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Project Cost Estimating Strategy

November 12, 2008 | Author: PM Hut | Filed under: Cost Estimating, Cost Management, Project Management Best Practices

Project Cost Estimating Strategy
By John Filicetti

In order to ensure accurate estimates, this cost estimating strategy is developed based on a three-step process. These steps lead to a more accurate cost estimate by incorporating the knowledge gained during the design phase of the project combined with knowledge from previous projects. With the adoption of this strategy, a strategy explanation should be included in the Project Management Plan.

  • Step 1, Rough initial Estimates – The Initial Rough Estimate is developed during the Initiating Phase and is based on the information provided in the high-level scope along with information from previous projects the project manager has been involved with or from similar projects they have heard about. This Initial Rough Estimate will be presented as a part of the Concept Proposal.

  • Step 2, Intermediate Estimates – During the Planning Phase, the project requirements will be developed by the analyst and the project manager for the customer’s review and approval and will further clarify and define the project estimates. More details are provided to the project team to allow them to help the project manager with project estimates. A detailed project schedule is created by the project manager to provide duration and effort for each task, the assignment of resources for each task, and a complete and detailed cost estimate of the project effort.

  • Step3, Final Detailed Project Estimate – The detailed project designs are created allowing the project manager to refine some of the project tasks and add the estimation of costs such as hardware, software, and items such as test equipment or additional space for the project team. At this point, the initial estimates created for the Concept Proposal can be updated or replaced to reconcile the more accurate total project cost information. The new estimate is communicated to the project stakeholders.

John F. Filicetti, PMP, MBA
John Filicetti is a Sr. Sales Engineer/PM-PMO-PPM Consultant with a great depth of experience and expertise in enterprise project management, project management methodologies, Project Portfolio Management (PPM), Project Management Offices (PMOs), Governance, process consulting, and business management. John has directed and managed project management teams, created and implemented methodologies and practices, provided project management consulting, created and directed PMOs, and created consulting and professional services in such areas as project portfolio management, Governance, business process re-engineering, network systems integration, application development, infrastructure, and complex environments. John has enjoyed many years as PMO Director for large corporations in the Seattle area and leads the PMO Roundtable discussion group and forum.

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This entry was posted on Wednesday, November 12th, 2008 and is filed under Cost Estimating, Cost Management, Project Management Best Practices. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1 person has left a comment

Hi John,
What you are describing is ANSI Z94.0, which reflects a rather naive and simplistic approach adopted by PMI.

What most progressive companies are doing is to match the estimating process to their toll gates or phase gates. In the oil and gas sector, this is known as the Value Assurance Process (VAP) and was developed by IPA as a proprietary system for Exxon, and it has since been adopted by nearly all organizations where projects are funded by the CAPEX process.

If we look to the more technically advanced Association for the Advancement of Cost Engineering http://www.aacei.org or the American Society of Professional Estimators http://www.aspenational.org/, they are using a 5 and 6 phase model. If you prefer non-American “best practices”, the UK Association of Cost Engineers recommends a 4 gate process while the Norwegian Project Management Association recommends a 6 estimate process.

Bottom line- professionally, I believe PMI is remiss in recommending only three estimates. As cost control and cost management become increasingly important given the evolving financial crisis, I would urge you to consider your advice and instead of adopting practices “used on most projects, most of the time”, that we start to move beyond PMI’s rather simplistic approach and adopt “best ” or at least “recommended” practices, as espoused by other organizations.

BR,
Dr. PDG, Jakarta

Dr. Paul D Giammalvo wrote on November 13, 2008 - 1:19 am | Visit Link

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