Cost estimation for engineering projects is an important aspect of the systems engineering approach. Accurate estimates usually help keep the project budgets, and often schedules, on track. There are several publications out there explaining various classes for cost estimation and in this post I will attempt presenting such in a more simple terms. For source material reading please refer to http://www.tpsgc-pwgsc.gc.ca/biens-property/sngp-npms/bi-rp/conn-know/couts-cost/definition-eng.html.
Class ‘D’ (Indicative) Estimate: is an estimate based on list cost per unit X the estimated number of units required for the project. The units themselves, such as number of network switches or servers, are estimated based on high level project requirements. The Class D estimate is the initial estimate that provides further input into the project development at its early stages. One would expect this estimate to be within “order of magnitude” of the actual.
Class ‘C’ Estimate: is an estimate based on full and comprehensive list of project requirements and accounts for the documented assumptions. Often this level of estimation is provided at the design stage. 20-25% accuracy is desired for this class.
Class ‘B’ (Substantive) Estimate: is an estimate based on detailed design of all major systems and subsystems that are part of the project.The estimate does not yet consider cost variances due to change orders and uses list prices of components. Due to this, often Class B is 15-20% accurate compared to the final project cost.
Class ‘A’ (Pre-Tender) Estimate: is an estimate that is based on the final set of designs with all assumptions verified/baselined and accounted for. Project risks are also documented and included in their cost format into this estimate. This Class Estimate is generally expected to be withing 5%-10% accurate of the actual contract cost allowing for minor cost variance due to change orders.
At the end, it is important to remember that project estimation is not a precise science. Existing conditions or something new related to other ongoing projects may affect the original estimates.