What Is Project Cost Estimating?
Making a project cost estimation means determining the total amount of required resources to finish a project within a specified time frame. There are various types of resources in the cost estimating process, such as:
- Human (personnel)
The cost estimation process takes into account all the previously mentioned resources (and more, if the project requires it.), and it’s designed to evaluate the costs connected to each and add those costs up to create the final cost estimate. The project cost estimate can be used to determine the project budget and to evaluate whether a specific project will be profitable. Project cost estimating can also help companies decide if they should take on a particular project or not.
If and when a company decides to start working on a project and move it from the initial to the project planning phase, a project cost estimation can be used to define the project's scope.
Cost estimations are also a vital part of the project monitoring and controlling phases in project management. They can be used to help control budgets, manage resources (and the costs associated with them), and ensure the project execution phase goes as smoothly as possible.
Project Cost Management
Project cost management encompasses the entire process of planning resources, estimating costs and costs budgets, and controlling costs. The main purpose of project cost management is to ensure that the expenditures (i.e. costs) don’t go over the pre-approved budget.
4 Essential Steps of project cost management
The 4 main steps of project cost management are:
1. Resource Planning
This includes analyzing the scope and determining all the required resources necessary to finish the project, such as:
- Time to complete tasks
A project resource is anything that can be used to move the project forward and aid in its completion.
You can determine all the resources you’ll need for a project by asking yourself the following questions:
- How many people does this project require?
- What sort of experience do they need to have?
- How many junior, mid-level, and senior personnel will be required to finish the project?
- What tools and equipment will they require for the project?
- How much time will it take to finish each task contained within a larger project scope?
- How much time will it take to finish the project?
2. Cost Estimating
The second step is when you actually estimate the costs of the resources you identified you need in the first phase. There are different ways to do this, and below, we’ve included the 6 most popular.
3. Calculating the Cost Budget
Budgeting costs in project cost management can be viewed in two ways — as a part of the project cost estimation or as part of the larger budget estimation. No matter how you choose to look at it, it will always be the same — a process to determine the sum of all the costs for all of the resources needed to complete a project.
It’s also important to note that the cost budget and the project schedule are deeply intertwined. The longer a project takes to complete, the more money it will cost. That’s why, to keep the original project deadlines, it’s important to track the time of individual tasks and how long it takes to reach certain milestones. Both of those metrics will help the project stay on track and follow original deadlines.
4. Controlling Costs and Tracking Resources
Cost and resource control means tracking and recording them through various project phases (from initial to closing). By keeping a close eye on the costs and resources, you can take decisive action more easily and make adjustments when necessary.
For example, by using time-tracking software, you’ll know exactly how long it takes to complete each task.