Quality Based Costing (QBC)

Keith Baxter of De-RISK, based in the UK, has developed a simple but effective way of capturing and visualizing the impact of risk on a project estimate.  The approach, called Quality Based Costing (QBC),  and some examples are provided in the following paper on Keith's website: Quality Based Costing Paper QBC is based on the responses to structured questions about each project component which seek to identify four costs for that component:

  • Absolute Minimum
  • Best guess/realistic estimate
  • Contingency added
  • Disaster scenario

The approach is then to apply Monte Carlo simulation to derive a probability distribution of the likely cost.  I particularly like an estimation process that includes Monte Carlo simulation because it forces the project manager and organization to make an informed choice about the risk they wish to take on each project.

Written by Michael D. Harris at 18:43
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