Cost estimation is always one of the trickiest part of any new project. I wonder why this is so. Do you think majority of projects nearing their completion make everyone realize that the initial cost estimation was way off course?
Cost estimation is tricky because of the unknowns in schedule: material deliveries, late alternative make or buy decisions, amd the unknowns in testing. Often one has to pay workers who are idle while things get fixed, this costs a lot. I don't think initial cost estimates are "way off course", but there must be bounds on the cost estimate. Many, many things can happen to schedule, which affects cost.
Cost estimation is indeed one of the trickiest aspects of any new project. This is mainly due to several factors that introduce uncertainties and challenges.
One of the primary reasons for the complexity of cost estimation is the presence of unknowns in the project schedule. Many projects rely on the timely delivery of materials or equipment, which can be subject to delays or unforeseen issues. If these deliveries are delayed, it can lead to idle workers and additional costs incurred during the waiting period. Similarly, there may be unexpected decisions to make or buy certain components, which can impact the project's overall cost.
Additionally, testing is often a critical phase in any project, and it is not uncommon for unforeseen issues to arise during this stage. These issues may require additional resources, time, and expenses to resolve, further complicating the cost estimation.
Regarding the accuracy of initial cost estimates, it is important to note that they are typically based on the available information at the beginning of the project. However, as the project progresses, new information becomes available, and adjustments may need to be made to the cost estimates.
While it is possible for initial cost estimates to deviate from the actual costs incurred during the project, it is not necessarily the case that the estimates are always "way off course." However, due to the nature of project uncertainties and unexpected events, it is essential to establish realistic bounds on the cost estimates to account for potential schedule changes and associated cost impacts.
To improve the accuracy of cost estimation, project managers often rely on historical data, expert judgment, and iterative feedback loops. They continuously monitor the project's progress, update cost estimates based on new information, and learn from past experiences to refine future cost estimations.
In conclusion, cost estimation's complexities arise from the uncertainties in project schedules, material deliveries, make or buy decisions, and testing challenges. While initial cost estimates may not always be perfect, establishing realistic bounds and incorporating iterative feedback can help manage and mitigate potential deviations in cost estimation.