate and create updates on the project documents.
This term is defined in the 5th edition of the PMBOK.