A way to assess initial and future total costs. Working out the costs of a project requires careful attention to what cost information is relevant, what's available, and how it can be interpreted and used. Although it can seem like a straightforward task, a comprehensive cost analysis can be quite complex and demanding. A cost is something of value that is given up or exchanged for a particular reason. It might be as obvious as the financial outlay for some new equipment or as subtle as the extra time it takes a supervisor to explain new procedures to a staff member. And costs continue beyond the initial start up phase of a new system or program and must be estimated for recurring annual expenses.

Detailed breakdown of costs. Cost estimation helps specify all the different categories of cost associated with both the start up and the ongoing operation of a system or service. The list of categories can be quite long if the project is large and complex. The cost estimate should include the costs of developing and maintaining the system, preparing the agency computing infrastructure to support it, and training staff and other end users to use it. It should also include the cost of all of the staff time involved in the planning, decision-making, and training for the project. Both one-time costs and ongoing costs should be included.

Determination of the costs of alternative approaches. The goal of cost estimation is to approximate the costs of alternative plans as thoroughly and explicitly as possible so they can be compared.

Avoiding underestimation. People often underestimate the costs of IT initiatives. Many times there are so many different kinds of expenses that some are overlooked. Frequently, the true cost of human resources is not made explicit, especially if most or all of the people to be involved are already on the payroll. The ongoing annual costs of hardware and software maintenance, upgrades, and training are often missed. By listing all the categories of cost that can be reasonably attributed the project, you are in a better position to later judge which alternatives give the best pay back.

Project evaluation. After a project is operational, initial cost categories and estimates can be used to evaluate how well the project performed with respect to its budget.

Failure to consider indirect and opportunity costs. Although these kinds of costs are often more difficult to identify and many not lend themselves to quantification, they should at least be identified and described so they can be factored into later choices about the cost-benefit of various alternatives. Direct costs of a new project are usually the easiest to identify and analyze, since they typically are the financial costs that are part of ordinary budget making and planning.

Indirect costs are usually based on estimates or pro-rating of shared resources, such as portion of infrastructure maintenance and depreciation or overall administration expense. These costs are usually more difficult to identify and analyze, since the estimates they require are often based on uncertain assumptions and limited knowledge of actual impact.

Opportunity costs are the losses or costs to the organization that result from implementing the new system rather than the alternative uses of those resources. These costs are real and can be important, but are very difficult to measure and document. Participants in the development and implementation of a new system are often very sensitive to opportunity costs, since these affect their day-to-day work. But these costs are not part of any formal accounting system and so may be ignored by planners and budget makers, often to the detriment of implementation. At the very least, you should attempt to identify the possible opportunity costs involved in your project and discuss ways to ameliorate negative impacts.

Difficulty estimating future costs. The cost of out years cannot be estimated with the precision or confidence that pertains to the first year. Some informed guessing is inevitable, especially in an environment of significant technological change.

Sample Cost Estimation Worksheet
	MODEST		MODERATE		ELABORATE
	First Year		First Year		First Year
		Annual		Annual		Annual
Project leadership
Project management
Organizational readiness training
Equipment for users
Program development and maintenance
Hardware acquisition
Hardware maintenance
. . . . .
. . . . .
. . . . .
HUMAN RESOURCE SUBTOTAL
INFRASTRUCTURE AND OTHER SUBTOTAL
TOTAL

Pardo, T. A., S. S. Dawes and A. M. Cresswell (2000) . Opening Gateways: A Practical Guide for Designing Electronic Records Access Programs. Center for Technology in Government. See the "Cost Estimation Tool" http://www.ctg.albany.edu/publications/guides/gateways?chapter=6

Boehm, B. W. "A Spiral Model of Software Development and Enhancement." Computer, (May 1988), 61-72.