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7 - PROJECT COST MANAGEMENT

Analogous cost estimating is generally less costly and less time consuming than other techniques, but it is also
generally less accurate. Analogous cost estimates can be applied to a total project or to segments of a project, in
conjunction with other estimating methods. Analogous estimating is most reliable when the previous projects are
similar in fact and not just in appearance, and the project team members preparing the estimates have the needed
expertise.

7.2.2.3 Parametric Estimating

Parametric estimating uses a statistical relationship between relevant historical data and other variables (e.g.,
square footage in construction) to calculate a cost estimate for project work. This technique can produce higher
levels of accuracy depending upon the sophistication and underlying data built into the model. Parametric cost 7
estimates can be applied to a total project or to segments of a project, in conjunction with other estimating methods.

7.2.2.4 Bottom-up Estimating

Bottom-up estimating is a method of estimating a component of work. The cost of individual work packages or
activities is estimated to the greatest level of specified detail. The detailed cost is then summarized or “rolled up” to
higher levels for subsequent reporting and tracking purposes. The cost and accuracy of bottom-up cost estimating
are typically influenced by the size and complexity of the individual activity or work package.

7.2.2.5 three-Point Estimating

The accuracy of single-point activity cost estimates may be improved by considering estimation uncertainty and
risk and using three estimates to define an approximate range for an activity’s cost:
• Most likely (cM). The cost of the activity, based on realistic effort assessment for the required work and
any predicted expenses.

• optimistic (cO). The activity cost based on analysis of the best-case scenario for the activity.
• Pessimistic (cP). The activity cost based on analysis of the worst-case scenario for the activity.

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