Can you create a reliable cost estimate without knowing the full scope of the project?

Progressive elaboration is a key concept in the discipline of project management. Projects are always evolving and often require a detailed project manager to revisit baselines and modify them with additional information as it becomes available. This idea is closely tied to a planning technique known as rolling wave planning. Rolling wave planning is an iterative technique in which the work to be accomplished in the near term is planned in detail, while the work in the future is planned at a higher level (Project Management Institute, 2013, pg. 152).

During the planning phase of a project, it is not uncommon to have very little information about the details of the project that need cost estimation for budgeting purposes. This is when more of an analogous estimating method can be used, relying on previous projects and lessons learned documents. As information becomes available later in the project, estimates can be revisited and calculated with a higher degree of accuracy. Richard Westney supports this idea when he writes, “Cost projections can be provided as the design develops. In this capacity, estimates function as early warning systems for management. With the information in hand, managers are equipped to reduce scope and associated costs or take steps to make additional funds available” (Westney, 1997, pg. 4). 

The introduction of scoring and tracking attributes to estimated figures can help add a more stringent practice around this process. For example, a score of 10 and a tracking attribute of ‘validated’ would ensure the information provided to create the estimate is accurate and has been vetted by a subject matter expert. Conversely, a score of 3 and a tracking attribute of ‘previous project’ may flag an estimated value, so it gets a more in-depth review because the current value is based on previous project information and was not validated for the current project scope. The scores and attributes can be used to generate a report showing estimated values that need additional attention – perhaps all estimates that scored lower than a 7. This information also helps to foster communication during the estimating and budgeting process. In the situation where the complete scope is not yet known, a review of estimated costs may lead to redesign and scope reduction when presented based on score and tracking attributes.

A reliable cost estimate can be provided if the information is accurate and reviewed with the project team often.  If managed properly, the budget can be reliable without the scope being completely defined and can also prevent the use of contingency reserves.

 

References

Project Management Institute. (2013) A Guide to the Project Management Body of Knowledge (5th edition) Newton Square, PA, USA: PMI, 2013. 

Westney, R. E. (1997). Engineer’s Cost Handbook: Tools for Managing Project Costs. New York, NY, USA: CRC Press. Retrieved from http://www.ebrary.com

 

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