Cost estimation in project management is the process of forecasting the cost and other resources needed to complete a project within a defined scope. Cost estimation accounts for each element required for the project and calculates a total amount that determines a project’s budget.

Cost can be the driving force or an impeding factor in determining the future of a project. Therefore, cost estimating is important for a project to survive in future. Thus, one can easily spot the need for applying thorough cost estimating processes and techniques to ensure that a project can be viable.

Being able to make accurate cost estimates is key to delivering a solid project plan. Cost estimating utilizes many techniques that translate the project scope into deliverables and develop an approximation of costs of the resources needed to complete project activities.

Cost estimating input includes formed deliverable oriented work packages (usually in the form of a well-defined Work Breakdown Structure), historical data, chart of accounts, risks, duration of activities, resources and unit rates of resources. Based on this input cost estimating utilizes estimating techniques and tools to produce an estimation of the costs of each project deliverable. Estimating techniques include analogies with similar projects, parametric modeling, detailed methods that estimate individual activities or work packages and roll up the costs to a project total or bidding analysis. The use of each technique mainly depends on the stage of the project that determines the level of scope definition and the availability of data.

Thus Cost estimating is an essential foundation to project management and should be properly integrated among other cost management activities.