In our day to day lives we are faced with numerous projects to accomplish. Some of the projects are offline, like construction of a building, and some of the projects are online, for example, designing of a website or development of a software.
No matter what the nature of a project is, every project requires some cost estimations. Cost estimations help us know the resources required and the related costs required to complete an undertaken project, which helps us to make sure that we achieve the desired project objectives within the given time-period and budget.
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Cost estimating is a well-developed theory. By knowing about the basics of cost estimation and using standard estimation techniques, we can improve our forecasts. There are a number of ‘project cost estimating tools’ and here we will be discussing about the top 3 tools:
- Analogous Estimating
Analogous Estimating is one of the basic Project Cost Estimating Tool. It is used to get estimations regarding the project cost when very little information about the project is available with us. Therefore, we cannot say that this technique provides very reliable estimation. The main benefits of this technique can be its lower cost and quicker results.
According to this tool, the cost of the project is estimated by making its comparison with similar projects previously completed by our organization. This technique of estimating is also called ‘top-down estimating’. It can be considered as the fastest technique to estimate cost but is least accurate.
- Parametric Estimating
Parametric estimation also uses historical data to calculate cost estimates, but along with it, it also makes use of statistical data. It takes up variables from similar projects and then those variables are applied to the current project. The accuracy of this tool is better than the analogous estimation because it makes use of more than one set of data.
- Bottom Up Estimating
Also known as the “definitive technique”, this tool is the most accurate tool to estimate the project costs. It is a very lengthy, time-consuming, and costly technique. According to this tool, the cost of each individual activity is found out with the greatest level of information at the bottom level and then it goes up to calculate the total project cost.
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Here, the total work is broken down into the smallest work components. Cost of each component is estimated and then, in the end, it is combined to determine the project’s cost estimate. As this tool is really accurate the chances of cost escalation under this technique are close to zero.