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Software development cost

Project cost estimates are classified into categories based on how well the scope is defined at the time of estimation, on the types of estimation techniques used, and on the general accuracy of estimates. These categories are not standardized, but they are all based on the recognition that a cost estimate can only be as accurate as the project scope is detailed. In its estimating manual, the American Society of Professional Estimators (ASPE) classifies cost estimates in order of increasing accuracy on a five-level scale. Level 1 is an order of magnitude estimate and Level 5 is a final bid. The U.S. Department of Energy uses a similar five-class scale, but in the reverse accuracy order (Class 5 as an order of magnitude estimate and Class 1 as a definitive estimate).

AACE International (formerly the Association for the Advancement of Cost Engineering) offers a helpful chart summarizing key points. Here’s an overview of the cost estimate categories:

Order of magnitude estimates: An order of magnitude estimate, or ASPE Class 5, is an extremely rough cost estimate created before a project has been defined. It is based only on expert judgment and the costs of similar past projects. An order of magnitude estimate is typically presented as a range of costs spanning -25% to +75% of the actual project cost. It is only used in high-level decision making to screen projects and determine which ones are financially feasible.