2.1.

COST ESTIMATION

Methods 1, 2 and 3 are used early on. Even the scope statement will require some cost or effort
estimates. Considering more than one method is desirable.

Method 1: ANALOGOUS ESTIMATE OF EFFORT OR COST

Used for Early Estimate or Individual Activity Estimate

Previous Similar Previous Multiplier defining Current Project Estimate

Project Project Effort complexity of
(Column 2) current project (Column 2 * Column 3)
(Column 3)
The project manager ₹5,00,000party 2 Previous Project Effort *
managed to develop cost complexity
an application for = 5,00,000 * 2
sellers and buyers ₹10,00,000
Note: Effort is Size of effort and unit of estimation is Work-Hours or Work-Days and Work-Months.

Method 2: PARAMETRIC METHOD

Unit of Measure
(Metric = cost per student)
Column 1
From the Program
Developer the following
estimates were obtained
for costs per buyer - ₹1000
Parametric Estimate
Size of Current Project Parametric Project Estimate
(number of students) (Column 1 * Column 2)
Column 2
More than 1000 1000 * ₹1000= ₹10,00,000

Method 3: THREE POINT METHOD

Three Point Estimation

WBS Item Pessimistic Estimate Likely Optimistic Expected
(Longest duration- Estimate Estimate Duration
1% probability) (98% probability) (Fastest duration
-1% probability) (P + 4L +0)/6
Overall costs ₹2,00,000 ₹5,00,000 ₹8,00,000 ₹5,00,000
for the project
Optional: Add the following budget for greater confidence.

Add One Standard Deviation to Mean: (P – O) / 6 (68% confidence) = 600000/6 = +/-

₹1,00,000

Add Two Standard Deviations to Mean: 2 * (P – O) / 6 (95% confidence) = +/- ₹2,00,000