Define project costs terms and tell how each estimates project costs.
Project cost is the total amount of money needed to fund a project. The project cost can be incurred either directly or indirectly, and the cost is calculated after its completion. According to Brown et al., 2006, project cost includes all the expenditures already made or estimated to be made in the project operation, including the financial obligations and other quantifiable commitments throughout the project's initiation to completion stages. One of the project costs’ terms is resource planning ( Brown et al., 2006). Resource planning is the process of identifying the available resources to a project, including the human and non-human resources. Project managers can identify the gaps in resources and attach a monetary value to the missing resources to estimate the overall project cost through resource planning. Also, resource planning helps the project managers organize the team, hence ruling out any possibilities of resource wastage.
Another project cost term is cost estimating. According to Barbu & Sandu (2020), cost estimating is the process of attaching value to every activity and resource necessary for project completion. During cost estimation, project managers go through the entire project plan and detail every resource required, including the workforce, to get a rough idea of what the entire project can cost. Additional costs can arise during actual project implementation due to price fluctuations that were not considered during cost estimation. Third, cost budgeting is the actual fund allocation for every activity of project implementation. The process gives the actual idea of the project's total cost and allows the project manager to know exactly how much a project cost. Finally, cost control measures cost variances of the predetermined project activities and propose effective actions to maintain minimum costs. Additionally, cost control also involves procedures for monitoring financial expenses and the project’s progress.
Delegate your assignment to our experts and they will do the rest.
Compare and contrast analogous, para metrics, and also Bottom-Up methods of estimating costs.
The three methods of estimating a project's cost have their strengths and weaknesses and are all applicable under different circumstances. The analogous cost estimating technique of a project employs the idea of an analogy, whereby one uses a similar previously completed project to estimate the cost of the current project. For instance, if one is currently dealing with a construction project, he/she can estimate the cost of the current project using a previously completed construction project. On the other hand, the parametric cost estimation method gives a more accurate cost or duration of a project by identifying the duration or unit cost and the total number of units needed for the entire project ( Brown et al. 2006). The method uses the relationship between variables to determine the cost of a project.
Unlike other cost estimation methods, the bottom-up cost estimation technique helps the project managers estimate the cost by considering the lowest possible detail level. Later, these estimates are aggregated to arrive at the summary totals. By estimating the right summary totals, one gets a good opportunity to plan for the entire project. The bottom-up cost estimation technique considers data from various sources such as different people and historical materials and appreciate the time factor of resources, thus giving accurate information. While the bottom-up cost estimation technique takes time, it is the most effective than the other two.
Describe issues in project cost estimating and how to deal with it.
Since project cost estimation is usually not based on real-time data, several concerns occur regarding the estimation methods. One of the issues associated with cost estimation methods is false precision. In some instances, the estimates might be quoted as numbers instead of ranges ( Barbu & Sandu, 2020). When cost estimates are quoted in numbers, certain values that fall between whole values are not quantified, making the estimate incorrect. Therefore, the estimate values should be given in a range instead of exact values. Second, issues arise from false analogies. For instance, project cost estimated from historical data is considered more reliable than other methods such as expert judgment. This, however, may not be necessarily true since even in historical data, an error might have been documented.
Earned value management terms
Earned value management is the systematic approach of measuring project performance by finding the project's variance when comparing the work planned and work done. This systematic approach is used in the project schedule, cost control, and forecasting projects. In essence, earned value management terms state that the value of work is equivalent to the amount of money initially budgeted to complete the project. Therefore, the projects with a relatively high initial budget are considered more valuable and vice versa. Additionally, in earned value management terms, certain measures are considered critical, which include; the budget at completion, which is the total cost of a project, budget cost for work scheduled, the budget cost for work performed, and the actual cost for work performed ( Brown et al. 2006). These measures are critical in project valuation and affect the project's earned value management directly or indirectly .
References
Barbu, A. M., & Sandu, M. (2020). The importance and necessity of cost management of construction projects. Urbanism. Arhitectura. Constructi on, 11 (2), 215-224. https://eds-a-ebscohostcom.libraryresources.columbiasouthern.edu/eds/viewarticle/render?data=dGJyMPPp44rp2%2fdV0%2bnjisfk5Ie46bFRsKevUbCk63nn5Kx94um%2bSa2nr0ewprBJnqevUq%2bouEu2ls5lpOrweezp33vy3%2b2G59q7UbOtsUizrrJOpOnnfLva4n7h2%2bF%2b4aOuSOGpq0y3rbRF4Kuyeqvct0vj3LRLtqq1eq628Xzho%2fRF8dvxi%2bvd8EivnOp57N27feyc4nq71%2fGGpOrff7u3zD7f5LtJsqu1TLWqt06k3O2K69fyVeTr6oTy2%2faM&vid=8&sid=ddfcecfc-00c3-4976-b54b-f93ef63847b0@sdc-v-sessmgr01
Brown, G. G., Grose, R. T., & Koyak, R. A. (2006). Estimating Total Program Cost of a Long-Term, High-Technology, High-Risk Project with Task Durations and Costs That May Increase Over Time. Military Operations Research , 41-62. https://eds-aebscohost.com.libraryresources.columbiasouthern.edu/eds/viewarticle/render?data=dGJyMPPp44rp2%2fdV0%2bnjisfk5Ie46bFRsKevUbCk63nn5Kx94um%2bSa2nr0ewprBJnqevUq%2bouEu2ls5lpOrweezp33vy3%2b2G59q7UbOtsUizrrJOpOnnfLva4n7h2%2bF%2b4aOuSOGpq0y3rbRF4Kuyeqvct0vj3LRLtqq1eq628Xzho%2fRF8dvxi%2bvd8EivnOp57N27feyc4nq72%2bKL6OnwPvLX5VW%2fxKR57LPjfPHg8YqsqrFRsqeuTbOc5Ifw49%2bMu9zzhOrq45Dy&vid=4&sid=ddfcecfc-00c3-4976-b54b-f93ef63847b0@sdc-v-sessmgr01
