Project managers must take cost estimates seriously if they want to complete software projects within budget constraints. After developing a good resource requirements list, project managers and their software development teams must develop several estimates of the costs for these resources. There are several different tools and techniques available for accomplishing good cost estimation.
Software development project managers should prepare several types of cost estimates for most projects. Three basic types of estimates include a rough order of magnitude or ROM, a budgetary estimate, and a definitive estimate.
A rough order of magnitude estimate provides an estimate of what a project will cost. A rough order of magnitude estimate can also be referred to as a ballpark estimate, a guesstimate, a swag, or a broad gauge. This type of estimate is done at the early stages of a software development project, or even before a project is officially started. Project managers and upper level management use this type of estimate to help make project selection decisions. The time frame for this type of estimate is usually three or more years prior to completion of the software project. A rough order of magnitude estimate's accuracy is typically twenty-five percent below or seventy-five percent above the actual final cost of the project. In some cases, software development project managers will automatically double estimates for software development projects because of a history of cost overruns on information technology based projects.
A budgetary estimate is used to allocate money into an organization's budget. Many organizations develop budgets at least two years into the future. Budgetary estimates are made one to two years prior to the software project completion. The accuracy of budgetary estimates is typically ten percent below to twenty-five percent above the actual final cost of the project.
A definitive estimate provides an accurate estimate of project costs. Definitive estimates are used for making many purchasing decisions for which accurate estimates are required and for estimating final software development project costs. As an example, if a software development project involves the purchase of 50 copies of a compiler suite from an outside provider in the next 2 months, a definitive estimate would be required to aid in evaluating supplier proposals and allocating the funds to pay the chosen supplier. Definitive estimates are made one year or less prior to the software development project completion.
Planning phase involves completion of the project scope plan, WBS, schedule of the project plan, cost and procurement of the project plan. According to the research study, the organizations need to spend a certain amount of time on planning and initiating phase. These plans address the knowledge areas. In this phase, we need to estimate the cost and obtain resources for the project. The team members need to reassess the plan at each and every phase of the project.
The book contains the most effective methods of completing a project within its budget, schedule, and the resource constraints. It briefly explains all the stage process of every major project goes through. From creating the plan to monitoring and evaluation, there is a lot for project managers and supervisors to learn.
The 'Standard' of the 'Standard'. Combination of project cost forecasts with earned value management. Journal of Construction Engineering & Management, 958-966. Sitnikov, C. (2012). The 'Standard'.
the company’s part is determined by an estimate of how much money will be lost.
Estimated Project Timeline (ROM): Phases Case 1 (Time in weeks) Case 2 (Time in weeks) Project initiation 1 1 Planning 2 2 Monitoring and Controlling 4 5 Execution 4 5 Project Closure 1 2 Total Cost 12 15 Projected Benefits: Case 1- • Creates new jobs- initially 120 and once the facility is at full operating capacity, 400 • Provides Organizational consolation • Additional growth
...arations needed during implementation of the project while the final phase is meant for overall evaluation.
It is observed that finding out the technique that can be utilized to manage the cost lifecycle of the project. There is a high probability that cost management are conducted better result can be obtained.
Budgets Budgeting must be tied to the mission of the organization. The leadership can look at past trends through accounting and see trends of where revenue comes from and from what sources. Leadership can then approve a budget that can be justified by the past and that will take the organization to the destination that the mission promises. Tweaks along the way will help keep things on course. Just as a ship moves toward a destination, storms and errors can move it off course.
This could be more expensive comparing to any other procurement types. The budget of the project is fixed at the start. This procurement type is not suitable because the total cost cannot be decided until the completion of the project. Quality could be high in comparing to other procurement types but it is not possible to afford too much for quality in this project.
The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred. The Budget Process Budgetary planning may differ between organizations. Single-period budgets and rolling budgets have methodologies that provide advantages and disadvantages that may make one budget time frame better than another. A single period may require less time in planning during a fiscal year, but is less accurate than a rolling budget that is continuously planned on a repetitive basis. In either case, budgets are planned in advance in order for a company to operate profitably, and less so to have "actual results equal budgeted results."
To test the financial feasibility and plan acceptability, there must be information on the magnitude, and share of estimated project cost that are reimbursable. This information can be derived from cost allocation. Also where cost sharing is required in the multipurpose planning process cost allocation can be applied. Cost allocation also provides information necessary for allocating the real expenditures ensuring that the cost account are maintained in line with plan formulation and allocation principles during the subsequent c...
Accurately forecasting the cost of projects is vital to the survival of any business or organization. Cost estimators develop the cost information that business owners or managers, professional design team members, and construction contractors need to make budgetary and feasibility determinations. From an Owner's perspective the cost estimate may be used to determine the project scope or whether the project should proceed. According to the U.S. Department of Labor there were about 198,000 cost estimators in 1994. That of which 58% work in the construction industry, 17% employed in manufacturing industries, and the remaining 25% elsewhere. From this we could conclude that a great deal of cost estimation lies in the construction industry, where multi-million dollar contracts are formed after a thorough cost estimation.
These estimates aim to determine the total costs and come into the wider field of cost planning. The use of this type of estimating would be brought about where a stringent requirement for cost control has been requested by the client. These estimates attempt to utilise ideas supported by Dysert (2006) that where uncertainty is present, a range of figures to represent the works rather than committing to a single point figure, would leave the client more informed about the scale of the project.
Estimates form the basis of tender comparison, so it should be as accurate as possible, if deficient the award settlement becomes arduous (Odusami & Onukwube, 2008). Accurate cost estimate for projects are tremendously essential to both the clients and the contractor. It provides the basis for the contractor to submit the tender and allows the parties to highlight the final cost of the project at an early stage. Essentially it is used for planning the entire project and helps during the execution phase (Akintoye and Fitzgerald, 2000). It has been pointed out that the building cost of the project usually differs from the estimated final cost and this is due to the variations (Oberlender and Trost,
Every project manager is faced with the problem of how to estimate what it will take to accomplish the project's objectives. Estimating the time, cost, and resource is never simple, and the higher the stakes become, the more anxiety the estimate is. In order for the project planning, scheduling and controlling are to be effective; project manager must employ the methodology to accurately estimate time, cost and resources (Gray, 2005). One of the tools that help project managers to lie out the requirement tasks for a project is to construct a Work Breakdown Structure (WBS). WBS defines tasks that can be completed, facilitating resource allocation, and assigning responsibilities. This paper will outline the WBS and the time-phased budget for the Care+ project, which will be implemented for The Managed Care Department of the hospital. Based on the outlined WBS, this paper discusses the data sets used by Learning Team A to determine the budget, the factors that could influence the estimate, and the micro approach the team takes to estimate the budget. Finally, this paper also identifies and prioritizes major constraints that are associated with this project.