4 Types of Cost Estimates

John Spacey, September 01, 2017

A cost estimate is a forecast of costs for a program, project, strategy, plan or activity. The following are common types of cost estimate.

Analogous

Basing a cost estimate on the historical costs incurred by similar initiatives. This is typically done when costs are routine and predictable such as a repair to equipment that is always breaking down.

Bottom Up

Bottom up cost estimates involve analysis to identify things that need to be purchased and tasks that need to be completed. Each task is then separately estimated by appropriate subject matter experts. For example, if a particular task requires an engineer, you'd have an engineer estimate that task. Bottom up estimates may include price quotations from suppliers.

Parametric Estimates

Estimates that are calculated based on parameters. For example, software development that is estimated based on the complexity of requirements using metrics such as story points.

Reference Class Forecasting

Creating or validating estimates based on a database of similar programs, projects or activities. For example, a construction project may look at the actual costs of comparable buildings constructed in the past five years to validate bottom-up estimates.

Overview: Cost Estimates
Type	Business Costs
Definition	A forecast of costs for a program, project, strategy, plan or activity.
Related Concepts	Business Costs » Business Analysis » Subject Matter Experts » Estimate » Requirements » Story Points »