Five rules of thumb for estimating costs

As you progress in your project management career, look for rules of thumb in cost estimation that will help you save time and get a better intuitive feel for costs and cost-related risks in your project. As each industry and organization is different and each has its own characteristics, it is not possible to give a long list of rules of thumb what matters and what works in cost estimation in an investment bank will be different from what works in a process industry and from what works in the National Health Service. However, the following five rules of thumb may have some general applicability:

  • The fully loaded cost of an employee is double their base salary.

  • All actual IT costs and timescales will tend to be close to double the estimated costs.

  • Prior probability is the best guide to future probabilities: in other words, the costs, the probabilities of success, and the timescales for the project that you are planning are more likely than not to be the same or close to those in similar previous projects, which means that if you have that historical data, use it in your cost planning rather than accepting any 'but this time it will be different' arguments.

  • In the absence of any evidence to the contrary, assume that projects have at most a 50% chance of delivering on time and on budget and to user expectations.

  • Assume 200 to 220 effective working days per year per full-time employee.

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Definitive Guide to Project Management. The Fast Track to Getting the Job Done on Time and on Budget
The Definitive Guide to Project Management: The fast track to getting the job done on time and on budget (2nd Edition)
ISBN: 0273710974
EAN: 2147483647
Year: 2007
Pages: 217
Authors: Sebastian Nokes
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