COST ESTIMATION
SCOPE
This Quality Work Instruction (QWI) defines the Enterprise Project Management Office (EPMO) procedure to develop project cost estimates in a consistent (standardized) manner. The purpose of this QWI is to establish a procedure that improves the accuracy of cost estimates at project baseline, effectiveness of cost management throughout the project life-cycle, as well as minimize cost variances at Project Closeout. The Cost Estimation procedure is initially completed for all IT Projects as part of 0300-0310-005-C PROJECT INITIATION within the 0300-0300-005-B PROJECT MANAGEMENT PROCESS, and is updated throughout the project life-cycle.
OWNER
This QWI is jointly owned by the Enterprise Project Management Office (EPMO) Manager, and Office of State Budget and Management (OSBM) Information Systems Financial Analyst. No changes, additions or alterations may be made without the owners’ written approval.
REFERENCE DOCUMENTS
| DOCUMENT IDENTIFICATION | DOCUMENT TITLE |
| GAO-09-3SP | GAO Cost Estimating and Assessment Guide, (March, 2009) |
| OMB Circular A-11 | Federal OMB Circular A-11, Supplement 3.0 (July, 2013) |
| NC G.S. Chapter 147 Article 15 | Department of Information Technology |
| PMBOK | A GUIDE TO THE PROJECT MANAGEMENT BODY OF KNOWLEDGE – 5TH ED |
| 0100-0800-010-B | FORMS AND RECORDS CONTROL |
| 0300-0300-005-B | PROJECT MANAGEMENT PROCESS |
| 0300-0300-005-C | PROJECT INITIATION |
| 0300-0310-015-C | PROJECT FINANCIAL ASSESSMENT |
| 0300-0310-020-C | PROJECT ASSESSMENT TYPE |
| 0300-0310-035-C | BENEFITS ESTIMATION |
| 0300-0320-015-C | PROJECT CONTRACT AWARD |
| 0300-0382-005-C | PROJECT PEER REVIEW |
ASSOCIATED FORMS
| FORMS IDENTIFICATION | FORM TITLE |
| 0300-0310-015-D | PROJECT FINANCIAL ASSESSMENT FORM |
| 0300-0310-020-D | PROJECT ASSESSMENT TYPE FORM |
DEFINITIONS
BOTTOM-UP ESTIMATE: Link to Glossary of Terms and Definitions
CONSENSUS (Wide Band Delphi) ESTIMATE: Link to Glossary of Terms and Definitions
HISTORICAL/ANALOGOUS RELATIONSHIP ESTIMATE: Link to Glossary of Terms and Definitions
MONTE CARLO ESTIMATE: Link to Glossary of Terms and Definitions
PROGRAM EVALUATION REVIEW TECHNIQUE (PERT): Link to Glossary of Terms and Definitions
RATIO or WORK DISTRIBUTION MODELING ESTIMATE: Link to Glossary of Terms and Definitions
RISK CONTINGENCY: Link to Glossary of Terms and Definitions
TOP-DOWN ESTIMATE: Link to Glossary of Terms and Definitions
PROCEDURE
The ‘Enterprise” project requires the initial, refinement and baseline cost estimates to be completed. The ‘Lite” project only requires the baseline cost estimate.
Initial Cost Estimate
During the Business Concept and Project Initiation phases, the Initial Cost Estimate is developed based on market research and available planning information. At a minimum, the project will develop a Rough Order of Magnitude (ROM) estimate with an accuracy level of -25% / +75%. This estimate is entered into the 0300-0310-015-C PROJECT FINANCIAL ASSESSMENT FORM.
Top-Down, Ratio/Work Distribution, and Historical methods are the most effective for establishing the Initial Cost Estimate.
Refinement Cost Estimate
Generally, during the Planning and Design phase, the accuracy of the Initial Cost Estimate is further developed into a Refinement Cost Estimate with an accuracy level of -10% / +25%. This must be completed prior to 0300-0320-015-C PROJECT CONTRACT AWARD.
Project Managers (PMs) and project teams will use Consensus, PERT, and Historical/Analogous methods in conjunction with Risk/Contingency Reserve methods to develop Refinement Cost Estimates. Monte Carlo simulation may also add value to the Refinement Cost Estimate for highly complex and high risk projects.
Baseline (Definitive) Cost Estimate
PMs shall establish a Baseline (Definitive) Cost Estimate with an accuracy level of -5% / +10% prior to the Execution and Build phase. The EPMO and PM will use the Baseline Cost Estimate for project cost/schedule performance measurement. The PM typically establishes a Baseline (Definitive) Cost Estimate after the vendor is on board, all design work has been completed, and all project costs, requirements and risks are thoroughly scoped and understood. For some projects the Baseline (Definitive) Cost Estimate may be established early in the Planning and Design phase. This is especially true for projects not involving a request for proposal or major procurement. This estimate is entered into the 0300-0310-015-C PROJECT FINANCIAL ASSESSMENT FORM.
The PM and supporting project team will use a Bottom-Up (from the Work Breakdown Structure (WBS)) along with Risk/Contingency Reserve cost estimation methodology to determine the Baseline Cost Estimate. Monte Carlo simulation may also add value to the Baseline (Definitive) Cost Estimate for highly complex and high risk projects.
Independent Cost Review and Validation
Projects with a total project budget/cost greater than $10M and identified as “High” risk per 0300-0310-020-C PROJECT ASSESSMENT TYPE will require independent review and validation of the cost estimates.
All projects requiring independent review and validation of the cost estimates will use one of the following methods:
Qualified external (third party) contractor.
Project Peer Review. This method will include subject matter expertise from OSBM, Enterprise Architecture, Requirements Analysis, Procurement and Strategic Sourcing, and others as appropriate. If selected, the Project Peer Review will be conducted in accordance with 0300-0382-005-C PROJECT PEER REVIEW.
The Project Management Advisor (PMA) in coordination with the PM and Business Owner will establish a Decision Point and methodology during the Project Initiation phase.
RECORDS
Unless otherwise specified in this QWI, Records shall be maintained in accordance with 0100-0800-010-B FORMS AND RECORDS CONTROL
REASON FOR CHANGE
Updated paragraph 6.4.1 to “total project budget/cost greater than $10M” versus “Total Cost of Ownership (TCO) greater than $10M”.
Updated General Statutes.
Updated IT Procurement to Procurement and Strategic Sourcing.
Updated Enterprise Solutions to Enterprise Architecture.
Glossary of Cost Estimation – Download [Optimized PDF]
Glossary of Cost Estimation – Download