Estimating Costs

The real language of business is money, no matter what political system you live or work in. As a Project Manager, Quality Analyst or Business Analyst you will not need to be an accountant, BUT you will need a good working knowledge of costs.

Three types of fixed costs are:
Fixed costs remain constant, regardless of changes in activity level. As activity levels of the project rise and fall, fixed costs remain constant in total.
Variable costs fluctuate in direct proportion to changes in levels of project activity. As output changes, the number of costs used increases and decreases proportionately.
Overhead is simply defined as all cost of a project that are not fixed and variable costs. You incur overhead costs but they are not directly traceable to your project.

Estimating Methods:

1.Work Breakdown Structure (WBS).
You can use your WBS (older post) to estimate project duration and cost, it does help you make sure that you create estimates for each activity.

2.Walk through method.
This is a great method when there is no historical information (new project) or when your project manager or project team has little experience with your project subject matter. Use a flowchart (older post) to document your thoughts as you walk through your project.

3.The Delphi method.
Select participants considered to be subject matter experts then send questionnaires confidentially and ask them to answer questions confidentially. Continue this process until you obtain a consensus opinion for your topic, this method is time consuming so beware.

4.Costs/Hours method.
This estimating technique is particularly useful for organizations with engineered (validated) tasks that occur often.

Ratios are a straightforward method that relies on proportions.

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