Chapter 10: Step 7: Develop the Point Estimate

In this chapter, we discuss step 7 in the cost estimating process. This step pulls all the information together to develop the point estimate. High-quality cost estimates usually fall within a range of possible costs, the point estimate being between the best and worst case extremes. We explain in chapter 12 how to develop this range of costs using risk and uncertainty analysis. The cost estimator must perform several activities to develop a point estimate:

• develop the cost model by estimating each WBS element using the best methodology from the data collected;
  
• include all estimating assumptions in the cost model;
  
• express costs in constant-year dollars;
  
• time-phase the results by spreading costs in the years they are expected to occur based on the program schedule; and
  
• sum the WBS element estimates to develop the overall point estimate.

We have already discussed how to develop a work breakdown structure, ground rules and assumptions, and collect and normalize the data into constant base-year dollars. Once all the data have been collected, analyzed, and validated, the cost estimator must select a method for developing the cost estimate.