Cost Estimation

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Questions to Ask of Your Data and How to React

{For a more detailed explanation of the following, click on the "Read summery of the audio here," located at the top of the page.}

How long did it take?-Analyze the time it took to make a decision
If you spend three days doing research on a laptop so you can save $20 and get one additional feature, that's a little too much analysis; it's not a good use of your time if you value it at all. A Survey is a method to obtain valuable information. However, they often cost time and money obtaining the information.

If the difference between the choices is relatively small, flip a coin. It's no big deal. Don't engage in any more effort than what you estimate or think the difference is. If your uncertainty is large, that's when you either need to come to a decision criteria before you make your decision, or else you need to spend some money to resolve your uncertainty.

Which estimates did you need to come up with?-Analyze the pattern of cost estimates
There are 3 types of cost estimates, Rough(least expensive, you can do alot of these in a matter of hours), Semi-detailed(can cost up to 5,000), and Detailed(most expensive, they can cost up to $40,000).

You can end up spending a lot of time on these cost estimates. If you've ever responded to a request for proposals with a proposal, you could imagine that there are 10 people working on the proposals for 3 days. That's quite a bit of effort and money needed to produce a cost estimate. So you can see that you should try to reduce the number of detailed and semi-detailed cost estimates and try to favor the rough cost estimates.

A good pattern is to try a rough estimate or two first, because you may decide to scrap the project just off of that data.

Murphy's Law?
-learn to expect the unexpected

It's what happens when you get broadsided by a criteria that you weren't expecting to be important. Often this happens when you're dealing with a client that is actually a group of people. In this case, the client's members can end up having multiple conflicting requirements. The key is to figure out who is causing the conflict. A lot of the time, it's fairly clear who's the instigator. The next step is to figure out what the fight is all about. Perhaps by meeting with them individually first to figure out what the problem is, and then getting them together in a room so that they can come to a compromise on the criteria. The key is to not let yourself get involved in their battle.

(For an example of how things can go wrong refer to table 2 above)

Did the numbers match up?
-Compare the estimated and actual costs

What you're looking at here is the hard numbers. If you thought that the project was going to cost you $100,000 and it ended up costing you $101,000, you probably did a really good job of estimation. That's impressive! It shows that you were doing things the right way, and if you're consistently hitting numbers like that, that's even more impressive. But if you notice that you're off by large factors, that could be an indication that you still have some skills that you need to acquire. They could be skills that you yourself need to learn or maybe you need to bring in some experts.

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