Project sponsors

Project sponsors need an idea as to how much time and money a project will require.

Give an example of a rough order of magnitude, budgetary, and definitive cost estimates for an IT software development project.

Give an example as to how you would use the analogous, parametric, and bottom-up cost estimates.

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Sample Answer

 

Rough Order of Magnitude Estimate

The ROM estimate is the most preliminary estimate of the project’s cost. It is typically used in the early stages of the project, when there is limited information available. The ROM estimate is usually within a range of 25% to 75% of the actual cost.

For example, let’s say you are planning to develop a new software application. The ROM estimate for the project might be $100,000 to $200,000. This means that the actual cost of the project could be anywhere from $75,000 to $150,000.

Budgetary Estimate

The budgetary estimate is a more detailed estimate of the project’s cost. It is typically used in the planning stages of the project, when more information is available. The budgetary estimate is usually within a range of 10% to 20% of the actual cost.

Full Answer Section

 

For example, let’s say you have more information about the software application that you are planning to develop. You know that the application will need to be developed in Java, and that it will require a team of three developers. The budgetary estimate for the project might be $150,000 to $175,000. This means that the actual cost of the project could be anywhere from $135,000 to $187,500.

Definitive Estimate

The definitive estimate is the most accurate estimate of the project’s cost. It is typically used in the execution phase of the project, when all of the information is available. The definitive estimate is usually within a range of 5% to 10% of the actual cost.

For example, let’s say you have completed the development of the software application. You know that the application has 10,000 lines of code, and that it has been tested by a team of testers. The definitive estimate for the project might be $162,500. This means that the actual cost of the project is likely to be between $156,250 and $168,750.

Conclusion

The ROM, budgetary, and definitive cost estimates are all important tools for project managers. The ROM estimate is used to get a rough idea of the project’s cost, the budgetary estimate is used to plan the project, and the definitive estimate is used to track the project’s actual cost.

By using these different estimates, project managers can ensure that they are on track to deliver the project on time and within budget.

Additional Information

In addition to the three types of estimates listed above, there are also a number of other cost estimating techniques that can be used. These techniques include:

  • Analogous estimating: This technique uses the cost of similar projects to estimate the cost of the current project.
  • Parametric estimating: This technique uses mathematical formulas to estimate the cost of the project based on factors such as the size and complexity of the project.
  • Bottom-up estimating: This technique estimates the cost of the project by estimating the cost of each individual task.

The best cost estimating technique to use will depend on the specific project. However, by using a combination of different techniques, project managers can improve the accuracy of their cost estimates.

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