UCLA Extension

Cost Estimation and Economic Evaluation of Projects

A 4-Day Short Course

Rapidly advancing technology, increasing project complexity, and competitive pressures demand better cost estimation and economic evaluation of projects, processes, products, or services, whether developing new ones or improving existing ones. Successful engineers, scientists, managers, and business and financial analysts must use modern cost estimating and economic evaluation techniques to select the optimum mix of projects for today’s cost-conscious environment. Accurate project cost estimates and investment evaluations are critical to staying competitive and optimizing organizational resources.

Complete Details

This course develops the skills needed to prepare, review, approve, supervise, monitor, and/or use cost estimates and economic evaluations in research, development, design, manufacturing, marketing, and management. The course also discusses how to produce accurate cost estimates and investment evaluations to avoid large cost overruns or unsatisfactory investment returns, whether the project budget is a few thousand dollars or millions of dollars.

Specific course objectives include:

  • Understanding how cost estimation and investment evaluation fit into the life cycle of a project, process, product, or service—from conception and definition through design and construction to implementation, operation, and disposal
  • Gaining an appreciation for the advantages, disadvantages, and pitfalls of different cost estimation and economic evaluation methods
  • Describing how to do order-of-magnitude, budget, and detailed cost estimates
  • Gaining insight into economic evaluations by using sensitivity and risk analysis
  • Understanding how to avoid common errors and pitfalls in cost estimation and capital investment evaluation
  • Knowing the importance of new costing and investment concepts and paradigms
  • Giving insight into the cost estimation and investment evaluation process by presenting case studies from a broad cross-section of the public and private sectors
  • Introducing rules-of-thumb and reference sources
  • Comparing and contrasting economic evaluations in the public sector, such as at national laboratories with evaluations done at corporations
  • Dealing with emerging cost factors, such as new environmental, safety, and government regulations; improved quality; international projects; and reengineering

The course consists of lectures, discussion, and individual and group exercises.

Please bring a calculator.

Course Materials

Course notes, consisting of copies of viewgraphs and supplementary readings, are distributed on the first day of the course. These materials are for participants only and are not for sale.

Coordinator and Lecturer

Donald S. Remer, PhD, PE, Partner, Claremont Consulting Group, Claremont, California; and Oliver C. Field Professor of Engineering, Harvey Mudd College of Engineering and Science, Claremont, California. Dr. Remer has been performing and managing cost estimation and project feasibility studies and technical and economic evaluations for over 25 years. His industrial and consulting experience includes aerospace, automotive, biotechnology, chemical, computer software and hardware, electronics, medical products, oil shale, paper and pulp, and petroleum companies; design, construction, and legal firms; local, regional, and federal agencies; utilities and railroads; research laboratories; and energy and environmental projects. His clients range from small entrepreneurs to Fortune 500 companies and government agencies, including such recent clients as Boeing, Booz-Allen & Hamilton, GEC Marconi, Lear Astronics, Hewlett-Packard, TRW, Disney, the FAA, Sequent Computer, JPL, 20th Century Fox, Amgen, QAD, St. Jude Medical, Lawrence Livermore and Lawrence Berkeley National Laboratories, Los Alamos National Laboratory, Sandia National Laboratories, U.S. Coast Guard, County of San Bernardino, and the City of Tucson, Arizona. He also has served as a task force manager and division coordinator for Exxon, and as director of the Energy Institute at Harvey Mudd College.

Dr. Remer is a registered Professional Engineer in California, Michigan, and Louisiana. He has produced over 50 publications on cost estimation, capital investment evaluation, and engineering management, and his paper on cost modeling was named outstanding paper of the year in the Journal of Parametrics by the International Society of Parametric Analysts. Dr. Remer was case study editor of The Engineering Economist for over a decade and has been on the editorial board of Engineering and Process Economics and Engineering Costs and Production Economics. He is currently on the editorial board of the International Journal of Production Economics.

