How to Create Cost Estimates

Cost estimates are the approximate costs of resources (e.g., employees, consultants, hardware, software, office supplies, building materials, etc.), needed to complete the project work. Creating cost estimates helps you deliver your project and deliverables on budget, meet all stakeholder expectations, and improve the performance of your project.

You draft cost estimates based on the information from the project charter, cost management plan, and schedule baseline. Next, you collect input from the project team and client stakeholders at the project kickoff meetings and requirements meetings. Shortly after the kickoff meetings and requirements meetings, you finalize the cost estimates based on the project team and client stakeholder’s input.

Access our Cost Estimates Template (including examples)!

Steps for How to Create Cost Estimates

During the planning phase, you create cost estimates by collecting data on resource costs, such as historical records, industry standards, vendor quotes, or other references to get accurate cost information.

Next, you multiply the quantities of resources required for each task by their costs; this calculation will give you the estimated cost of each resource for that specific task.

Then, you total the costs of all resources for each task to calculate the direct costs. Direct costs are the costs directly tied to the project tasks.

Don't forget to consider indirect costs such as overhead, administrative expenses, and other costs that support the project but are not directly tied to specific project tasks.

Finally, you need to account for uncertainties and risks by allocating a contingency budget to specific project tasks. This contingency budget buffer, usually a percentage of the total cost estimates (e.g., 1.1-1.3%) provides flexibility in case of unforeseen events.

Ask the project team these questions to create cost estimates:

• What are the specific resources required for each task?
• What are the estimated hours, units, or quantities of resources needed for each task?
• What are the costs associated with each resource (e.g., labor rates, material costs)?
• Are there any external vendors involved in the project? If so, what are their costs?
• Are there any specific tools, equipment, or software licenses needed for the project?
• Are there any indirect costs (e.g., overhead, administrative expenses) that should be considered?
• Are there any travel or accommodation expenses associated with the project?
• Are there any licensing or intellectual property costs that should be included?
• Are there any training or skill development costs required for the project team?
• Are there any insurance or legal costs associated with the project?
• Are there any regulatory or compliance costs that need to be factored in?
• Are there any specific warranties, maintenance, or support costs for the project deliverables?
• How will inflation or currency fluctuations be taken into account in the cost estimates?
• Are there any known risks or potential cost overruns that should be considered?
• Are there any other relevant cost factors or considerations for the project?

What’s Next?

After you create the cost estimates for your project, you are ready to create the rest of the planning documents and execute the work for your project.

Check out How to Plan Your Project for more information on how to plan your project.

Check out How to Control Your Project’s Costs (coming soon) for more information on how to control your project costs.