W12_Ocharlie_Estimate Methods

Problem definition

Cost Estimating Methods

Cost estimating is the predictive process used to quantify, cost and price the resources required by the scope of investment option, activity or project. Depending on the stage of the project, three main methods are used to estimate costs. What are the features of the cost estimating methods?

Feasible alternatives

Engineering build up method

Analogy method

Parametric method

Develop the outcome of each alternative

1 Analogy

The analogy uses actual costs from a similar program with adjustments to account for differences between the requirement of the existing and the new one.

 

2 Engineering Build-Up Method

The engineering build-up method sometimes called bottom-up method uses the WBS to build costs from the lowest level of details and summing up to get the overall cost. Because of the high level of detail each step of the work flow should be identified, measured, and tracked and the result for each outcome should be summed to make the estimate.

 

3 Parametric Method

A parametric model is a mathematical representation of of cost relationships that provide a logical and predictable correlation between the physical or functional characteristics of a plant (or process system) and its resultant cost. It relies on collection and analysis of data from previous projects to arrive at a cost estimating relationship (CER)

 Selection of criteria

The attribute for the selection criteria is;

·         Strength

·         Weakness

·         Application

 Analysis of alternatives

 

Selection of preferred alternative

The estimate development process is a logical one. The method to be adopted depends on the amount of available detail for project scope.  Engineering Build-up method is employed for detailed or definitive type estimate, because it relies on the availability of detailed design and scope information. The Analogy and Parametric Methods are used for conceptual estimates because they do not require detailed information. Any or all of the three methods can be used in the preliminary estimate depending on the amount of specific information that is available.

Performance monitoring and evaluation

An estimate is a prediction of the expected final cost of a proposed project and is therefore associated with uncertainty and probability of underruning or overrunning the predicted cost. This uncertainty necessitates the need for validation of the estimate by looking for errors and cross-checks on various cost drivers. Equally independent cost estimate should be compared with the predicted estimate and the difference reconciled.

References

Dysert, L. R. Estimating, Skills & Knowledge of Cost Engineering (5^th ed.), (PP 9.1.-9.34) WV, AACE International

Developing a Point Estimate, GAO Cost Estimating and Assessment Guide (February 2005.), (PP. 107-123) Washington, DC, retrieved from http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP .

Humphreys, G. C. (2011). Estimate Development, Project Management Using Earned Value (2^nd ed.), (PP. 401-417) CA, Humphreys & Associates Inc.

Project Management Estimating Tools & Techniques, Project Management Guide retrieved from http://www.projectmanagementguru.com/estimating.html.

Giammalvo P. D. Activity Based Cost Management, AACE Certification Preparatory Course-Day 5