How do I estimate the costs of a project? Technological change requires a certain amount of organization. First, it is essential that you choose the solution to be implemented according to your goals. Then, the main components must be determined: software packages, processes, organizational changes, hardware acquisitions, infrastructures, integrations. Once you have defined your needs, goals and the components of your project, you can proceed with a cost estimate.

1 — Cost estimate: determine deliverables

When you start a project, you must select the deliverables that will be produced. It is prudent to break up a project into deliverables that do not stretch over a long period of time. It is more difficult to estimate a large work block than several small ones. In addition, working over a shorter period of time makes it easier to plan and monitor the project.

For each of the selected deliverables, we must determine the cost driver (s) with the most impact and associate the relevant effort metrics. It is important to understand what types of resources will be required to achieve each of the deliverables. The portions of the estimated efforts to be made by each of the types of resources are then analyzed. Finally, you should also find out the hourly rates for each resource.

Calculating project costs requires good planning. It's best not to do it at the last minute to prepare it, but also not to do it alone. Who should you call on? To experts (who will ideally be part of theproject team). Involve these experts for each component of the solution, according to their strengths. They can help you put numbers on your deliverables. Project teams stick to an estimate when they have participated in its preparation. They are also less likely to doubt its realism.

2 — How do you estimate the costs of a project?

In forecasting project costs, a certain level of contingency must be applied. Since an estimate is a calculation based on what we know, costs can vary according to events and changes. It is suggested to apply a contingency percentage for each of the components evaluated in the estimate. It's better to work this way rather than using a percentage for all components. This ensures that the individual risks of each component are better taken into account.

However, the credibility of an estimate depends as much on its precision and accuracy as on consensus. Consensus must be built between the members of the expert group who prepared the assessment and the project proponent. This consensus is one of the bases for the commitment between the project team and its promoter. In the context of a project involving third parties, the consensus reached establishes the basis for the contractual agreement.

It often happens that the cost anticipated in the calculation is higher than expected. In this case, don't rush to reduce your pricing or calculation because the total amount seems too high or because it doesn't fit all. If you've done your calculations rigorously and are confident in your approach, back your planned amount in the face of criticism. You may be able to narrow the scope of the project either or change its approach. You may be able to successfully spread the project over a longer period of time.

3 — How to analyze the accuracy of the cost assessment?

Validation of an estimate can be done by comparing it to others that are prepared independently. If possible, have more than one cost estimate for your project prepared simultaneously by independent teams. You can also compare your forecast to the actual costs of another project that is comparable to yours and that has been successfully completed.

After this analysis, you will be able to find out the differences between the evaluations and to make the necessary corrections. It is therefore important to keep track of past project costs. You can use this information in preparing and validating cost estimates for a new project.

Your estimates should be prepared and documented in sufficient detail to be able to effectively manage potential change requests. It will be easier to assess the impact of a change in scope if the assumptions that support them are clearly stated. A detailed calculation of the deliverables also makes the preparation of the project plan easier.

In summary, it is relatively easy to prepare good project cost estimates. Underestimates are, on the other hand, extremely harmful. It is therefore justifiable to devote the time required and to invest significant efforts in order to prepare quality estimates.