Rough cost estimates (RCE) have often a bad reputation. Too inaccurate. Not proven. No basis for decisions. It is true that rough cost estimates have obviously many limitations, but they can help you a lot to be effective and productive.
The rough cost estimate is always the starting point. As it can be easily and fast created and acts as a guide to show you the most effective way to achieve your target. It supports you to understand whether an idea has a chance to have a positive business case or it is a complete waste of time.
Always make yourself aware that the RCE only has a very limited cost accuracy. Apply the following rules when you start with it.
- Don’t spend too much time in developing the cost model.
- Do interviews with experts or apply lessons learnt from other products.
- Consider only the main cost drivers (pareto!) and ignore the remaining 20%.Ignore the details on purpose, but make sure that in case you proceed with the project, that you catch up with the detailed analysis later.
After you have applied a first rough cost estimate on the product / project outcome you will
- know with very limited recourse spent, whether the idea is worth to start or not.
- have first directions where further work is necessary and where not.
- have a understanding about the project scope and timeline as you can identify the amount of work which is needed.
- have a good basis for the necessary initial decisions to start the project.
Key takeaway: A rough cost estimate ensure that you learn early if you started with something which has no business case you limit the spent resources to a minimum in case the project does not provide sufficient positive return.