The estimation of the software cost remains one of the most challenging problems in software engineering; as a preliminary estimate of cost includes many elements of uncertainty. Reliable and early estimates are difficult to obtain because of the lack of the detailed information about the future system at an early stage. However, the early estimates are really important when bidding for a contract or determining whether a project is feasible in terms of cost-benefit analysis. Estimators often rely on their past experiences for the prediction of effort for software projects. The fundamental factors that are contributing towards inaccuracy of the cost estimation process are imprecise and drifting requirements, information not readily available on past projects, and the methods that were developed and trained on specific data. In this thesis, we have developed a software cost estimation tool that helps commercial software-development organizations to effectively and quantitatively measure and analyze the software metrics based upon the functional requirements, operational constraints and organization’s capability to handle a project. This cost estimation tool is a fusion implementation or an essence of certain software measurement and estimation techniques that help a software organization to evaluate and analyze fundamental software metrics such as complexity, time, effort, and cost all of which are essential to improving turnaround time and attaining organizational maturity. The new cost estimation method is proposed for the iterative software development projects. The use case technique is implemented per iteration for the specification of the software requirements. COCOMO II and Function Point were used to compute the effort required for successive iterations. We also computed the magnitude of relative error for successive iterations. We tested the proposed method on student projects in order to illustrate its usefulness.