Three project cost estimation methods

A schedule is to plan the project from the perspective of time, while a cost estimate is to plan the project from the perspective of cost. The cost here should be understood as an abstract concept, which can be work hours, materials or personnel.

Cost estimation is an estimation and plan for the cost required to complete the project, and is an important part of the project plan. To implement cost control, we must first estimate the cost. Ideally, the cost for completing a task can be estimated based on historical standards. However, for many industries, it is almost impossible to compare previous activities with reality due to varied projects and plans. Fees can only be estimated based on historical standards. In addition, whether the wage structure of employees will change in the next few years and how the raw material costs will rise in the next few years should be considered in large and time-consuming projects, whether the business foundation and management fee will change throughout the life cycle of the project. Therefore, the cost estimation is obviously carried out in an environment where high reliability cannot be predicted. In the project management process, in order to make the best use of time, cost and resources within the scope of work, many cost estimation methods have been developed to get better estimates. Here we will briefly introduce the following types.

1. Experience EvaluationAlgorithm

The person who makes the estimation should have special knowledge and rich experience, and then propose an approximate number accordingly. This method is the most primitive method. It is just an approximate guess, but it cannot be called an estimation. It can quickly come up with a project with a rough number, but the detailed estimation of the requirements obviously cannot meet the requirements.

2. Factor Estimation

This is a relatively scientific traditional estimation method. It predicts the future based on the past and uses mathematical knowledge. The basic method is to use the scale and cost diagram ., The line on the graph shows the relationship between scale and cost. The points on the graph are described based on the data of similar projects in the past. The line on these points reflects the basic relationship between scale and cost. This is a straight line, but it may also be a curve. The cost includes different components, such as materials, labor, and freight. These curves can all be different. After the project scale is known, you can use these lines to find the approximate numbers of different components of the cost.

It should be noted that there is a "baseline year" for these points to eliminate the impact of inflation. The points on the graph should be adjusted numbers. For example, if the year 1980 is used as the benchmark year, the numbers of other years are adjusted based on the year 1980, and then the dot line can be drawn. After the project scale is determined, find the corresponding point from the online, but this point is based on the number of 1980, and needs to be adjusted to the current year, which is the estimated cost. In addition, if the project cycle is long, the possible inflation and material price increases in the next few years should also be taken into account.

The premise of this cost estimation is that there are materials from similar projects in the past, and such materials should be comparable on the same basis.

3. comprehensive and detailed estimation based on WBS

That is to say, the WBS method is used to segment project tasks reasonably to a level that can be confirmed, such as a certain material, a certain device, and a certain activity unit. Then estimate the cost of each WBS element. The prerequisites or prerequisites for using this method are:

① Make a complete limitation on the project requirements.

② Formulate the logical steps necessary to complete the task.

③ Compile the WBS table.

The complete limits of project requirements should include work reports, specifications, and overall schedules. A work report is a descriptive description of the work required for the implementation of the project. It should identify the objectives that must be achieved. This information should also be included in the case of financial restrictions. The specifications are based on the price of work hours, equipment, and materials. It should enable project personnel and users to understand the basis of work hours, equipment and material valuation. The overall schedule should clarify the main phases and demarcation points of project implementation, including long-term ordering, prototype testing, design review meetings, and any other key decision points. If possible, the overall schedule used to guide the cost estimation should contain the calendar time of the project start and end.

Once the project requirements are identified, the logical steps necessary to complete the task should be developed. In modern large and complex projects, the concept map is usually used to show the logic of project tasks.ProgramAnd use this as the basis for drawing the CPM or PERT graph and the WBS table.

The simplest way to compile a WBS table is based on the scatter chart. Each activity in the pie chart is considered as a task, on which the task is classified.

After the schedule and WBS tables are completed, you can estimate the cost. In large projects, the cost estimation results should be presented in the following report form:

① Detailed cost estimation for each WBS element. There should also be a cost Summary table for each sub-job and sub-job, as well as a cumulative report for the project and the entire plan.

② The planned working hours curve of each department. If the Department's working hours curve contains "Peaks" and "troughs", several changes should be made to the schedule to ensure a balanced working hours.

③ Monthly hourly fee summary. So that when project costs must be reduced, the project owner can use this table and the working hours curve for a balance study.

④ Annual fee distribution table. This table is divided by WBS elements, indicating the annual (or quarterly) cost. This table is essentially a summary of the project cash flows for each activity.

⑤ Raw materials and expenditure prediction, which indicates the supplier's supply time, payment method, obligation, and cash flow for the payment of raw materials.

Using this method to estimate the cost requires a lot of computing, and the workload is large. Therefore, it takes a certain amount of time and money to calculate the cost. However, this method is highly accurate. The reports made using this method are not only about cost estimation, but also can be used as the basis for project control. The top management can use these reports to select and approve projects and evaluate the priority of projects. The above describes three methods of cost estimation. In addition, several methods can be combined in practice. For example, a detailed estimate of the main parts of the project, and other parts are estimated based on past experience or estimation by factors.