Costing

Costing is the application of scientific and engineering principles and techniques to problems of cost estimation, cost control, business planning and management science. Costing is increasingly used in businesses to aid with decision support, producing quotes, negotiation and budgeting.

Cost Estimation

The cost of a product, service or project is as much an aim in itself as is the technical performance of the product.  Cost estimation helps companies with decision making, cost management and budgeting with respect to product development.  It is a methodology used for predicting/forecasting/estimating the cost of a work activity or output.  If costs are higher than the price that organisations can attain for products then the products will make losses and this influences the future viability of organisations.  Knowledge of the potential cost before the task is undertaken provides many opportunities including: enabling optimisation of design to minimise costs; and the capability to quote a price to customers that would lead to a profit being achieved. 

High profile cases of products or projects costing far more than initial cost estimates include the UK Ministry Of Defence projects for: the Eurofighter (by £1bn); Nimrod (£400m); Astute submarines (£1bn) (http://news.bbc.co.uk/1/hi/uk_politics/3421309.stm).  These examples show that often cost estimates are being exceeded, if the cost estimates had been in line with the actual costs different decisions about the projects may have been made

Cost Control

Cost control is concerned with managing the project effectively so that costs are not allowed to grow unnecessarily.  If a project is managed badly and costs are allowed to escalate the project would cost more than the estimate.  Organisations do not want to estimate for a badly managed project.  Therefore whichever cost estimating method is used the estimate may not be the same as the actual cost but it may not be because the estimate was poor.