If you don’t get project cost estimation correctly, all your hard work will be for nothing. The project cost estimation helps you figure out how much to charge a client. If you don’t get it right, you’ll be stuck with a project that doesn’t work and wastes team resources.
It’s not easy to guess how much a project will cost. It means looking at similar projects that your organization has worked on in the past, how much time was spent on them, and whether or not they were profitable.
This blog talks about:
- What is Project Cost Estimation?
- Three project estimation methods
- Why and how estimations don’t work
What is project cost estimation?
A project manager determines how much a project will cost by taking time, resources, and other things into account.
Pre-project cost estimates are made. The project manager uses this number to give a client an accurate quote and determine if there are enough resources to finish the project on time and within budget. Because of this, figuring out how much a project will cost is a key part of planning it. It’s one of the most important factors in figuring out if an agency can do the job and if the project can make istanbul escort money.
Why do project managers hate expense estimates?
It’s hard to make estimates. Besides math. To estimate a project’s cost accurately, you need historical data, accurate information about the availability of resources, and real-time tracking.
How to estimate project costs?
Managers must think about people, time, and equipment when figuring out how much a project will cost.
Separate the projected costs into two groups.
- Direct costs: Expenses and resources associated with the project. These charges cover all the steps and tasks of the project.
- Indirect costs are those you can’t put your finger on. Some of these costs might be for software or other resources your agency repeatedly pays for.
After figuring out the costs that can be seen, think about the ones that can’t be seen.
Assumptions and “what-if” costs give your estimate a margin of safety. These costs will make up for gaps in earlier estimates, such as extra meetings with clients or hiring an outside contractor.
Three ways for Project Cost Estimation
There are easy ways to estimate the project’s cost. Let’s look at three methods.
Bottom-up estimate
Bottom-up estimation is a way to figure out how much a project will cost by figuring out how much each task will cost.
With the bottom-up method, you gather information from past projects and ask your team how different long tasks will take.
Start with making a list of all the tasks for the project. Then, figure out how long each job will take.
3-point forecast
Use the three-point estimate if you don’t have a lot of time.
The idea behind this method is PART (PERT). This process takes time, costs money, and has due dates. It asks if the plan will work out well, OK, or not so well.
A client hires your company to put together a branding kit. When you did similar jobs in the past, you charged clients around $6,500 and made a good profit.
Then, you estimate the costs of past projects using three different scenarios: a pessimistic one, an optimistic one, and a likely one. Your expected cost is $6,500, but you also need to figure out how much it will cost in two other situations. The worst-case cost could be $9,500, and the best-case cost could be $5,000.
Choose one of these to figure out how much the project will cost. Add them all up and divide by three to get an estimate of the middle number.
For this strategy, estimating means using data from past projects. It could change how much you think the whole project will cost if you don’t.
The parameter estimation
The data from past projects are used in parameter estimation to make new estimates more accurate.
Figure out how long your team will need to do each task. Then, look at what your organization has done similarly in the past.
With these records, you can guess how long each task will take. Compare the number of billable hours for each job to the hourly rate of each team member.
This method is different from bottom-up estimating because it takes into account the billable rates of the designer and writer. As the costs of resources go up, so will estimates of the final cost.
What goes wrong with Project Cost Estimation and how to fix them?
Project Cost Estimations are often wrong because they are based on more than just simple math. A Project Cost Estimation can be off by a lot of things, like a lack of staff or a change in the scope of work.
But there are some things you can do to make sure your estimates of how much a project will cost are as accurate as possible:
Start small and don’t guess costs too far ahead of time.
If you’re just starting to determine how much something will cost, it might not be the best idea to guess how much it will cost 6 or 12 months from now. When the project work starts, your costs for staffing and running the business will likely go up.
This means that your estimate of how much it will cost could be out of date and cost your agency more than you expect. It might make the most sense to start with the projects you have to do immediately.
Narrow the project’s goals.
A project’s broad scope doesn’t usually help cost estimates. If you try to determine how much a project will cost without having a clear idea of what it will do, you might end up with a wrong idea of how much each task will cost and how much
If you don’t have a detailed scope, you can get a more accurate cost estimate by looking at a similar scope from a previous project. You can also use our project scope template to better manage and plan for scope creeps on your upcoming projects.
Don’t exhaust your team.
If a cost estimate is based on your team working at 90% capacity for six weeks straight, you can quickly run into problems. If a member of the team gets sick or goes on vacation, it will throw off the whole estimate.
And if your estimation is based on them working at such a high level, there’s a chance you’ll wear them out during the project. To be safe, keep your utilization capacity at around 80% when figuring out how much a project will cost.
Now that you know how to estimate the cost of a project and what to do and what not to do let’s look at how the right tools can help.
Wrapping up
You need a lot more than a calculator and a spreadsheet to get a good idea of how much a project will cost.
Project managers need to think about how busy their teams are, how much they think the project will cost, and if any unexpected costs have come up in the past. Project managers can predict how much a project will cost based on work they’ve already done for other clients by using historical project data to figure out how much it will cost.
