Project Management: Foundations to Practice · Cost Management and Earned Value Management
Cost Estimating Techniques
The right estimating technique depends entirely on how much detail is actually known at the time. This chapter covers the three main approaches and how estimates naturally mature as planning progresses.
Project cost estimates generally use one of three techniques, each trading off accuracy against the effort required to produce it. Analogous estimating uses the actual cost of a similar past project as a starting point, fast but imprecise, since it relies on the current project genuinely resembling the historical one closely enough for the comparison to be meaningful, an assumption that is not always true even when a project looks superficially similar.
Key Takeaways
- Analogous estimating borrows from a similar past project: fast but imprecise if the comparison isn't genuinely close.
- Parametric estimating scales a known unit cost (like cost per square foot) by the current project's specific quantity.
- Bottom-up estimating sums individual work package estimates: the most accurate but also the most time-consuming approach.
- Estimates naturally mature from analogous to parametric to bottom-up as planning detail increases, narrowing the range of uncertainty.