Project planning is an important basis for cost estimating. An accurate plan will provide an accurate cost estimate. Proper planning will reveal tasks, durations, resources required and other factors that will be taken into account during the cost estimation process. Before cost estimation can occur, project managers should have a detailed account of the milestones and tasks that need to be undertaken for project success. One way project managers can obtain this knowledge is by decomposing the milestones into work units. For information on decomposition, you may wish to read my series on the topic. You may even wish to have already constructed the work breakdown structure for the project.
Second, you will need to have an accurate estimate of resources required for the project. You will only be able to estimate resources once you have determined the necessary tasks and estimated the project's duration. Procurement resources, such as technology or space will have a cost associated with them - either a rental fee, or a purchase price. Human resources will have an hourly rate or salary associated with them. By determining which resources your project will require, the time it will take to complete the project, and any fixed costs associated with the project, you will be almost ready to estimate the project cost.
