Key Cost Estimating Factors

A great deal of overlap exists between the "time" estimating topics covered earlier in this chapter (and in the PMBOK) and the "cost" estimating and budgeting topics you need to know for the exam. The key difference is that cost estimating is focused on the cost of the resources needed by the project, whereas activity duration estimating is focused on the time duration of the project's work activities.

Another key point to remember is that you need to have the activity duration estimates to do cost estimating. In total, three main factors affect project cost estimating:

• Activity duration

• Resource rates

• Risk

With a cost estimate for each work activity, a time-phased budget or cost baseline can be developed to measure and monitor project cost performance.

Memorize the estimate accuracy levels listed in Table 4.12.

Table 4.12. Estimate Accuracy Levels

Level	Accuracy Range	Generally Used During
Order of magnitude	25% to +75%	Initiating phase
Budget	10% to +25%	Planning phase
Definitive	5% to +10%	Planning phase

Although a chart of accounts is more of a controlling technique, it needs to be set up during planning. You should understand that a chart of accounts is a list of accounting codes assigned to the project's work packages that are used to monitor project costs.

One of the key cost estimating factors not explicitly mentioned by the PMBOK but one you need to be aware of for the exam is the "common pitfalls" factor with project cost estimating. Although most of these pitfalls are intuitive, a quick review of them will be helpful to your exam preparation:

• Basing cost estimates on poorly defined work definitions (such as scope statement and WBS)

• Basing cost estimates on a poorly developed schedule

• Not utilizing estimating techniques properly

• Not accounting for inflation, overhead costs, or all lifecycle costs

Although obvious to those who "sell" project work to clients, there is a difference between a project's costs and a project's price.