Estimating Project Costs based on One-liner Scope Statements

A lot of project managers typically encounter situations wherein they are asked to give a high level estimate of cost and schedule for certain projects during the initiation process - much too early to have the detailed requirements that most PMs would need to give an accurate estimate. Some companies go through this exercise to plan for next year's budget.

In my experience, these numbers are typically used for planning purposes or initial feasibility assessments and the following formula has shown great success in this exercise so far for the software development projects that I lead.

1. Base project costs which include labor (direct and indirect), hardware costs(whether purchased or leased), software licenses, separated by capitalizable costs and expensed costs which may differ based on your company policy +

2. Risk Costs (which is the amount required to recover the project and only for those risks with a 25-50% probability of happening that is identified as risks that are still recoverable - anything more than that is not a risk - it is an issue!). This risks reduce/increase as the project develops. The total of 1 and 2 is then multiplied by

3. A factor as contingency (which is dependent on how much you know of the project at the point of estimation although I typically use the following: 30 - 40% for one-liner scope statements and more if less is known and 20-30% for more developed requirements). This contingency reduces as the project develops. The new total is then multiplied by

4. A factor for management contingency and the factor that typically works for me is 10%

Some things to remember:
1. Labor rates may vary but you can use a blend rate for estimation purposes
2. Labor rates may increase/decrease over the time of the project so blend with this in mind
3. Ongoing Support and Maintenance Costs considerations including depreciation for the capitalizable items