Cost estimation models are mathematical
algorithm
In mathematics and computer science, an algorithm () is a finite sequence of Rigour#Mathematics, mathematically rigorous instructions, typically used to solve a class of specific Computational problem, problems or to perform a computation. Algo ...
s or
parametric equations
In mathematics, a parametric equation expresses several quantities, such as the coordinates of a point, as functions of one or several variables called parameters.
In the case of a single parameter, parametric equations are commonly used to ...
used to estimate the costs of a product or project. The results of the models are typically necessary to obtain approval to proceed, and are factored into business plans, budgets, and other financial planning and tracking mechanisms.
These algorithms were originally performed manually but now are almost universally computerized. They may be standardized (available in published texts or purchased commercially) or proprietary, depending on the type of business, product, or project in question. Simple models may use standard
spreadsheet
A spreadsheet is a computer application for computation, organization, analysis and storage of data in tabular form. Spreadsheets were developed as computerized analogs of paper accounting worksheets. The program operates on data entered in c ...
products.
Models typically function through the input of
parameter
A parameter (), generally, is any characteristic that can help in defining or classifying a particular system (meaning an event, project, object, situation, etc.). That is, a parameter is an element of a system that is useful, or critical, when ...
s that describe the attributes of the product or project in question, and possibly physical resource requirements. The model then provides as output various resources requirements in cost and time. Some models concentrate only on estimating project costs (often a single monetary value). Little attention has been given to the development of models for estimating the amount of resources needed for the different elements that comprise a project.
[García de Soto Lastra, B. (2014). A methodology to make accurate preliminary estimates of construction material quantities for construction projects (Doctoral dissertation). Diss. ETH No. 22313, Zurich, Switzerland. https://dx.doi.org/10.3929/ethz-a-010361720]
Cost modeling practitioners often have the titles of cost estimators,
cost engineers, or parametric analysts.
Typical applications include:
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Construction
Construction are processes involved in delivering buildings, infrastructure, industrial facilities, and associated activities through to the end of their life. It typically starts with planning, financing, and design that continues until the a ...
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Software Development
Software development is the process of designing and Implementation, implementing a software solution to Computer user satisfaction, satisfy a User (computing), user. The process is more encompassing than Computer programming, programming, wri ...
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Manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of the
secondary sector of the economy. The term may refer ...
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New product development
New product development (NPD) or product development in business and engineering covers the complete process of launching a new product to the market. Product development also includes the renewal of an existing product and introducing a product ...
See also
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Software development effort estimation
In software development, effort estimation is the process of predicting the most realistic amount of effort (expressed in terms of person-hours or money) required to develop or maintain software based on incomplete, uncertain and noisy input. Effor ...
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Estimation in software engineering
Cost estimation in software engineering is typically concerned with the financial spend on the effort to develop and test the software, this can also include requirements review, maintenance, training, managing and buying extra equipment, servers ...
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Parametric Estimating
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Estimation
Estimation (or estimating) is the process of finding an estimate or approximation, which is a value that is usable for some purpose even if input data may be incomplete, uncertain, or unstable. The value is nonetheless usable because it is d ...
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Elemental cost planning
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Cost overrun
A cost overrun, also known as a cost increase or budget overrun, involves unexpected incurred costs. When these costs are in excess of budgeted amounts due to a value engineering underestimation of the actual cost during budgeting, they are known ...
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Parametric model
In statistics, a parametric model or parametric family or finite-dimensional model is a particular class of statistical models. Specifically, a parametric model is a family of probability distributions that has a finite number of parameters.
Defi ...
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Cost estimate
A cost estimate is the approximation of the cost of a program, project, or operation. The cost estimate is the product of the cost estimating process. The cost estimate has a single total value and may have identifiable component values.
A proble ...
References
{{DEFAULTSORT:Cost Estimation Models
Business terms