Estimating Costs and Budgeting

Cost Estimation in Project Management: Tools for Building Accurate Budgets

I find that cost estimation and budgeting are crucial aspects of project management, and they often present some of the most significant challenges. In my experience, one of the primary difficulties is to obtain accurate cost estimates early in the project lifecycle. This is due to many unknowns still exist. Without a solid understanding of the potential costs, projects can quickly go over budget, leading to challenging conversations with stakeholders and customers. This can be a potential project failure.

One challenge I faced early on was underestimating the costs of external resources, such as contractors and materials. In one project, the cost of a specialized contractor was significantly higher than anticipated, which caused a budget overrun. To avoid this in future projects, I’ve adopted a more thorough approach to cost estimation. I now use three-point estimating, where I gather optimistic, pessimistic, and most likely estimates for each cost item. This approach provides a more realistic range of potential costs and helps account for uncertainty.

Another challenge is managing stakeholder expectations around budget constraints. In one project, stakeholders were pushing for additional features that would have significantly increased the project’s costs. To manage this, I implemented a formal change management process that required stakeholders to evaluate the cost implications of any new requests. This helped prioritize the most critical features and ensured that we stayed within budget.

A real-life solution I have since implemented for cost control is the use of earned value management (EVM). EVM allows me to track project performance in terms of both cost and schedule, providing a clear picture of whether the project is on track or over budget. In one project, I used EVM to identify that we were spending more than planned on a particular phase. By recognizing this early, I was able to reallocate resources and adjust the budget before the issue became more severe

Cost estimation and budgeting require a combination of careful planning, realistic forecasting, and ongoing monitoring. By using techniques like three-point estimating and earned value management, I am able to create accurate budgets and manage costs more effectively throughout the project lifecycle while minimizing impact to the project.

? https://lnkd.in/ebXthk2 to connect with me

My Superpower : https://lnkd.in/gh35RhYN

My Recommendations : https://lnkd.in/gMrNe7DK

Hit the ?? on my profile to get a notification for all my new posts.

I am a member of #lbfalumni and #skyhightower tribe.