Cost Estimation Techniques & Methods Flashcards

What is the primary purpose of a Work Breakdown Structure (WBS) in cost estimating?

Answer: To organize project scope into manageable, estimable elements

A WBS decomposes project scope hierarchically, providing the framework for assigning and accumulating costs.

Which AACE estimate class typically corresponds to a 'definitive' estimate used for project control?

Answer: Class 1

Class 1 estimates have the highest degree of project definition (65–100% complete) and tightest accuracy range, making them suitable for project control.

A facility that produced 500 units last year at $10M total cost is being expanded to 1,000 units. Using the 0.6 power factor, what is the estimated cost?

Answer: $15.2M

Cost₂ = $10M × (1000/500)^0.6 = $10M × 2^0.6 = $10M × 1.516 ≈ $15.2M.

In parametric estimating, a Cost Estimating Relationship (CER) is most accurately described as:

Answer: A mathematical equation relating cost to one or more technical or physical parameters

A CER is a statistical or empirical equation that expresses cost as a function of project parameters such as weight, area, or throughput.

Which technique calculates an expected cost estimate using the weighted average formula: (O + 4M + P) / 6?

Answer: PERT three-point estimating

PERT three-point estimating uses optimistic (O), most likely (M), and pessimistic (P) values with a 1:4:1 weighting to calculate the expected estimate.

What does 'escalation' address in a cost estimate?

Answer: Changes in cost levels due to inflation or market conditions over the project timeline

Escalation accounts for anticipated changes in labor, material, and equipment costs due to inflation or market dynamics over the project duration.

When an estimate is described as 'budget-quality,' which AACE class is most likely being referenced?

Answer: Class 3

Class 3 estimates (budget-quality) are prepared when project definition is 10–40% complete and are used for budget authorization.