As a project manager, it’s impossible to underestimate the importance of cost estimation when it comes to successfully completing a project. Before even approaching a project, it’s important to get a handle on cost estimation to help keep you on task and in touch with project constraints and limitations.
Why Cost Estimation in Project Management so Important?
There are three things conventional wisdom says project managers must adhere to to be successful: time, scope, and budget. Project managers who can’t stay on budget will quickly find themselves struggling in a field defined by the art of managing resource constraints. After all, no one wants to work with someone who’s constantly going over budget.
One surefire way to make sure your projects actually stay on-budget? Get really good at estimating how much things cost. Cost estimation helps you achieve what you say you’re going to achieve within the financial constraints you’re given by executives and stakeholders.
As one of the defining features of successful progress, accurate project cost estimation must take a front seat when it comes to setting up a project’s parameters. If you want to understand more about the effect cost estimation has on meeting client expectations and guiding a project toward success, keep the following things in mind.
3 Tips for Better Project Cost Estimation
Always Think of the Budget
When starting a new project, the best way to keep the importance of cost estimation in mind is to never lose sight of the project’s original budget. While the numbers may change due to constraints, changes in the project structure or the simple reality of changing climate demands, keep the initial figure in your head and try to stick to it.
When money-based problems come up, figure them in separately without instantly tacking them onto the primary figure. This will help when you come to the end of the project and have to tally up final costs with your original cost estimation.
Chart Out Each Cost—and Keep Updating
Keep a detailed account of all the spending you do, whether it’s budgeted for or not. This works especially well for projects with a longer time frame, which often involve a greater amount of financial uncertainty. When it comes to project cost estimation, try to use one of the following four trusted methods and stick to it. Knowing and being able to trust your methodologies is vital when accurately projecting and measuring costs.
4 Methods for Cost Estimation
- For a project that comes with very few details, try analogous estimating.
- If you’re working on a project that’s similar to one you’ve done in the past, you can use that data in parametric estimation.
- Three-point estimation is a helpful deduction technique if you’ve got some crucial data but not all the information you need
- Bottom-up estimation is considered the gold standard for projects that require a meticulous cataloging of costs, progress and time tracking.
Whichever estimation type you choose, tracking progress with a cloud-based project management software like Planview AdaptiveWork can be a helpful way to keep everything in order.
Time is Money
The most effective project cost estimation occurs from a combination of speculation and data-based charting. When you think about time as money, you’re keeping ahead of the game. The more you can chart down employee’s hours and estimate the total time spent on each leg of a project, the more equipped you’ll be to present a cohesive estimate of costs for this and other projects down the line. Thinking of time as money allows you to turn an indirect cost into a direct cost, thus helping you to form a better estimate of your final budget.
There are certain aspects of project management you can’t come by through shortcuts, but simply require experience and skill. Cost estimation is one of them. Still, it doesn’t hurt to have enterprise project management software to help make the rest of the job easier. Try a live demo of Planview AdaptiveWork today.