Cost Estimate

Cost estimates predict the likeliest costs of resources required for completing the project, and cost estimation is updated throughout the life of project. At the project’s outset, proof-of – concept estimates are done to inform the decision that will need to be taken as to whether to allow the project to proceed. One such estimate is the "order of magnitude" estimate. These can have an accuracy of 50 to 100 percent. As the project progresses, more accurate estimates are required. From company to company, the specified range of values for a given estimate may vary as well as the name used to describe it. For example, "conceptual estimates" are those that have an accu­racy of ±30 to 50 percent. "Preliminary estimates" are those with an accuracy of ±20 to 30 percent. "Definitive estimates" are those with an accuracy of ±15 to 20 percent. Finally, the "control esti­mate," with an accuracy of ±10 to 15 percent, is calculated. As there remains considerable uncertainty at its outset about what work is actually to be done in the project, there is little point in spend­ing more time than necessary to produce an estimate of a higher range of accuracy than required at each particular stage of the project.

Types of estimates are depending on the accuracy required for the cost estimate and amount of effort, there are several methods described in Michel (2005). Several types are in common use, which we now discuss.