Course Program


  • Historical cost estimates vs. final costs

Cost Estimating Methods

  • Top-down cost estimating
  • Bottom-up cost estimating
  • Parametric cost estimating
    — Simple models: power law and sizing factors
    — Complex models: Cost Estimating Relationships (CERs)
  • Activity-based costing
  • Ratio cost estimating
  • Probability range estimating
  • Price-to-win estimating

Cost Estimation Problem Areas

  • Software development and life cycle costs
  • Maintenance costs
  • Labor costs, fringe benefits, and overhead rates
  • Learning curves for manufacturing costs and capital investments
  • Documentation costs
  • Obtaining good cost quotes

Types of Cost Estimates

  • Order of magnitude
  • Budget
  • Detailed
  • Corporate example

Case Studies on Cost Estimation from a Broad Cross-Section of the Private and Public Sectors

  • NASA Deep Space Network
    — Long-range planning cost model
    — Major cost drivers
  • Biotechnology
    — Detailed cost estimate and sensitivity analysis
    — Recombinant DNA manufacturing process
  • Electronics
    — Printed circuit board assembly
    — Costing tool for concurrent engineering
    — Activity-based costing

Managing the Cost Estimation Process

  • Key questions to ask
  • Contingency policy and a contingency algorithm
  • Cost estimate accuracy vs. precision
  • Pareto’s Law (80/20 Rule)
  • The cost and time to do a cost estimate
  • Cost of inadequate resource allocation
  • Fantasy factor and 90% Syndrome
  • Question the requirements to reduce over design
  • Post-mortem variance analysis

Transition from Cost Estimation to Economic Evaluation

Time Value of Money and Interest Rates

  • Compound interest formulas
  • Capital recovery and sinking fund factors
  • Present and future values
  • Cash flow diagrams
  • Amortized loans

Methods for Comparing and Evaluating Alternatives

  • Present value methods
  • Annual worth evaluations
  • Rate of return methods
  • Payback period methods
  • Benefit-cost evaluations
  • Cost effectiveness analyses
  • Advantages, disadvantages, and potential pitfalls of each method
  • Common applications and techniques
    — Break-even analysis
    — Life cycle cost analysis
    — Initial cost minimization
    — Design-to-cost evaluations
    — Public sector vs. private sector evaluations
    — Earned value

Tax Considerations in Project Evaluations

  • How to calculate federal, state, and local taxes: corporate and individual
  • Personal economic and investment decisions

Inflation and Cost Indexes (Domestic and International)

  • How to include inflation in estimates and evaluations
  • Government and industrial cost indexes
  • Actual vs. constant dollars

Managing Economic Evaluations

  • Investment yardsticks
  • Current corporate practice is changing
  • Cost of money and Minimum Acceptable Rate of Return (MARR)
  • Sensitivity and risk analysis

Case Studies on Economic Evaluation from a Broad Cross-Section of the Public and Private Sectors

  • Biotechnology
  • Cogeneration
  • Department of Defense

Common Errors and Rules of Thumb in Cost Estimation and Economic Evaluation

  • Negotiating cost estimates vs. requirements
  • Gold plating
  • Rule of 10
  • Inadequate project definition
  • Misuse of contingency
  • Requirements slippage
  • Subjective factors and assumptions
  • Overstating productivity improvements from high-technology advances

Emerging Factors in Cost Estimation and Economic Evaluation

  • Cost of environmental, safety, and governmental regulations
  • Cost of litigation
  • International projects
  • Software development costs abroad
  • Global competition and regional competition in U.S.
  • Quality considerations (TQM and ISO 9000)
  • Concurrent engineering and construction
  • Training costs
  • Reengineering
  • COTS (Commercial-Off-The-Shelf)

Sources for Cost Estimating and Economic Evaluation Information

For more information contact the Short Course Program Office:
shortcourses@uclaextension.edu | (310) 825-3344 | fax (310) 206-2815