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What Is an Estimating Methodology?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 April 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Also referred to as an estimating technique, an estimating methodology is a process that is utilized to project the type and amount of resources required to successfully engage in and complete a specific task or reach an identified goal. The process calls for understanding what must be done in order to achieve the desired outcome, then settle on the resource requirements associated with the activity. Engaging in estimating methodology can aid businesses in understand what type of costs are involved with pursuing a given action and weigh those costs against the anticipated returns.

There is no one formula that is used for every incidence of an estimating methodology. Instead, the process requires a few basic steps that may be modified to suit the circumstances surrounding the activity under consideration. One important step is to determine the desired outcome of the activity in terms of some type of rewards or benefits. From there, the focus is on identifying what must occur in order to earn those benefits. As a final component, determining all the resources needed to achieve the goal, including any indirect costs that may be involved makes it possible to decide if those rewards are really worth the expenditure of the resources, or if the project should be abandoned in favor of something that is more equitable.

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It is possible to apply an estimating methodology to just about any type of project involving finances. For example, a small business may look closely at the costs of replacing older desktop computers with newer ones, taking into consideration both the benefits the business will enjoy as a result and the amount of costs involved in the replacement. A manufacturing company may also look closely at how installing new machinery would affect production quotas in comparison to continuing to operate with the older machinery. Even in terms of carrying stock in a small grocery store, the owner may weigh the merits versus the drawbacks of switching from one canned food provider to another.

The ultimate goal of estimating methodology is to ensure the decision that is ultimately made is financially sound and in the best interests of the individual or company. By understanding in advance what type of resources will be necessary to earn the benefits or returns desired, it is possible to decide if a given strategy is worth the effort, or if it should be avoided in deference to another strategy that would produce similar benefits but with the consumption of fewer resources. Responsible use of this technique can save a company a great deal of money as well as time and other resources.

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