Cost Estimating in Project Management – A Definition
By John Filicetti
Estimating is a critical component of a Project Management Process or methodology. Estimates are used for budgeting, planning, forecasting, resource planning, and staffing. Customers also use estimates to make decisions for changing their business and systems. Cost estimates are quantitative assessments of the likely costs of the resources required to complete project activities. They may be presented in summary or in detail. Costs must be estimated for all resources that will be charged to the project. This includes, but is not limited to, labor, materials, supplies, and special categories such as an inflation allowance or cost reserve.
Cost estimates are generally expressed in units of currency (dollars) in order to facilitate comparisons both within and across projects. Other units such as hours or days may be used when making estimates. In some cases, estimates will have to be provided using multiple units of measure in order to facilitate appropriate management control.
When a project is performed under contract, care should be taken to distinguish cost estimating from pricing. Pricing is a business decision—how much will the performing organization charge for the product or service.
Cost estimating includes identifying and considering various costing alternatives. For example, in most application areas, additional work during the planning phase may have the potential for reducing the cost of the implementing phase. The cost estimating process must consider whether the cost of the additional design work will offset the expected savings.
John F. Filicetti, PMP, MBA
John Filicetti is a Sr. Sales Engineer/PM-PMO-PPM Consultant with a great depth of experience and expertise in enterprise project management, project management methodologies, Project Portfolio Management (PPM), Project Management Offices (PMOs), Governance, process consulting, and business management. John has directed and managed project management teams, created and implemented methodologies and practices, provided project management consulting, created and directed PMOs, and created consulting and professional services in such areas as project portfolio management, Governance, business process re-engineering, network systems integration, application development, infrastructure, and complex environments. John has enjoyed many years as PMO Director for large corporations in the Seattle area and leads the PMO Roundtable discussion group and forum.