Cost Estimation Techniques — Glossary · Certified Professional in Precision Engineering Cost Estimation

Activity #

Based Costing (ABC): A cost estimation technique that assigns costs to products or services based on the activities required to produce them. This method differs from traditional costing methods, which often allocate costs based on a single cost driver, such as direct labor hours or machine hours. ABC provides a more accurate cost picture by identifying and quantifying the specific activities that drive costs.

Bottom #

Up Estimating: A cost estimation technique that involves estimating the costs of individual components or tasks and then summing them up to arrive at the total cost. This approach is often used when detailed information about the project is available, and it is particularly useful for complex, one-of-a-kind projects.

Cost Estimation #

The process of estimating the costs associated with a project or product. This includes direct costs, such as labor and materials, as well as indirect costs, such as overhead and profit. Accurate cost estimation is critical to the success of any project, as it helps organizations to make informed decisions about resource allocation and pricing.

Cost Estimating Relationships (CERs) #

Mathematical relationships between various factors that influence the cost of a project or product. CERs can be used to predict costs based on historical data and are often used in parametric cost estimation.

Direct Costs #

Costs that can be directly attributed to a specific project or product, such as labor, materials, and equipment. Direct costs are generally easier to estimate than indirect costs, as they are based on specific, tangible items.

Estimate at Completion (EAC) #

The estimated total cost of a project or product when it is completed. This includes both direct and indirect costs and is used to track the progress of a project and to ensure that it is staying within budget.

Estimate to Complete (ETC) #

The estimated cost to complete the remaining work on a project or product. This is used to determine the total cost of the project and to ensure that it is staying within budget.

Five #

Point Estimate: A cost estimation technique that uses a range of estimates to account for uncertainty. This technique involves estimating the best-case, worst-case, and most likely scenarios, as well as two additional estimates that represent a range of possible outcomes.

Fixed Costs #

Costs that do not change with the level of activity, such as rent or insurance. Fixed costs are often easier to estimate than variable costs, as they are not affected by changes in production volume.

Indirect Costs #

Costs that cannot be directly attributed to a specific project or product, such as overhead and profit. Indirect costs are often more difficult to estimate than direct costs, as they are based on a variety of factors, such as the number of employees, the size of the facility, and the level of support required.

Life #

Cycle Costing (LCC): A cost estimation technique that considers the total cost of a product or system over its entire life, from design and development through production, operation, and disposal. LCC takes into account all direct and indirect costs associated with a product or system, including those that may not be immediately apparent, such as maintenance, training, and environmental impacts.

Parametric Estimating #

A cost estimation technique that uses historical data and statistical relationships to predict the costs of a project or product. This approach is often used when detailed information about the project is not available, and it is particularly useful for projects that are similar to those that have been completed in the past.

Pareto Analysis #

A cost estimation technique that involves identifying and prioritizing the most significant cost drivers in a project or product. This technique is based on the Pareto Principle, which states that 80% of the effects come from 20% of the causes. By focusing on the most significant cost drivers, organizations can often achieve substantial cost savings.

Range Estimating #

A cost estimation technique that provides a range of possible costs for a project or product, based on historical data, expert judgment, or other factors. This approach is often used when there is a high degree of uncertainty about the project or product, and it is useful for setting budgets and for making high-level decisions about resource allocation.

Rough Order of Magnitude (ROM) Estimate #

A preliminary cost estimate that provides a rough estimate of the costs associated with a project or product. ROM estimates are often used in the early stages of a project, when detailed information is not yet available, and they are typically accurate within a range of -25% to +75%.

Should #

Cost Estimating: A cost estimation technique that compares the estimated cost of a project or product to a target cost. This approach is often used to identify opportunities for cost savings and to ensure that the project or product is competitive in the market.

Top #

Down Estimating: A cost estimation technique that involves estimating the costs of a project or product based on overall objectives, constraints, and assumptions. This approach is often used when detailed information about the project is not available, and it is particularly useful for high-level planning and decision-making.

Variable Costs #

Costs that change with the level of activity, such as materials or direct labor. Variable costs are often more difficult to estimate than fixed costs, as they are affected by changes in production volume.

WBS Dictionary #

A document that provides detailed descriptions of the elements in a Work Breakdown Structure (WBS). The WBS dictionary includes information about the scope, schedule, and resources required for each element, as well as any assumptions or constraints that apply. The WBS dictionary is an important tool for cost estimation, as it provides detailed information about the work that needs to be done and the resources required to do it.

In conclusion, the glossary terms provided above are critical for understanding… #

Each term has been explained in detail, along with related terms and practical applications. Understanding these terms is essential for anyone involved in cost estimation, as they provide a common language and framework for discussing and estimating project and product costs. By mastering these terms and techniques, organizations can improve their cost estimation accuracy, make better-informed decisions, and ultimately achieve greater success in their projects and products.