Cost Estimation

When submitting a budget proposal for a project, two key questions of interest are:
1. What is the probability that the project will actually be delivered within this budget?
2. How much contingency, that is, extra budget, should be included so that this budget level will be achieved with a certain degree of confidence?

This model shows these questions can be answered with simulation. It assumes that each item's actual cost will be within a min-max range, and that Pert distributions are applicable to describe the possible costs of each item. The distributions are assumed to be skewed, and the parameters have been chosen so that costs are more likely to overshoot than undershoot the base case. These parameters, along with the base case estimates, are in the boxed ranges, and you change them if you like. The model permits configuration correlation among some of the variables as well.