How to Estimate Project Cost

A defensible budget starts with a sound estimate. Combine techniques for a number you can stand behind.

For the full concept, see Cost Estimation.

Steps

1. Break down the work so you cost pieces, not the whole at once.
2. Choose techniques: analogous (fast), parametric (data-driven), bottom-up (accurate).
3. Use three-point estimates on uncertain items: (O + 4M + P) ÷ 6.
4. Add direct and indirect costs, then contingency for known risks.
5. Add management reserve for unknown-unknowns, controlled by management.
6. Document assumptions so the estimate can be challenged and refined.

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