A project's budget
A project's budget is a crucial consideration for any organization or business owner attempting to undertake it. The project's implementation and success depend on an estimated budget, which must be projected. The process of creating a comprehensive document that lists all the resources that will be anticipated to be needed during the implementation process together with their monetary value is known as cost estimating. An understanding of the project's consumption is necessary for the project manager and his or her team.
A study of uncertainty
Performing an in-depth analysis of a situation or activity is a strategy used to gain a better understanding of it and gather enough information. Uncertainty analysis aims at investigating the project's possible outcomes. The review assesses the probable results of the project with regard to the inevitable uncertainties and compares it with the predicted results at the absence of risks.
Risk
A risk is an uncertain event which is capable of either benefiting or affecting the project upon its occurrence.
Uncertainty
Uncertainty is a state when future events are unclear or unknown. In this case, uncertainty represents situations in which the consequences, extent, or probable outcome of the condition are unknown.
Group Process
Group process refers to teamwork in the organization and defines how employees associate with each other to get things done.
Estimating Techniques
The analogous estimating method uses an analogy approach to approximate cost of a project. It employs the use details from a past similar project to produce estimates of the current project (Kim & Reinschmidt, 2011). This method is preferably used when the project in question has limited information. The strategy is, however, less accurate as compared to other estimating methods.
Parametric method is another accurate technique of estimating cost and duration. The method utilizes the relationship between specific variables to estimate cost. In essence, it explores the available unit cost and the one required to complete the project. The values and variables are acquired from outside sources.
On the other hand, "bottom-up" estimating strategy is the most accurate approach to calculating the cost. The technique gives a chance to every member who is part of the team to participate in the estimation process, making it more efficient.
The three methods share some similarities. They can all be used to estimate both cost and duration of the project (Kim & Reinschmidt, 2011). Apart from the bottom-up approach, the other two use past results to determine values. The analogous method uses previous and similar project information, while parametric estimation uses expert judgments and decisions (Kim & Reinschmidt, 2011). The methods are different in how accurate they are. Bottom-up method is the most precise strategy, while analogous approach is the least reliable. Bottom-up estimating makes use of current and more accurate information to predict the cost and duration, while both analogous and parametric methods use analogies and variables respectively.
Issues in Project Cost Estimation
Project managers might face dilemmas long after the project implementation is initiated. The project team can overestimate the cost of the project, and when the project is at the execution period, the manager might realize that a significant sum of money will remain after completion. Such a situation mostly happens when the team is trying to avoid overspending and commit a large contingency budget in the estimation process as a result.
Another issue that can arise is underestimating. The project team might estimate the cost of the project below the ideal budget that can deliver outcomes. Once the implementation is initiated, and the team realizes that the budget is not enough to complete the project, it becomes a challenge to decide whether to turn to the sponsors or abandon the project uncompleted. The best way to deal with these shortcomings in project cost estimation is training and skilling both project managers and their teams before the evaluation begins. The project team members need to be informed how the different types of estimation methods operate. Secondly, the team must employ the right tools and strategies while predicting costs. Each tool selected must be suitable for a particular project. Lastly, the organization and its management should exhibit a mature approach to the issues. Instead of castigating the outcome, the agency must be able to understand why the problem arose.
Earned Value Management Terms
Forecasting is the analysis of data obtained either from an active project, past similar project, or experts' data to provide an insight into the project's outcome. The managers use project forecasting to predict profitable margins (Torp & Klakegg, 2016).
Costs are monetary values of the resources that will be used in the project.
Value engineering is the process of examining new or existing resources with the aim of coming up with the most cost-effective resources for the project, which is usually done during the design phase.
Project management is a general term that describes the process of combining knowledge, skills, resources, and strategies in order to initiate and complete a project.
Project controls are tools used to gather, manage, and analyze data with the purpose of understanding and influencing the cost and time deliverables of a project. Managers use information provided by project controls in decision making during project implementation (Torp & Klakegg, 2016).
References
Kim, B., & Reinschmidt, K. (2011). Combination of project cost forecasts in earned value management. Journal of Construction Engineering and Management, 137(11), 958-966.
Torp, O., & Klakegg, O. (2016). Challenges in cost estimation under uncertainty—a case study of the decommissioning of Barsebäck nuclear power plant. Administrative Sciences, 6(4), 14.
