Challenges to Project Cost Estimation

Question: Discuss about the Challenges to Project Cost Estimation. Answer: Project managers should identify every cost connected with the project actions and make the entire budget while estimating costs. In essence, the project manager should aim at developing a real budget through accurate cost estimation. In the contemporary project management field, managers encounter various challenges when it comes to approximating the project costs (Dumrak, 2016). First, getting the neutral point between approximating too high, and low costs. Usually, most top executives who are stakeholders would like to get approximate cost right away, in that the project commences in time. It is, therefore, difficult to estimate costs accurately due to short period available. Secondly, as a project manager, it is challenging to find out all the necessary resources alongside with their budget in every project step during the project execution process. Some of the costs can be tangible or intangible. The intangible costs are not limited to loss of activities, and interruption especi ally in the manufacturing sector. The tangible costs include infrastructure, staffing, maintenance, among others (Dumrak, 2016). While ensuring that cost estimation is accurate, there are techniques and tools that aid in project cost estimation. The summary below shows particular cost techniques/tools, their description, pros/cons, their application as well as accuracy. Technique/Tools description Accuracy/ Merits and Demerits Parametric estimating A more error free estimate is created through analyzing the historical data and statistical data. (Project Cost Estimating Tools Techniques, n.d.) Error free and fast approximation. It is highly recommended to if alike projects have been undertaken at earlier time because a formula is applied on historical data. Three-point estimates The technique gives three situations such as pessimistic, optimistic and the most likely to get an estimate cost range. Relatively accurate because it takes into consideration uncertainties of the costs. It is established on the previous and current knowledge and so, it can be subjective. More work is done because the entire three estimates should be given (Project Cost Estimating Tools Techniques, n.d.) Project management estimating software Involves utilizing simulations, statistical processing tools, and software applications (Project Cost Estimating Tools Techniques, n.d.). Multiple approximations can be done, fast, and error free. Accuracy depends entirely on the accuration of the data used. It should be known that estimates are made based on the data collected at a particular period of time. Therefore, a WBS to be used should contain every particular task for best accuracy. References Dumrak, J. (2016).PROJ6002: Project Planning and Budgeting,module 4 notes [Powerpoint slides]. Retrieved from https://laureate-au.blackboard.com/ Project Cost Estimating Tools Techniques.(n.d.). Retrieved from https://www.project- management-skills.com/project-cost-estimating.html