The project managers' job is to managing money of the project based on project goals and mission with right estimate of cost and budget. Estimating cost to initiate project is selected, more accurate estimates are often needed to raise fund and agree on contractors with vendors in the initiation phase are : Vendors Bids Analysis Bottom up Estimates Activity Based Estimates Estimation cost to compare and Selection project. During conceptual phase when project selection occurs economic factors are an important consideration when choosing between competing project. To compare the simple pay back or internal rate of return between project, an estimate cost of each project is made. Estimate must be accurate so that the amount of time and resources are used to make estimate on the size of project. The method and resources used to estimate the cost of project during the selection phase to create detail estimates in later phases. They rely on the expert judgement of experienced managers who can make accurate estimates . Estimates in the earliest stage of project selection phase are usually made using estimates based from previous project activity and adjusted to meet the project size and complexity. Analogous estimating scales which is an estimate from a similar project to match the current project . Parametric estimating multiplies a standard cost per unit value by the number of units in the project and are affected by two factor like size and location which are measurable factors. If the project are consist of activity that are common to many other project, the average cost are available per unit cost for example the contraction company. Bids from a contractors can be compared to estimate cost. Bottom up estimating determines the cost of each details and aggregates them to determine activity estimates cost. the most accurate and time consuming estimate method is to identify the cost of each materials , labor in the schedule.On project with Low complexity the cost estimates can be done on spreadsheet software while the on the large project need software that manage schedule cost and display cost by activity by category. During project selection and approval stage, rough estimate are used that are usually obtain using analogous and parametric methods. Vendor bids analysis and detail bottom up estimate are used in the initiation phase to estimate project cost. The project management team can make review on several vendors to the RFP to determine estimates cost close to project aspect during selection stage but if the cost estimate by the vendors is too high than is expected then selection decision to make reconsideration is made. Activity based estimates can have cost more than one vendor plus cost for labor and materials from internal sources. Detailed estimates cost are associated with activity and aggregated during the planning phase to create an activity based budget. Fund transfers are arrange to reconcile money spent to money from funding sources in a timely manner. Budget time line is needed because the cost are associated with the activities and each activity has a start date and duration. It is possible to calculate how much money is needed to be spent by a particular date during the project. The money needed to pay for the project is usually transfers into the project account shortly before it is needed and is timed to pay for each start activities without causing delay in activity and the schedule of money transfer is created that should match the need to pay for activities. And the process of match the schedule of transfer with the schedule of activity payment is called reconciliation. If the money is transferred too far in advanced, the organization will lose the opportunity to use the money some where else. Establishing a budget is possible to determine how much money is needed for each group of tasks and for the whole project. Cost of tasks of each group of activities of the project can be estimated by summing the cost of the components of the activity in each group. This process of subtotaling cost by category or activity in each group is called cost aggregation.
Cost estimate is the approximation of the cost of a program, project, or operation. The cost estimate is the product of the cost estimating process. The cost estimate has a single total value and may have identifiable component values. A problem with a cost overrun can be avoided with a credible, reliable, and accurate cost estimate.
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