Define project cost terms and tell how each is used in estimating project cost.


  1. Define project cost terms and tell how each is used in estimating project cost.
  2. Compare and contrast analogous, parametric, and bottom-up methods of estimating costs.
  3. Describe issues in project cost estimating and how to deal with each.
  4. Describe the earned value management terms.

Sample paper

Project Management

Question 1

The budget refers to an estimate of funds set to be used to complete a particular project. The activity in a project is the work needed to achieve a desired result. By assessing the activity level, project managers are able to estimate project costs. The contract is an essential part of a project. It represents the agreement which also explains the terms of payment. Project costs are included in the contract. The work breakdown structure presents a precise organization of project activities with timelines to be achieved. It helps in estimating project costs since managers are able to look at project milestones and deliverables.

Question 2

Analogous estimating method involves use of a similar past project to project the costs or duration of a current project. Analogous estimating is applied when there is little or no information concerning the current project (Kloppenborg, 2015). The method requires past experience in a similar project and judgment in coming up with an estimate. Analogous estimation is not an accurate method in cost estimation since it involves analyzing past costs of similar projects. Parametric estimating involves a thorough analysis of the relationship between variables to estimate costs or duration of a particular project. In essences, parametric estimation involves establishing the unit costs of performing particular tasks and the total units required for the entire project. Just like analogous estimation method, parametric estimation may partially rely on historical information and then backed with statistical data. Bottom-up estimation method involves analyzing the costs of each particular activities with great detail and then estimating the entire project cost (Kloppenborg, 2015).

From the above, analogous estimation is the easiest cost estimation technique. The method can be applied even with limited information about a project. Parametric estimation is similar to analogous estimation in that there is use of historical information. However, the difference lies in the fact that parametric estimation employs statistical data which makes it more accurate. In the bottom-up estimation method, statistical data is also used to estimate cost. The main difference with other methods is that the entire project work is subdivided into smallest possible work activities and the cost of each estimated. Finally, all this is aggregated to determine the cost of the entire project.

Question 3

There are a number of issues that may arise in project cost estimation. The first issue is the time value of money. Time value of money arises in project cost estimation since the value of one dollar today may not be the same some few years to come. In order to deal with this, managers should learn how to discount future streams of income, and hence make better decisions. International currency fluctuations is another issue which impacts international projects. Project cost estimations in international projects depend on prevailing exchange rates. These rates keeps on changing due to international currency fluctuations. Project managers should be aware of prevailing economic conditions in different countries. Another issue is in determining the life cycle cost of a project. The life cycle cost of a project is calculated by analyzing the total costs of the project in its entire lifespan, and including the disposal value of the product. Another issue is in causes of variation of various project estimates. This can be solved by using project buffers (Kloppenborg, 2015).

The planned value (PV) is also known as budgeted cost of work scheduled. It gives the approved budget for a particular project that is scheduled for completion at a later date. The planned value of a project should equal the budget at completion, which is what was the amount budgeted for the entire task. Earned value (EV) gives the approved budget of a particular project that is already complete. Earned value is also known as the budgeted cost of work performed. The actual cost (AC) is the actual costs incurred for a particular project that is already complete (Anderson et al., 2007).


Anderson, S. D. et al., (2007). Guidance for cost estimation and management for highway            projects during planning, programming, and preconstruction. Washington, D.C:     Transportation Research

Kloppenborg, T. J. (2015). Contemporary project management: Organize, plan, perform.             Stamford, CT: Cengage Learning.


Appreciative inquiry/Project Management

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