Cost build up estimation in projects

Abstract

Cost estimation is a critical aspect of the projects management that involves predicting the likely cost of the projects and determining its feasibility based on available resources and constraints. In this wiki article, we will try to get a holistic view of the factors that affect the costs of the projects and present the cost estimation techniques and practices that can be applied to ultimately get it as close as possible to the actual cost of each project. There is a general view that the accuracy of cost estimates is crucial to all parties involved with the projects. As a result, it is very important to analyze the factors that affect the estimation cost. There are many, but a few of the most important ones are the complexity of the project, scale and scope of the project, time, effort, market conditions, if there is an accurate plan for the project and if the tasks are clarified, experience on the methods that required to be applied, the location and accessibility of the project, the financial situation of the client. Moreover, in order to improve estimation accuracy, we must collect all the information about the factors and in conjunction with the estimation techniques, models and methodologies we will manage to make the estimation process more accurate and easier. To conclude, cost estimation is a crucial component of project management that ensures that tasks are completed on time and within budget, alternatively companies may be severely harmed from the impact of incorrect cost estimates on their finances. Project managers can make good decisions and complete their projects efficiently if they are well aware of the variables that affect cost, have a good understanding of cost estimating techniques and the importance of cost control and monitoring.

Factors influencing cost build up estimating

When creating the cost estimate, the estimating department takes a broad view of the project and considers several variables, including expected output levels during the construction stage. The estimating department determines the consolidated cost estimate by considering the resources needed for the project in terms of quantity, quality, cost, and performance, as well as other factors (such as the extent of information requirements, project environment, etc.) that may affect the performance of those resources. [1]

In a more general perspective factors that influencing cost build up estimating can be divided into four main categories:

• Project-specific factors
• Resource factors
• Environmental factors
• Economic factors

Since the construction industry has influenced most of the literature that has been written regarding cost build up estimation projects, the following factors are the most crusial:

• Complexity of design and construction
• Method of construction/construction techniques
• Tender period and market condition
• Site constraint - access and storage limitation
• Clients’ financial situation and budget
• Location of project
• Availability and supplies of labor and materials
• Project team’ s experience of the construction type
• Lead times for delivery of materials
• Form of procurement and contractual arrangement
• Amount of special work / likely production time
• Off/on-site operations sequencing and limitations
• Expertise of consultants
• Number of project team members [1]

It's important to consider all these factors when estimating project costs, to ensure that the estimate is accurate and reflects the actual cost of completing the project. Project managers must use their judgment and expertise to make informed decisions about these factors when estimating costs.

Cost estimation techniques

Product cost estimation techniques

Qualitative techniques

• Intuitive-estimates are based on the expert estimator’s experience.
• Analogical-estimates made on the definition and the analysis of the degree of similarity between the new product and another one for which cost has been estimated in the past.

Quantitative techniques

• Parametric-estimates based on an analytical function of a set of parameters characterising the product, without describing it completely. These are known to be top-down applications.
• Analytical-based on a detailed analysis of the work required into the elementary tasks that constitute the manufacturing process. This is also termed as bottom up techniques where the cost data are collected from the smallest component levels and aggregated to the total product level.

Service cost estimation techniques

• Top-down costing
• Bottom up costing/activity-based costing
• Mixed approach
• Analogy-based estimates
• Extrapolation based on expert opinion [2]

Challenges and areas of implement

There are many things that could be done better. The risks that have been identified in all the aforementioned examples are primarily equipment-related risks, with minimal consideration for consumer value. Understanding the relationship between client satisfaction and expenses is crucial for tracing the origins of profitability at the customer level as the need for businesses to become more customer-centric grows. There are no studies specifically focusing on the dangers associated with this link between cost and value. There is still room for more study in this area. The cost modeling of availability-type contracts still has room for improvement in terms of accuracy and joint cost modeling.

References

[1] Analysis of factors influencing project cost estimating practice, AKINTOLA AKINTOYE Department of Building and Surveying, Glasgow Caledonian University, Cowcaddens Road, Glasgow G4 0BA, UKReceived 10 June 1998; accepted 17 December 1998 [2] Cost modelling techniques for availability type service support contracts: A literature review and empirical study. Partha P. Datta a,*, Rajkumar Roy b