I just want to share with you what my "rule of thumb" process when estimating technology project costs and I hope it helps you now and in the future. I found that the numbers I get from this process are within 10-18% of where the science will take me - enough to drive a decision on whether to proceed with the project or not.
My Definitions:
- Base Estimate - Ideal Estimate assuming all things go right
- Base Budget - the internal budget we use to actually move the project forward
- Planning Budget - the budget we use for planning and budget requests
1. Base Estimate = summation of all the resource costs you need for the project (eg Labor, Hardware, Software Licenses, Conference and Travel, Support and Sustain costs, Implementation and Training Costs)
2.Base Budget = Base Estimate + Impact of Known Risks (see below how to estimate)
3.Planning Budget = Base Budget * Unknown Risks/Contingency Factor (see below for rule of thumb)
How to estimate the Known Risks
1.Analyze the risks you identified and determine which are related or dependent to each other (if one risk happens - the other will happen too) and classify them into risk groups
2. For each risk group identified - estimate the dollars it would take to recover the proejct or the business if the risk happens * probability of it happening (there is a more accurate way that includes impact - talk to me if interested) . Note - if the probability is > 50% - then it is an issue, not a risk.
Sum the resulting dollars
If your gut or experience is telling you that
1.There is a low probability of unknowns - add 5-10%
2.There is a medium probability of unknown - add 10-15%
3. There is a major probability of unknown - add 15-20%
Sum your numbers.
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