There is often confusion between Cost Estimating and Pricing. Cost estimating is the process of estimating the cost of the project, considering the tradeoffs between time and cost and evaluating the overall impact of costs on the project. Pricing is a business decision about what the customer or client should be charged for the product or service produced by the project. Cost is part of the pricing decision but they are separate entities.

The Cost Management Plan is a subsidiary plan of the project management plan. It can establish certain ground rules for developing cost budgets such as:

• Estimating rounding rules

• Standardized units of measure

• Commonly used parametric data such as resource rates, overhead rates, inflation rates, etc.

• Earned value credit criteria

Tools and techniques of the cost estimating process are analogous estimates, parametric estimates and bottom-up estimates. The primary outputs of this process are the cost estimates for each schedule activity and the updates to the cost management plan.

Analogous Estimating (also called Top-Down Estimating): compares the current project activities to previous, similar projects. The degree of similarity between the prior project and the current project affects the accuracy of the estimate. Also, remember to consider changes in labor rates, purchased resources and overhead since the prior project.

Parametric Estimating (also called Quantitatively-Based Estimating): is based on historical information that has been codified. An example used in home construction is the cost per square foot. This number remains about...