Cost Estimation Models and Methodologies
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I need help gathering info about various cost estimation models and methodologies at both the macro and micro levels of the work breakdown structure.
Discuss the relationship of the life cycle cost analysis to the various financial statements used by firms.
Write a report to the supply chain team that explains the three basic concepts that are used for estimating the cost of ownership for a single option or in comparing multiple options. Because you are a respected member of the finance department, it would also be best if you discussed the relationship between these cost estimation concepts and a company's financial statements in the report.
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The expert discusses the relationship of the life cycle cost analysis to the various financial statements used by firms. The cost estimation models and methodologies are determined.
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Cost Estimation Models and Methodologies
There are various methods that a project manager can use to estimate cost in macro and micro level of the breakdown structure in a project management. The detailed description is as follow:
Analogous Cost Estimation:
In this cost estimation method, the project cost is estimated through comparing the current product with earlier similar project. In this method, manager uses historical data and information of similar project or product and compares it with the estimated rough cost of the project within the industry. The main advantage of this methodology is that in this, manager can estimate the cost on actual experience. It can support in identifying actual cost of the project in real business circumstances. This method also has some limitations such as to create effective comparison similar projects must be existed (Ghodous, Kuntz & Loureiro, 2006). At the same time, change in the environment should also be considered.
Parametric Cost Estimation:
In this cost estimation method, managers fix some technical parameters for the project in order to estimate the actual cost. Technical parameters such as weight, size, part count etc. are some technical parameters that help managers to estimate the cost by using statistical methods. This is a more accurate cost estimation technique because it calculates the cost through developing the relationship between different variables of project or product. This model is usually fast and easy to ...
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