Rough Order of Magnitude Template

Determining Product Development Cost – Cost Estimate SpreadSheet

This tool will estimate the development cost for a new product before knowing the requirements and conceptual design.  Sometimes called a ROM (Rough Order of Magnitude). 

Successful product development projects start with a realistic budget. Knowing how much it will cost to develop a product is necessary to calculate the Return on Investment (ROI) and ensure there is enough cash to complete the project.

In large companies, this cost estimating is generally not an issue. These companies complete the requirements and conceptual design phases and then build a bottoms-up plan that accurately estimates these costs. However, in small companies, the cost of developing requirements, conceptual designs and development budgets can be significant in themselves – especially if many projects will be proposed, and only a few will be funded.

Traditionally, it has been difficult to accurately estimate product development projects before having clear requirements and an agreed-to conceptual design. There are many assumptions that one must make that will affect the cost. This spreadsheet lists these assumptions and allows one to test the sensitivity of each assumption. This tool can be very helpful for small companies looking for a better way to determine which projects should proceed to the requirements and conceptual design phase. In addition, the tool highlights which assumptions will have the most impact on the product development budget and thus can instruct the requirements and conceptual design phases so that there is a higher likelihood of having an appropriate budget.