ITECH 7401 Leadership in IT: A Report on Cost Estimation Methods

This report provides an overview of cost estimation in IT project management, emphasizing its importance in project success. It differentiates between estimation and target setting, detailing how cost estimation works through work responsibilities and categorization into recurring and non-recurring costs. The report discusses four key cost estimation techniques: expert opinion, estimation with analogy, parametric estimation, and cost engineering, highlighting the advantages and drawbacks of each. It concludes that effective cost estimation provides a crucial baseline for project management, enabling structured direction and increasing the likelihood of project success. Desklib is a platform where you can find more solved assignments and study tools.

Running head: COST ESTIMATION IN IT PROJECT MANAGEMENT
COST ESTIMATION IN IT PROJECT MANAGEMENT
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COST ESTIMATION IN IT PROJECT MANAGEMENT
COST ESTIMATION IN IT PROJECT MANAGEMENT
Irrespective of the industries and size of the project, there are certain constrains that needs to be
consider before the project is undertaken. Cost estimation is definitely one of the prime
constrains that needs to be address efficiently (Pinto , 2015).
Cost estimation involves the process of making an estimation regarding the cost of labor,
material, infrastructure and the tools that should be incorporated to complete the project
undertaken (Mislick & Nussbaum, 2015).
It is definitely one of the major responsibilities that project management must control with
expertise. It can be considered as a driving force or better to say the impending factor that
decides the future performance of the project (Pinto , 2015). Therefore, it is not difficult to
realize the importance of the implementing proper cost estimation technique for managing a
project with success.

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COST ESTIMATION IN IT PROJECT MANAGEMENT
DIFFERENCE BETWEEN ESTIMATION AND TARGET OR GOAL :
The words estimate is rather confusing and it is easily mistaken with target or goal. Estimation
requires realistic assessment which involves facts related to the work previously conducted, as
well as necessary resources , constrains and the environment closely associated with the project
of interest. Whether Target or Goal can be attributed to the desired outcome or something that is
committed or
promised
beforehand (Chih &
Zwikel , 2015 ).
The author
mentions that after
the work is
completed or result
is obtained the estimation can be compared to the set goal or target to find necessary changes
related to the origins of cost like work resources, workforce so that the modification can be done
effectively. It is important to perform the estimation independently without any reference to the
target and goal for better results. Once the outcome is revealed, it can then be altered by making
necessary changes in the resources to meet the expectation of the set target as perfect as possible,
but not before that.

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COST ESTIMATION IN IT PROJECT MANAGEMENT
HOW COST ESTIMATION WORKS:
Preparing work responsibilities and necessary cost estimation:
At the beginning of cost estimation procedure, the project is divided into smaller modules in
terms of design, engineering, development and fabrication. Various team members under
different work department related to the project meet with the team lead to decide corresponding
team task and an estimated cost to execute the operations (Kerzner & Kerzner ,2017).
The work can be either completely
developmental in nature or something that
follows the existing or off- the-shelf (OTS)
designs. The work based on the
developmental model is usually difficult to
execute as compared to the work based on
OST , as the former requires expertise in
terms of designing, testing and fabrication
and as a result the cost estimation is often full of uncertainty which makes the it much more
difficult to execute.
Estimated cost is categorized into recurring and non recurring cost. Estimation cost can occur
more than once during the project as it is associated with tasks which happens periodically, for
example work related to testing and quality assurance. Non recurring cost is something that
needs one time investment and happens only once in the project execution.

