Top-Down Probability-Based Cost Estimation

Abstract

Cost calculations normally are based on fixed cost estimates.1 A cost calculation may be a simple overview at a high aggregation level with only a few items.2 If so, the uncertainty of the result normally is considerable. A cost calculation also may be meticulously detailed. That reduces uncertainty. But for major projects, the computation often is exhaustive and expensive. It’s also extremely rigid in the sense that considerable revision may be required should fundamental assumptions be changed in the project concept. Hence, early on in the concept phase, detailed cost overviews often are counterproductive.

Compiling cost estimates for major projects can be exhaustive, time-consuming and expensive. Nonetheless experience indicates that estimate precision can be poor. So the less comprehensive probability-based cost estimate is an attractive alternative. It is based on expert evaluations in teams, who can rapidly arrive at relatively reliable cost estimates.