Where and when to use rough cost estimates

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.

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