Chapter 9 Cost Estimation and Budgeting

1
Chapter 9Cost Estimation and Budgeting
2
Problems with Estimation

• Project bid (over-estimated, under-estimated)
• Buy in (illegal)
• Cost Escalation

3
Typical costs of computer project

• Salaries
• Fringe Benefits
• Software
• Hardware
• Training/Travel
• Indirect Costs

4
Reasons for Cost Escalation (p.270)

• Uncertainty and lack of accurate information
• Changes in design or requirements
• Economic and social variables in environment
• Work inefficiency, poor communication, and lack
  of control
• Ego involvement of the estimator
• Kind of project contract
• Obs. up to 20 is relatively normal.

5
Cost Estimation Process

• Classify Work Tasks and Costs
• Industry Standards
• Expert Opinion
• Analogy Estimate
• Parametric Estimate (mathematical)
• used with Analogy to develop
• mathematical formula

6
Budget Terms

• Cost Engineering detailed cost analysis
• Contingency Amount added to offset
  uncertainties, unknowns.
• Will budget be prepared top-down or bottom-up ?