Advantages & Disadvantages of the Cost Estimation Model

Cost estimation refers to analyzing the costs of projects, supplies and updates in business; analytics are usually conducted via software or at least a set process of research and reporting. Cost estimation models are a well-known sector of data and process management systems, and many types that companies can use based on their business models. These models have inherent strengths but also come with weaknesses that can make them difficult to use in some situations.

Flexible Areas of Calculation

Cost estimation models interpret costs. Some use an array of algorithmic models to assign values to certain factors in order to compute costs. Other models include an expert judgment model and an analogy estimation.

Efficiency and Cost Control

Efficiency refers to the ability to do a task quickly and accurately, saving the business both time and money. When the right type of model is chosen, the business can realize gains from efficiency by using cost estimation to quickly calculate expenses and make choices on funding projects, choosing suppliers and other activities.


On the downside, cost estimation is somewhat subjective. Even with algorithmic models, it is usually up to the business to weight certain values over others and assign the correct values to factors. The other model options are even more subjective. This means that sometimes a manager can make mistakes just as easily when using a cost estimation model than when working without one.

Variable Factors

In a perfect world, factors remain steady and cost estimation models always produce accurate results. Unfortunately, markets are in constant flux, prices change and technology is always moving onward. This leads to constant changes in price, which means that costs have to be frequently updated and values changed to match. This can be a drain on time, especially in highly complex models.