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COST ESTIMATION IN IT PROJECT MANAGEMENT
To ensure better results there should be effective communication between the technical and
financial team in order to better understand the estimation procedure and implement it
successfully.
Cost estimation techniques:
To determine cost estimation four basic techniques are followed: opinion by expert, estimation
with analogy, parametric estimation, and cost engineering (Tofallis , 2015).
Opinion by expert:
An expert opinion is referred to the estimation given by an expert who has an expertise in the
particular field related to the project. However, expert opinion has some drawbacks as well. it is
only useful when the project is in the conceptual phase. Apart from that expert opinion is also
used when the topic of the project is not well defined or something that is unique and no similar
project is conducted before from where ideas and comparison can be drawn to make decision.
Estimation with analogy:
An analogical estimation is prepared by making a thorough review of the cost management
previously adopted in some projects similar in nature. This method can be adopted at any stage
of the project execution (Idri , azzahra & Abran , 2015).
It is possible to assess general venture cost from the cost of a similar project; work bundle cost
can be evaluated from similar bundle cost, practically equivalent to work packages; and errand
cost can be evaluated from assignments that share similar structure.

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COST ESTIMATION IN IT PROJECT MANAGEMENT
When a similar project is compared to evaluate cost estimation there can be difference between
them in terms of time, scale ,location and complexity of the project. To make a successful
estimation it is important to analyze those factors properly. As an example, if a project was
performed 2 years before and a similar project needs to be executed one year from the present
date, cost from the previous project needs to be adjusted for the inflation and price changes that
may have occurred within the span three years.
Parametric estimation:
Parametric estimation is prepared with the help of empirical or mathematical model. Parametric
estimation can be made with or without the help of an analogical project. The analogical project
is usually taken into consideration when there is a need of cost scaling. However when the cost
depends on the system or project parameters like volume , speed, capacity and performance,
independent estimation is always preferred (Yang & Li , 2015).
Cost engineering:
Cost engineering is another important aspect that decides the quality of cost estimation
management. Cost engineering involves the analysis of cost , applied to individual cost
categories related to the project works (Etienne et al. , 2017). The analysis is carried out in
detailed manner to make the estimation more accurate and effective. The analysis follows
bottom–up approach by dividing the project into smaller activities or work modules which is
further narrowed down into different cost categories . Even though the technique provides very
accurate prediction, it is very time consuming which can be thought as a drawback of the
process.

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COST ESTIMATION IN IT PROJECT MANAGEMENT
CONCLUSION:
The cost estimation techniques gives a quantitative analysis of the cost related to the resources
that is needed to complete the projects. It gives an initial overview of the cost requirement that is
important to prepare an rough outline to give the cost management an structured direction. The
effective cost estimation can give any project management the desired success it needs, still it is
hard to execute as the process is full of uncertainty and needs expert insights.
Like any structure cannot exist for long without strong foundation, project management also
needs strong baseline in order to be successful. Cost estimation plays an prime role in creating
that baseline which eventually leads to success of any project in any sector.

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COST ESTIMATION IN IT PROJECT MANAGEMENT
References:
Chih, Y. Y., & Zwikael, O. (2015). Project benefit management: A conceptual framework of
target benefit formulation. International Journal of Project Management, 33(2), 352-362.
Etienne, A., Mirdamadi, S., Mohammadi, M., Malmiry, R. B., Antoine, J. F., Siadat, A., ... &
Martin, P. (2017). Cost engineering for variation management during the product and
process development. International Journal on Interactive Design and Manufacturing
(IJIDeM), 11(2), 289-300.
Idri, A., azzahra Amazal, F., & Abran, A. (2015). Analogy-based software development effort
estimation: A systematic mapping and review. Information and Software Technology, 58,
206-230.
Kerzner, H., & Kerzner, H. R. (2017). Project management: a systems approach to planning,
scheduling, and controlling. John Wiley & Sons.
Mislick, G. K., & Nussbaum, D. A. (2015). Cost estimation: methods and tools. John Wiley &
Sons.
Pinto, J. K. (2015). Project management: achieving competitive advantage. Prentice Hall.
Tofallis, C. (2015). A better measure of relative prediction accuracy for model selection and
model estimation. Journal of the Operational Research Society, 66(8), 1352-1362.

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COST ESTIMATION IN IT PROJECT MANAGEMENT
Yang, J., & Li, H. (2015). Dense, accurate optical flow estimation with piecewise parametric
model. In Proceedings of the IEEE Conference on Computer Vision and Pattern
Recognition (pp. 1019-1027).