Project Cost Estimates

Cost estimates seem to have a lot of different names. Can you explain them for me?

 

Cost Estimate Definitions - 1

Cost Estimate (generic)

·         The expected cost to perform a task or to acquire an item
Note:
Cost estimates are typically quoted as a single value

·         This is a bad practice

·         Estimates should be quoted as a range of values

·         Which also gives an indication of their accuracy

 

Cost Estimate Definitions - 2

Order of magnitude estimate

·         An approximate estimate made without detailed information

·         Information often very scanty

·         Essentially a "best guess"

·         Used for initial evaluation or comparison

·         Also known as preliminary, conceptual or pre-feasibility estimate

 

Cost Estimate Definitions - 3

Parametric or "top down" estimate

·         Appraisal of costs of an item based on knowledge gathered from similar, but different projects

·         Typically uses parameters such as number, weight, power, area and volume, lines-of-code, or other characteristics of the system to estimate or scale the cost of the item in question

·         System complexity and team maturity are also influencing factors

·         Often used as a result of or part of a feasibility study

 

Cost Estimate Definitions - 4

Appropriation estimate

·         Prepared from best available information

·         Though not necessarily complete information

·         Used to establish a budget submitted for funding approval (I.e. an appropriation)

·         Also known as a Budget Estimate

 

Cost Estimate Definitions - 5

Detailed or "bottom up" estimate

·         An estimate based on complete or nearly complete details of quantity, specifications, conditions and the like

·         Suitable for major commitments

·         Cost tracking and control

·         Also known as Definitive Estimate

 

Cost Estimate Definitions - 6

·      Estimate to complete

·         An estimate of the cost of doing all the remaining work to complete the activity, work package or whole project

·         Based on all the latest information

·         Including current productivity rates and trends

·      Estimate at completion

·         The sum of all costs to date and the estimated cost to complete

·         A major difficulty is making sure nothing is overlooked at the cutoff date between the two!

 

Cost Estimate Definitions - 7

Life Cycle Costing

·         The sum of all estimated costs over the life of a system

·         Including all acquisition, operation, maintenance, support and ultimate disposal costs

·         Used for comparing the relative financial merits of competing options

·         If the life of the system covers many years, involves the economic concepts of

·         Net Present Value (NPV), and/or

·         Discounted Cash Flow (DCF)