From the course: Accounting Foundations: Cost Estimating
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Three-point estimating
From the course: Accounting Foundations: Cost Estimating
Three-point estimating
- Have you ever hired someone to do work around your house? Really good contractors will go into great detail giving you a realistic cost. And they may tell you some of the challenges that could delay the renovation, as well as anything that could go better than expected. If you experienced this, then you and the contractor did a version of a three-point estimate. Three-point estimation calculates a realistic estimate by applying three different scenarios to the costs. These scenarios layer a cost risk something like the best, worst, and most likely outcomes. Let's say you ask your team to design a webpage. If everything goes well, they can do it in two hours. If things go bad, it may take up to 10 hours. But they believe it can be done in five hours. Now, if we weight each scenario equally, the estimate is 5.7 hours. This is just an average of the three estimates. But if you know your client is demanding and expects many…
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