The cost of the project is often fixed before the design is done, and sometimes even before design has begun. Estimation now becomes more of guesswork based upon experience that was gained by screwing up earlier estimates. Without the design, it was quite impossible to know how many lines of code/functions/components/objects would be required. The estimator should rely on data and documents available before one starts the design, such as the functional and non-functional requirements, workflows, and use-cases. Therefore, requirements gathering and analysis is very critical to the project's estimation (design, development, and testing).
The cost of the project is determined based on the effort estimation, in addition to the needed resources cost, e.g. computers, printers, transportation cost… which are considered as direct cost on the project. Other indirect costs should also be included in the definition of the man/day price, examples of indirect costs are: electricity, non-core functions salaries, water, taxes…
Some organizations define rates for each resource depending on his role and his salary scale, and other organizations just have a fixed price for the man/day. In all cases, there should be a risk factor included in the cost estimation.
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