A project can only come together with all the necessary materials and labor, and those materials and labors cost money. Putting together a budget that keeps costs to a minimum, while maximizing the project’s quality and scope can be challenging. This is why proper cost estimation is important. Cost estimation in project management is the process of forecasting the financial and other resources needed to complete a project within a defined scope.
Cost estimation accounts for each element required for the project—from materials to labor—and calculates a total amount that determines a project’s budget. An initial cost estimate can determine whether an organization greenlights a project, and if the project moves forward, the estimate can be a factor in defining the project’s scope. If the cost estimation comes in too high, an organization may decide to pare down the project to fit what they can afford (it is also required to begin securing funding for the project). Once the project is in motion, the cost estimate is used to manage all of its affiliated costs in order to keep the project on budget.
Of the categories, here are some typical elements that a cost estimation will take into account:
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