Subject: Software Engineering

Topic: Matrics for Process & Projects

Difficulty: High

Cost estimation models are mathematical algorithms/methods used to estimate the costs of a product or project. The results of the models are typically necessary to obtain approval to proceed, and are factored into business plans, budgets, and other financial planning and tracking mechanisms.

These algorithms were originally performed manually but now are almost universally computerized. They may be standardized (available in published texts or purchased commercially) or proprietary, depending on the type of business, product, or project in question. Simple models may use standard spreadsheet products.

Models typically function through the input of parameters that describe the attributes of the product or project in question, and possibly physical resource requirements. The model then provides as output various resources requirements in cost and time. Some models concentrate only on estimating project costs.

1.Factor estimating

There are several methods of factor estimating with increasing accuracy, all used in situations where the scope of a project is not yet complete and the preparation of a detailed estimate would be too time-consuming (and of course too expensive).

2.Parametric estimating

Parametric estimating entails the analysis of cost, programmatic and technical data to identify cost drivers and develop cost models. The approach essentially correlates cost and manpower information with parameters describing the item to be costed.

3.Equipment factored estimating

An equipment factored estimate is produced by taking the cost of individual types of process equipment, and multiplying it by an "installation factor" to arrive at the total costs. The installation factor, or total installed cost (TIC) factor, includes subcontracted costs, associated direct labor costs and materials needed for installation of equipment.

4.Lang method

Its basis is the equipment prices free at site, of which it’s best to have quotations. The method differentiates for solids, liquids and mixed solids/liquids.

5.Detailed estimating

Sometimes called bottom-up estimating. With this method, detailed estimates are made at relatively low levels in the work breakdown structure (WBS), typically at work-package or task level.