Top 5 challenges to cost estimating
Resource constraints challenge the quality and quantity of data that estimators can obtain. If there is not sufficient time available, estimators may use secondary data sources, manipulated from the original source. Secondary data, especially those that lack thorough documentation, have limited usefulness.
CHALLENGE #1: Quantifying cost impacts
CHALLENGE #2: Resource constraints
CHALLENGE #3: Quality of available data
CHALLENGE #4: A large number of organizations involved
CHALLENGE #5: Consistency
Have you ever experienced any of these common problems?
- Discrepancies in data due to different versions of estimates being used
- Errors, when changes are made to the estimate and all dependencies and repercussions, are not understood, or markup is applied incorrectly
- Cost calculations based on inaccurate quantities cause mistakes
- Data transferring between the estimate and the schedule incorrectly
The Difficulty with Estimating
- Incomplete scope – If you don’t fully understand the requirements, you will inevitably miss important business problems that should be included in the project scope and estimate.
- Inaccurate timeline – Without an understanding of the requirements and an accurate estimate, it is very difficult to establish a reasonable timeline for the project. No one likes to miss their go-live date!
- Resource constraints – If the estimate and timeline are not accurate, you could end up losing valuable resources to another project. Losing a key resource will only increase timeline and budget problems.
- Insufficient funding – If the requirements aren’t defined and the estimate is wrong, you may end up having to ask for money more than once. No one ever wants to do that.
What are the 3 main methods of cost estimating?
1>Expert Judgement Method
Expert judgment is a technique in the project planning process that refers to making a judgment based on skill, expertise, or specialized knowledge in a particular area. The expertise can be based on an individual’s training or educational background, career experience, or knowledge of the product/market.
2> Analogous Estimating Method
Analogous estimating is an estimation technique also referred to as top-down estimating. It involves leveraging the estimators’ experience or historical data from previous projects by adopting observed cost, duration or resource needs to a current project or portions of a project.
3> Parameter estimation
Parameter estimation is a data-driven approach to project cost estimating. It uses past data to give you a more reliable estimate of a project’s overall cost.
First, calculate how much time will be spent on each task on your list. Next, add a cost figure by multiplying the hours of each task with each team member’s hourly rate.
Task Duration × Employee’s Hourly Rate = Task Cost
Once you have calculated the cost for every task, add them all up to reach an estimated total.
Although this method is more time-consuming than a ballpark figure, it’s also more accurate. It works best for projects that have concrete start and endpoints for tasks, like social media management.
Wrong Cost Estimates Solutions
No one likes surprises, especially if it is a project. The costing team makes all efforts to eliminate causes that can negatively impact project performance. However, some imperfections will always remain. The costing team does not have the liberty to work on all aspects to develop a full-proof project cost. Spending too much time on costing has its own risks of missing the proposal submission deadline or submitting exorbitant high costs. Thus losing the order. Hence, the project team should develop a costing model such that:
Attributes of A Good Costing Model
- It can withstand the test of time.
- Suitable for use in varying scenarios.
- Is easy to use by team members.
- Flexible enough to cater to changing needs of the project/customer.
- Applicable to both large and small projects, with minimal or no tailoring.
How to accurately estimate the cost of a project
Step 1: Compile a list of tasks and the resources required to complete them
Step 2: Identify and allocate resources to tasks based on your team’s capacity
Step 3: Estimate the task length to create a project schedule (with some buffer)
Step 4: Calculate the project cost based on a chosen estimation method
Step 5: Use project cost estimating tools to track budgets in real-time