1) The figure below shows that the uncertainty of an estimate reduces uncertainty as the project progresses, and the definition of the project scope and risk are improved.
Different estimating techniques that can be used during the life cycle are:
2) Comparative Estimates in which the estimates of cost are compared with a previous similar project. Sometimes they may be adjusted by a board brush scaling factor to accommodate for the different scale of the project. The weakness of this approach is that often two project while appearing superficially similar may be significant different in detail.
3) Bottom up estimates use the detailed work breakdown or product breakdown structure to estimate the cost of each element. The total cost is calculated by combining all the individual cost elements. This can result in a very accurate estimate but sometimes contingency is added to each work package.
4) Parametric Estimating uses key drivers of project cost which have been measured over many project to produce a statistical model of project cost. The key parameters are identified by detailed modelling and comparing data across many projects. It is commonly used in the aerospace industry as shown below.
It’s quite simple. Imagine you are a house builder. Say you normally build 4 bed houses at a cost of £80,000. What would be the comparative estimate for a 5 bed house. It would be about £100,000 build cost. i.e. about £20,000 per bedroom. It’s not a very accurate estimate but in terms of rough budgeting it will do and at least it is based on previous experience.