From the course: Accounting Foundations: Cost Estimating
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Top-down approach
From the course: Accounting Foundations: Cost Estimating
Top-down approach
- When done well, and in detail, cost estimating is insightful for making major decisions, but not everything has to be estimated in great detail. Estimating in detail also takes up a lot of time which you may not have. And you might only need a rough estimate. If this is the case, top-down estimating is the approach for you. It's quick. And it's great for, let's say, the less critical purchases or projects, or simply when your boss needs the cost for something right now. For example, say your company wants to cost their first hybrid car. Since this is the first one, you'd have to look for similar offerings. And guess what? You find a similar gasoline powered model. Great. The cost of designing this car was $400,000. So you feel it's safe to roughly estimate the hybrid at about the same. So how does this work? You first start by defining major project tasks, starting with the goal or final deliverable. Then you…
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