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Order of magnitude Preliminary

A cost estimate is more than a simple list of costs, however: it also outlines the assumptions underlying each cost. These assumptions (along with estimates of cost accuracy) are compiled into a report called the basis of estimate, which also details cost exclusions and inclusions. The basis of estimate report allows project stakeholders to interpret project costs and to understand how and where actual costs might differ from approximated costs.

Beyond the broad classifications of direct and indirect costs, project expenses fall into more specific categories. Common types of expenses include:

  • Labor: The cost of human effort expended towards project objectives.
  • Materials: The cost of resources needed to create products.
  • Equipment: The cost of buying and maintaining equipment used in project work.
  • Services: The cost of external work that a company seeks for any given project (vendors, contractors, etc.).
  • Software: Non-physical computer resources.
  • Hardware: Physical computer resources.
  • Facilities: The cost of renting or using specialized equipment, services, or locations.
  • Contingency costs: Costs added to the project budget to address specific risks.


Cost estimates are critical to successful project management, so teams are expected to produce a reasonably accurate and reliable estimate during the conception and definition phase of a project. Estimates are adjusted for accuracy during the planning phase, as project stakeholders and sponsors may ask for revisions before they are willing to authorize a budget. After this early stage, the accuracy of estimates is systematically increased.

Cost estimating is an ongoing process, and estimate revisions are normal in order to ensure accuracy throughout project execution. Typically, work scheduled in the near future will have the most accurate estimates, while work scheduled farther away in time have less accurate estimates. This approach is known as rolling wave planning.

Detailed cost estimates are usually broken down into greater levels of detail and supplementary information. These outputs typically include:

  • Activity cost estimates for the activities that make up a project.
  • Supporting details, which include assumptions underlying estimates, cost data sources, and cost element sensitivity.
  • Requested changes, which a newer, more accurate cost estimate may prompt.
  • Updates to the cost management plan, such as those necessitated by changes to the project scope.
  • Inputs for subsequent planning processes that use cost estimates.