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Cost Estimating Techniques in Project Management Essay

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Updated: Feb 15th, 2021

What would you do if you were the project manager?

Being the project manager, I would definitely try to accomplish the project. Even though the cost estimates exceed top management’s estimates, it does not mean that the project should be abandoned. I would carefully check the data obtained and tried to reduce costs, if possible. If it was impossible, I would still present the estimates to top management. Of course, I would try to estimate whether the project could be profitable for the company. I would also be ready to present my estimation technique to justify the estimate’s relevance. If I were sure the project was profitable, I would try to persuade the top management that the project is manageable and profitable. However, if I were sure that the project was not worth it, I would share my doubts and provide some data to support my claim. Admittedly, top management is the body that has a larger picture and possesses all the necessary data to estimate profitability of any project. However, I would still try to express my opinion as it can be crucial for the company as well as my career.

Was top management acting correctly in developing an estimate?

Apparently, top management used analogous or parametric model estimation techniques when coming up with the cost of the project (Larson & Clifford 149). However, these techniques can hardly be used when developing a product at a lower price, which can be regarded as a new product. The techniques used can be appropriate when working on projects which are similar to the ones accomplished previously. Thus, when developing similar products or introducing a product to a market which has similar features with the market where the product is effectively sold, this estimation technique can be appropriate. However, the project in question is associated with quite many stages which are different from the ones used in previous projects. There are odds that the projects will not be carried out at the price estimated. Actually, the case in question is a good illustration of this assumption as initial estimation based on the approaches mentioned above appeared to be inadequate. These techniques are too approximate for the project in question. The contemporary business world is developing at a great pace and relying on accomplished projects can lead to a variety of mistakes and losses.

What estimating techniques should be used for a mission critical project such as this?

I believe Bottom UP Analysis should be used as it leads to accurate estimation of the project’s cost. The technique includes decomposition of the project into small and manageable projects whose estimation is easy to carry out. Clearly, this technique requires more time compared to analogous or parametric model techniques. However, it is also more accurate. It does not rely on previous estimations, which helps avoid certain bias and inaccuracy. It is also accurate as it is quite clear what steps are necessary. Furthermore, each small project can be estimated by a knowledgeable employee or even a team. Therefore, this estimation technique is associated with a great deal of accuracy. This technique is also beneficial as it is easy to assess and modify it if necessary. It is easy to come up with ideas concerning costs reduction as it is clear which projects can be accomplished at lower costs. It is also evident if the sum total cannot be altered. These two qualities, i.e. accuracy and clarity, make the estimation technique the most appropriate for such projects as the one under consideration.

Works Cited

Larson, Eric and Clifford Gray. Project Management: The Managerial Process. Boston: McGraw-Hill/Irwin, 2010. Print.

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IvyPanda. 2021. "Cost Estimating Techniques in Project Management." February 15, 2021. https://ivypanda.com/essays/cost-estimating-techniques-in-project-management/.

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IvyPanda. (2021) 'Cost Estimating Techniques in Project Management'. 15 February.

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