PMBOK(Project Management Body of Knowledge) based Cost

Estimation
What is Cost Management?
Cost management involves knowing the financial and human resources
required for a project. It requires that project managers create a careful
budget and adhere to it so that the project results in as much profit as
possible. Cost management ties into time management, because in order to
ensure that the project is completed on budget, it also has to be completed
on time.

There are three processes involved with PMBOK cost management. The first
process is cost estimating. There are various methods for estimating project
costs. Analogous estimating utilizes similar projects or activities and makes
the estimates for the current project based upon the past results.
Parametric modeling involves formula that has been pre-constructed for
different project attributes. Bottom-up estimating involves estimating the
cost and duration of the smallest activities and then adding them up to
create the estimate for the whole of the project. Lastly, computerized tools
can provide great assistance in estimating cost in projects.
The second process involved with PMBOK cost management strategies is
cost budgeting. The project manager relies upon the data she has gathered
from estimates to set up a realistic project budget. The budget should take
into account all stages of the project life cycle.

The third and final process is cost control. Savvy project managers will
carefully monitor the cost of their projects. This monitoring will include
watching to see where actual cost has varied from estimated cost. The
monitoring will also ensure that if the actual cost is deviating too far from
the estimated or budgeted cost, that the project manager can effect change
to get project spending back on track. Finally, cost control involves
informing the relevant stakeholders of the cost discrepancies when the
actual cost varies too much from the budgeted cost.

Type of
Estimate

When Done

Why Done

How Accurate

Rough Order of
Magnitude

Very Early in
Project Life Cycle

Provides Rough
Cost

+- 25% Error of
Margin

Budgetary

When Project has

started

Gives Investment
Idea

+- 10% Error of
Margin

Definitive

Concluding Phase Provide Details

for Purchase,
Estimate and
Actual Cost

Close to Actual
Cost

Definitive Estimate Plan

# Activity

Project Management

Application Modeling

Module(Module_1_Name) Development

Module(Module_2_Name) Development

Module(Module_3_Name) Development

Durati Cost Per

on in
Hour
Hours

Total
Cost

Module(Module_4_Name) Development

Module Integration

Testing

UI Design

1 Setup and Launch

0
Types of requirements
Written for customers
User requirements
Statements in natural language plus diagrams of the services the system
provides and its operational constraints.
Written as a contract between client and contractor
System requirements
A structured document setting out detailed descriptions of the system
services.
Written for developers
Software specification
A detailed software description which can serve as a basis for a design or
implementation.