11.1. Putting a Price Tag on Your Project

It's the old chicken-and-egg scenario—which comes first, the project budget or the project cost estimates? Either way, the organization wants to know how much the project will cost. Or, looking at it from the other direction—what's the maximum this project should cost to get the financial benefit the organization requires?

The financial benefit comes down to whether the project is worth the effort. How much money will the project make or how much will it save? What will it cost to get that result? For example, suppose the R&D eggheads have a fabulous idea for a new thingamabob that will revolutionize helium balloon distribution. The bean counters think sales could peak at $200,000 in the first year and then would drop off incrementally, earning $400,000 over the product's life cycle. The company has to decide how much they're willing to spend on the development project and how much profit they need to earn to make the project worthwhile. As the project manager, you're expected to provide cost estimates based on the agreed-upon project scope. The hard part is making the two figures agree with each other.