One of the first tasks when managing a project is the cost estimate. A cost estimate

must be accurate, transparent and reliable. These factors are particularly important for a small business because its resources are limited. Using standard techniques give accurate results, and their reliability is high as long as the inputs used for the calculations are exact. When you calculate project costs using effective cost-estimating techniques, you will be able to assign corresponding resources and develop schedules to manage the project the project successfully. (1)

Four tools are used to estimate the costs of the project in project management:

1. Analogous Estimating

2. Parametric Estimating

3. Three Point Estimating

4. Bottom up Estimating

Analogous estimating differentiates from others because of being the least accurate

method, and bottom-up because of being the most accurate method.

1. This technique is used to estimate the project cost when very little detail about the

   project is available. The primary benefits of this technique are its lower cost and quick results. (2) In Analogous estimation, the cost of the project is estimated by comparing it with similar projects previously completed by your organization.

2. Like Analogous Estimating, Parametric Estimation uses historical data to calculate cost estimates, however, it also utilizes statistical data. It takes variables from similar

projects and applies them to the current project. The accuracy of this process is better

than the analogous estimation because it employs more than one data set. 3. This technique is used to reduce the biases and uncertainties in estimating

assumptions. Instead of finding one estimate, three estimates are determined and then their average is taken to reduce the uncertainties, risks, and biases. PERT is the most commonly used method in three-point estimation technique. (2) Three PERT estimates are as follows:

Most Likely Cost (Cm): Considers a normal case and everything goes as usual. Pessimistic Cost (Cp): Considers the worst case and assumes that almost everything goes wrong.
Optimistic Cost (Co): Considers the best case and assumes that everything goes better than planned.

4. The Bottom-up Estimating technique is also known as the “definitive technique”. (2) This estimation technique is the most accurate, time-consuming, and costly technique for estimating the cost. In this technique, the cost of each single activity is determined with the greatest level of detail at the bottom level and then rolls up to calculate the total project cost. Here, the total project work is broken down into the smallest work components.

Reference:

1. http://smallbusiness.chron.com/project-management-cost-estimating-techniques- 40508.html

2. https://pmstudycircle.com/2012/06/4-tools-to-estimate-costs-in-the-project- management/