2.2.2.1P Estimating Costs

(2.2.2.1P.P1)

Now that you have estimated effort and duration, you are in a position to estimate costs. You can actually estimate many of the non-labor costs earlier, but you cannot estimate resource costs until you understand the labor resources needed to achieve the duration estimates.  

 

Role

Estimating Cost

1

Project Manager

Estimate labor costs

The cost of labor is derived by looking at the effort hours of each resource and multiplying by the hourly cost of each resource. In many companies, estimated labor costs for internal employees are assumed to be zero, since their costs are already accounted for in a departmental budget. This does not imply there is no cost. Rather, it assumes there are no incremental costs over and above what the company is already paying for.

If you are using external contract or consulting resources, their costs always need to be estimated and budgeted. you have to determine the type of external resources you need and the hourly rate of the resources. Then you would multiply the hourly rate of each resource by the number of hours each resource will be assigned to the project. If you are not sure of the actual resource cost, you need to make some assumptions based on the general type of resource. For instance, there may be a standard hourly cost for accounting contractors or programming contractors. If you are not sure whether your project will include external resources, you can make some basic staffing assumptions and document them.

2

Project Manager

Estimate non-labor costs

Non-labor expenses include all costs not directly related to salary and contractor costs. Some of these costs, like training and team-building expenses, are related to people. However, they are still considered non-labor since they are not related to employee salary or contractor hours. Note as well that in some companies, labor costs only include employees and do not include contractor costs. Each project manager must be aware of the accounting rules in his own company to make sure the labor and non-labor costs are allocated correctly.

Generally, however, non-labor costs include:

  • Hardware and software

  • Travel expenses

  • Training

  • Team building

  • Facilities

  • Equipment

  • Material and supplies

3

Project Manager

Document all assumptions

You will never know all the details of a project. Therefore, it is important to document all the assumptions you are making along with the estimate.