Cost Estimating

Project managers must take cost estimates seriously if they want to complete software projects within budget constraints. After developing a good resource requirements list, project managers and their software development teams must develop several estimates of the costs for these resources. There are several different tools and techniques available for accomplishing good cost estimation. Software development project managers should prepare several types of cost estimates for most projects. Three basic types of estimates include a rough order of magnitude or ROM, a budgetary estimate, and a definitive estimate. A rough order of magnitude estimate provides an estimate of what a project will cost. A rough order of magnitude estimate can also be referred to as a ballpark estimate, a guesstimate, a swag, or a broad gauge. This type of estimate is done at the early stages of a software development project, or even before a project is officially started. Project managers and upper level management use this type of estimate to help make project selection decisions. The time frame for this type of estimate is usually three or more years prior to completion of the software project. A rough order of magnitude estimate's accuracy is typically twenty-five percent below or seventy-five percent above the actual final cost of the project. In some cases, software development project managers will automatically double estimates for software development projects because of a history of cost overruns on information technology based projects. A budgetary estimate is used to allocate money into an organization's budget. Many organizations develop budgets at least two years into the future. Budgetary estimates are made one to two years prior to the software project completion. The accuracy of budgetary estimates is typically ten percent below to twenty-five percent above the actual final cost of the project. A definitive estimate provides an accurate estimate of project