How to Estimate Project Costs: A Method for Cost Estimation

The video tutorial discusses the challenges of estimating project costs, emphasizing the 'estimating knife edge' that project managers face between minimizing costs and including contingencies. It introduces the work breakdown structure as a tool for cost estimation and identifies key cost sources like people, real estate, and materials. Six estimating techniques are covered, including order of magnitude and parametric forecasting. The video also suggests using red teams and adding contingencies to improve estimates, and concludes with integrating estimates into cash flow and business cases.

What is the 'estimating knife edge' in project management?

• A technique for managing project resources

• A method for estimating project duration

• A balance between minimizing costs and including contingencies

• A tool for cutting project costs

What is the first step in project cost estimation?

• Understanding the scope of work

• Purchasing materials

• Hiring a project manager

• Creating a budget

Which of the following is a source of cost in project estimation?

• Weather conditions

• Client feedback

• Real estate assets

• Project deadlines

What is reference class forecasting?

• Estimating costs based on past similar projects

• Using a catalogue to find prices

• Creating a prototype to estimate costs

• Asking for bids from contractors

How does parametric forecasting work?

• By creating a detailed work breakdown structure

• By asking for expert opinions

• By multiplying key numbers in a logical way

• By using historical data to predict future costs

What is the purpose of using bids or tenders in cost estimation?

• To calculate the total project duration

• To determine how much people are willing to pay

• To find the cheapest materials

• To estimate how much people will charge for work

Why is it important to combine multiple estimating techniques?

• To ensure a more accurate and robust estimate

• To satisfy client demands

• To minimize the use of resources

• To reduce the project timeline

What is a red team in the context of project estimation?

• A group that provides additional resources

• A team that reviews and challenges estimates

• A software tool for estimating costs

• A method for tracking project progress

Why should contingency be added to project estimates?

• To reduce the need for additional resources

• To make the project more appealing to stakeholders

• To account for uncertainties and risks

• To increase project costs

What is a discounted cash flow?

• A tool for estimating project resources

• A way to account for interest and inflation over time

• A technique for managing project timelines

• A method for reducing project expenses