What is project cost estimation? 5-step process with examples

Cost estimation for digital products is a challenging yet crucial process that aids in making informed decisions about resource allocation, budgeting, and project timelines. Unlike physical products, digital projects resist precise upfront calculations, requiring a more dynamic approach. A common technique involves assembling a diverse team, categorizing tasks using a T-shirt size scale (XS to XL), and leveraging past projects as references to estimate the required effort for various roles. This process helps product managers evaluate the viability of initiatives, avoid resource wastage, and adapt estimates as project circumstances evolve. Factors such as team experience, domain knowledge, dependencies, and user access significantly influence the accuracy of these estimates. While estimates are not firm commitments, they provide a foundational understanding that helps prioritize projects and maximize value delivery within limited resources. The iterative nature of cost estimation encourages continuous learning and adaptation, emphasizing transparency and the importance of focusing more on execution than extensive deliberation.