~ By Duncan Haughey
The 'Wideman Comparative Glossary of Common Project Management Terms' describes estimating cost as,
The process of forecasting a future result in terms of cost, based upon information available at the time.
In his book 'How to be a Better Project Manager', Trevor L Young defines estimating as
A decision about how much time and resource are required to carry out a piece of work to acceptable standards of performance.
Many techniques, books and software packages exist to help with estimating project costs. A few simple rules will also help ensure you create an accurate and realistic estimate:
Much data exists about the length of time particular items of work take, especially in the construction industry. Planning Planet has a useful database of production rates.
These are some of the common mistakes that can lead to inaccurate estimates:
Three-point estimating is a technique that helps project managers produce better estimates. Rather than a ballpark estimate, project managers can use three-point estimating to gain a greater degree of control when calculating the end value. The end value is the weighted average of three estimates.
To do three-point estimating for a particular task or activity, ask the resource for their best-case, most likely and worst-case estimates. Add the best-case estimate to four times the most likely, and then the worst-case and divide by six. This technique gives you the estimate (E-value), which is a slightly more balanced view of how long the task or activity is likely to take.
The formula is expressed as:
E = (B + 4 M + W)/6
B = best-case (1/6)
M = most likely (4/6)
W = worst case (1/6)
The Monte Carlo method of estimating project cost is based on the generation of multiple trials to determine the expected value of a random variable. There are commercial packages that run Monte Carlo simulation; however a basic spreadsheet such as Microsoft Excel can be used to run a simulation.
Download the Monte Carlo Simulation in MS Excel