Class 5 vs. Class 4 Cost Estimates and Their Relationship to Front-End Loading (FEL)
When companies plan big projects, like building a new factory or a large software system, they need to guess how much it will cost. These guesses are called "cost estimates." Class 5 estimates are the very first, rough guesses. Imagine you're just thinking about building a treehouse: you might guess it'll cost "a few hundred dollars" without drawing any plans or buying any wood. That's like a Class 5 estimate. It happens when you know very little about the project (maybe 0-2% of the details). These estimates are used to decide if an idea is even worth looking into more. Because you know so little, these guesses can be way off – sometimes 50% too low or even 100% too high!
As you start to draw some basic plans for your treehouse, maybe figuring out how many planks you need and what kind of nails, your guess gets a bit better. This is like a Class 4 estimate. At this stage, you have a bit more information about the project (maybe 1-15% of the details). Companies use these estimates to decide which ideas are the best to move forward with and to set a very early budget. Since you have more details, the guess is usually more accurate than a Class 5 estimate, but it can still be quite a bit off – maybe 30% too low or 50% too high.
Both Class 5 and Class 4 estimates are super important for something called Front-End Loading (FEL). Think of FEL as doing your homework before you start building. It means spending time and effort upfront to plan and understand the project really well. The idea is that the more planning you do early on, the fewer surprises and expensive changes you'll have later. Class 5 estimates help you decide if an idea is even worth planning. Then, Class 4 estimates help you pick the best plan to develop further. By using these estimates in the early FEL stages, companies try to make smart decisions and avoid wasting money on projects that aren't well-thought-out.
You can find the overview here
