Estimating Project Costs
- Estimate and Maximize ROI on your project
- Plan resources and allocate necessary costs to your project activities
- Minimizing the project cost while achieving all of your project goals and objectives
The goal of each and every project is to add value to your organization. At the end the benefits should outweigh the cost or investment in the project.
Whether the project in question is a small (most business professionals deal with multiple small projects at any time) or large undertaking like new product development, improving existing business process or opening a new company branch, the cost estimate is a critical for success. In addition managing the costs throughout the project life cycle is important in order to stick with the plan and make necessary changes and adjustments in the future.
Cost management is important because every company deals with limited resources so it is not only about achieving the objectives but it is also about maximizing the project ROI and minimizing the cost so you can get done as much as possible with your limited budget and resources.
Without accurate cost estimate and planning calculating ROI is impossible and your cost management is based on guesswork which means that there might be many surprises and risks as the project develops.
The better you are in estimating the project cost the higher ROI you will get and you’ll be able to manage the budget effectively. By having a breakdown of all the costs associated with your activities you are able to perform a detailed cost benefit analysis and plan the required funds.
As a project manager you should develop a budget for all stages in your project – from planning and initiation to project control and closing. You budget starts with simple estimate and builds upon additional details until it is reviewed multiple times and reaches the stage where it can be finalized into an official project budget.
The project budget should include the salaries, equipment cost, rent, contractors and vendors, material costs, timeline, travel budget and any other specific costs and expenses including indirect or overhead costs such as administrative costs.
Since every project is a new undertaking there will be many uncertainties involved and many costs cannot be fully allocated. Your judgment and estimate is critical for completing the budget and you should expect a certain level of cost variations from your budget to the actual numbers as the project develops.
The process of cost estimate can be difficult for new and inexperienced project managers because it requires experience but as you work on different projects you’ll get the skills to better plan and estimate your costs.
In general start with a small plan by:
- categorizing the major project requirements
- develop the main cost categories
- start gathering information for the costs in each category
- start putting the numbers together.
As you work step by step get input from other members and your project budget will develop from simple estimate to a full budget plan.