Process Cost Resources: Estimation, Budgeting, and Control

PMBOK v8 Definition

Estimate Costs is the process of developing an approximation of the monetary resources needed to complete project work (PMBOK v8, Section 2.4). This process belongs to the Planning Process Group and the Cost Knowledge Area. The output is a cost estimate that may include direct costs, indirect costs, contingency reserves, and other financial considerations. Estimate Resources is the process of identifying and quantifying the types and quantities of material, human, equipment, or supply resources required to perform each activity (PMBOK v8, Section 2.6).

Why It Matters for the Exam

Cost and resource estimation questions appear frequently in the Planning and Monitoring & Controlling domains of the PMI exam. You will encounter them in situational questions asking which estimating technique to use, how to calculate Estimate at Completion (EAC), or what distinguishes analogous from parametric estimating. The exam tests your ability to select the correct estimating method based on project characteristics.

Key Points to Remember (for the exam)

• Analogous Estimating: Uses historical data from similar past projects; less accurate, useful when limited information is available
• Parametric Estimating: Uses statistical relationship between historical data and variables (e.g., square footage, lines of code); more accurate than analogous
• Bottom-Up Estimating: Estimates individual activities then rolls them up; most accurate but most time-consuming
• Estimate at Completion (EAC): The expected total cost of completing all work, expressed as the sum of actual cost to date plus estimate to complete
• Estimate to Complete (ETC): The expected cost to finish all remaining project work
• Contingency Reserves: Budget allocated for known-unknowns; part of the cost baseline
• Estimate Resources Process: Identifies resource types and quantities; provides inputs to Estimate Costs and Estimate Durations

Typical PMI Exam Example

Your project has completed 40% of the work. Actual costs are $50,000, and the budget at completion (BAC) is $150,000. You calculate the EAC using the formula EAC = BAC / CPI, where CPI = EV/AC. If EV = 40% of $150,000 = $60,000, then CPI = $60,000/$50,000 = 1.2. EAC = $150,000/1.2 = $125,000. The project is under budget.

PMI Exam Traps

• Trap: Confusing analogous estimating with parametric estimating

• Reality: Analogous uses historical data from similar projects (top-down); parametric uses statistical relationships with variables (bottom-up or top-down)

• Trap: Thinking Estimate to Complete (ETC) equals Estimate at Completion (EAC)

• Reality: ETC is the remaining cost to finish work; EAC = AC + ETC (total expected cost)

• Trap: Assuming contingency reserves are part of management reserves

• Reality: Contingency reserves are part of the cost baseline; management reserves are separate for unknown-unknowns

• Trap: Confusing Estimate Costs with Determine Budget

• Reality: Estimate Costs develops cost estimates for activities; Determine Budget aggregates estimates into a cost baseline

Important PMI Connections

Quick Review Questions

1. Which estimating technique uses historical data from similar past projects and is less accurate but useful when detailed information is unavailable?

2. What is the difference between Estimate at Completion (EAC) and Estimate to Complete (ETC)?

3. When would you use bottom-up estimating instead of parametric estimating?

4. Are contingency reserves included in the cost baseline or in management reserves?

5. What process identifies the types and quantities of resources required for each activity?

PMBOK v8 Reference

Section 2.4 - Cost Performance Domain Section 2.6 - Resources Performance Domain Section 4.3 - Estimate Costs Process Section 4.4 - Determine Budget Process Section 4.5 - Estimate Resources Process Glossary definitions: Estimate at Completion, Estimate to Complete, Cost Estimates