Cost estimation methods and practices

¶ … estimation for a project?

To conduct an effective cost estimation of a project, first a project manager must estimate the size of the development product itself, based upon the customer's specification. Then, the project manager must estimate the effort in person per month or person per hours of effort required to complete the project. Next, given different staff member's availability and the constraints affecting the scheduling of critical staff members over the course of the project timetable, the manager must construct an estimated time schedule in calendar months or weeks. Then, finally a holistic estimate of the overall project cost can be determined. (Peters, 2006, p1.)

Estimating the size and the scope of the project requires a formal description of the system's specification. If the manager has worked on a similar project in the past, this can be helpful in estimating the costs of the new project. The project itself, of course, is only one component of the estimation. The human cost of labor or effort is another vital component of the cost estimation. Again, organizational and personal history can be helpful -- how long has the organization taken to complete similar efforts in the past? However, scheduling and availability of staff members can either add or reduce to the cost by lengthening or extending the timetable. The expertise of various staff members involved in the project will also be influential in determining its final costs, as more expert staff will need less orientation time. (Peters, 2006, p.2) A client may also demand a certain delivery time, and this may also add to the cost of the project in terms of overtime hours logged, or the need to poll other available human and technical resources from other areas. Only then, finally, after the project expenditure and the cost of the personnel effort are calculated, can an overall budget estimate of the project itself can be tabulated.