An organization is probably engaged in several projects at one time. They might be spending a huge time planning, gathering resources, and discussing future prospects with the client. But what if the cost estimation of the project goes wrong? All in vain. The entire exercise will be of no use. A proper project cost estimation guides you about how much to spend and how to maintain budgets. An incorrect estimation can take your business on the darker side where you not only have to bear losses but also have to face the wastage of valuable resources.
Project costing is a technical task and requires utter carefulness throughout the whole process. The best way to make accurate calculations is to go through the alike project accomplished by the organization before. This article has covered the details regarding the true essence of correct estimation, the involved factors in it, and techniques of estimation.
Basics of Project Cost Estimation
Project cost evaluation is a process of forecasting the entire cost of an outlined project scope. It holds an important share in the project cost management field. While the project is in a running state, correct costing authenticates the overall budget required for it. This ensures proper controlling or monitoring for a streamlined process. No doubt, the project scope may change from time to time and sometimes it becomes difficult to give final figures, but the approximation is what you can do for the close estimates.
Importance of the Project Costing
In the initial phases of the project, cost estimation often seems like a trivial job. Hence, consequently, its fundamentals are overlooked. Later on, this has to face difficulties. Below are some areas of interest that highlight the vitality of cost estimation in project management.
Ensures Project’s Financial Viability
Correct project estimation makes the decisive channel easier regarding if the project is viable to carry on or not. At this end, the project manager scrutinizes the worth of the project for the organization. He/she decides either to continue with the project if the completion is done within the given resources or should put it to a stop.
Estimation Pave the Right Pathway to Move On
An ideal match between the actual and projected scenario increases the worth of the subject matter. The right choice of construction estimating services can lead to the right project cost estimation. It also navigates the right track throughout. With a proper estimation, you will become definite about your upcoming project goals. You can inspect with a clear vision whether your accomplishments are in accordance with the set targets or if is there any deviation. Moreover, the project manager gets assistance for timely modifications in case of discrepancies.
Aspects of the Construction Project Estimation
As we already know, cost estimation requires every inch for consideration to avoid loopholes in the future. It covers all the factors of material take-off, labor man-hours, equipment, and so on in its evaluation for framing an accurate picture. Your certainty about your estimations depends upon the accuracy of the calculations you have made encompassing all minor to major elements. Authentic costing builds strong customer relations in the end. For instance, a customer approves the project estimate that later crosses the time span mentioned and the budget. This invites dissatisfaction at one end and ruins the trustworthiness on the other.
Segregation of the direct and indirect costs, while making construction project cost estimation, is very necessary. As both play a crucial part in the overall project pricing. Let’s check on what are these.
Direct costs are the apparent expenses that are closely linked to your construction project. The bracket of these costs comprises the laborers, their working hours, costing software, tools & equipment, material, and all the attachments required for a particular industry project completion. Labor wages are decided on a fixed rate in most cases but the prices of technology and equipment may change referring to the current situation.
Indirect costs also referred to as overhead costs encompass all the hidden charges that are not visible but are of much importance in drafting accurate costs. Utilities, rents, and the price of doing daily operations come under this head. Some indirect costs are of fixed nature as direct costs and some may vary depending upon the circumstances.
Techniques of Estimating Project Cost
Projects differ by way of their size, magnitude, type, financing requirements, and outcome expectations. Based on these varying factors different estimating techniques have come into play according to suitability, as one method doesn’t fit all types.
This estimation technique calls the construction estimator to cut down the whole project into individual tasks and forecast the cost associated with each task for the project completion. Estimation of construction cost using the bottom-up method necessitates the collection of cost data from previous projects and requires steadfast teamwork for giving inputs regarding task duration and their costs.
In a top-down estimating method, a project manager estimates the entire cost of the project and determines the timeline of the project completion in the absence of detailed information. Likewise, the scope of the project is ascertained and work procedures are settled down accordingly. Those projects are estimated through this method whose prices are fixed and stated earlier by the clients.
Analogous estimating is required for the anomalous type of projects for which making accurate estimates becomes critical. It takes help from the previous identical completed projects for specifying the cost and timeline of the current project. As there is very limited information present in this case, these projects are more prone to errors while calculating cost if a reference to the past is not made.
Parametric estimation also relies on specific data points of previous projects to evaluate overall cost accurately. In this, particular tasks are figured out with respect to their cost and time elements, and those figures are added to the new estimation. This type of estimation is suitable for projects whose past data is scalable in nature.
Three-point estimation method generates worst-case to best-case scenarios of cost estimates. An estimator uses this technique in case of highly uncertain project estimates.