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Model Guideline #13 - Part B

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Project Cost Estimating: Planning Phases

Particulars - 1

Project Cost Estimating in the Planning Phases provides the basis for

• Management decision making
  • I.e. commitment of resources
• Hence, monitoring & maintaining cost control of the project

Particulars - 2

Note: Cost estimating & control in the planning phases takes place on two levels

• The cost of the work during the planning phases
  • I.e. the cost of doing the planning, and
• The cost of the work as a result of the planning
  • I.e. The work of producing the product in the production phases

Particulars - 3

The Order of Magnitude Estimate is really no more than an "educated guess" based on

• A statement of requirements in "Mission" terms, and
• An outline solution

Note from the accuracy ranges suggested that

• Overrun is three times more likely than underrun
• Because of what we don't know - rather than what we do!

Particulars - 4

The Definition Class Estimate is

• Also known as a Feasibility Estimate, Preliminary Investment Decision, and so on

And is based on

• Completion of all of the work known to be necessary
• Including the work of all four project phases
• Based on past records and past experience
• And/or parametric costing
  • Applied to the projects major components and systems

Particulars - 5

In addition, the Definition Class Estimate must allow for

• The facility/system/product/service future working environment
• And any special associated risks

This, and following estimating, should be

• Consistently based on the "most likely cost under normal/typical conditions" of each component of the work, and
• Anticipated variations from these conditions should be factored into the "contingency" allowances
  • See Issacon #1052

Particulars - 6

The Implementation Class Estimate is

• Also known as an Engineering Design Estimate, Design Control Estimate, Cost Plan, and so on

And is based on

• An update of all the work known to be necessary
• Functional. engineering or configuration design
  • Prior to detailing work and specifications
• Partly parametric estimating
  • But preferably on developed unit costing
  • Or other form of more detailed estimating

Particulars - 7

For purposes of the Project Charter

• This estimate must be converted
• To a viable working implementation budget
• Often known as the Baseline Budget

The reason for this "conversion" is because the way costs are estimated is not the same way as they are usually collected

Particulars - 8

To enable project cost monitoring and control

• The Baseline Budget must match the way the costs will be collected

Special vigilance is required in this conversion process

• To ensure that the project's scope has not been changed in this process

Particulars - 9

A cost estimate may, or may not, include an assessment of appropriate contingency allowance However,

• A Baseline Budget must include appropriate contingency allowances, and
• A policy on how that contingency will be managed

Estimates at all stages must include all applicable charges such as

• Overheads, on-costs, carrying charges on borrowed capital, etc.

Definitions and Responsibility

Definitions to be included

• Order of Magnitude Estimate, Definition Class Estimate, Implementation Class Estimate, Parametric Estimating, Baseline Budget

Primary responsibility

• Project Phase Manager

Responsible to

• Project Sponsor