Estimate of expenditure

Estimate of expenditure

Definition

Effort estimation is one of the most important tasks in project management. The basic success of a project depends on it. At the same time, it can be used to determine the profitability of the project before expenses are incurred or resources are consumed. There are different methods for this, such as the top-down or bottom-up method.

Tasks of effort estimation

Effort estimation fulfils two tasks. On the one hand, it can be used as a decision criterion to assess whether a project can be carried out economically. Secondly, it can be compared with the current effort recording during the course of the project. By comparing estimated and recorded expenditure, it is possible to assess whether or not the project is within the estimated cost framework at the time of the survey.

Effort estimation is not exclusively and completely done before the project starts. Often, only a rough estimate of the expected expenditure can be made at this stage. Instead, this rough estimate is usually refined iteratively as the project progresses.

The effort estimate is also relevant for the preparation of offers by service companies. Here it serves as an initial cost estimate and thus as a basis for decision-making for the potential client.