Cost Estimation
When developing a business plan for a new or existing company, product, or project, planners typically make cost estimates in order to assess whether revenues/benefits will cover costs (see cost-benefit analysis). This is done in both business and government. Costs are often underestimated, resulting in cost overrun during execution.
The main causes of cost underestimation and overrun are optimism bias and strategic misrepresentation (Flyvbjerg et al. 2002). Reference class forecasting was developed to curb optimism bias and strategic misrepresentation and arrive at more accurate cost estimates.
Cost-plus pricing, is where the price equals cost plus a percentage of overhead or profit margin.
Read more about this topic: Cost
Famous quotes containing the words cost and/or estimation:
“If music in general is an imitation of history, opera in particular is an imitation of human willfulness; it is rooted in the fact that we not only have feelings but insist upon having them at whatever cost to ourselves.... The quality common to all the great operatic roles, e.g., Don Giovanni, Norma, Lucia, Tristan, Isolde, Brünnhilde, is that each of them is a passionate and willful state of being. In real life they would all be bores, even Don Giovanni.”
—W.H. (Wystan Hugh)
“No man ever stood lower in my estimation for having a patch in his clothes; yet I am sure that there is greater anxiety, commonly, to have fashionable, or at least clean and unpatched clothes, than to have a sound conscience.”
—Henry David Thoreau (1817–1862)