What Is Cost Estimation?

What Is Cost Estimation?

“Trying to manage a project without project management is like trying to play a football game without a game plan”– Katherine Tate

And, a project just can’t be accomplished without a proper cost structure. Money, along with other factors or resources is equally important to fulfill the objective of the project. Here comes in picture, the concept of Cost Estimation. Prediction about the expenditures to be incurred from the initial phase to the completion of a project is cost estimation. According to the Real Estate Regulatory Authority, ‘’estimated cost of real estate project’’ means the total cost involved in developing the real estate project and includes the land cost, CESS, development and other charges (RERA Filing- Glossary, 2020). An approximate and accurate cost estimate including assumptions can be submitted for the bidding and procurement process. Simply put, to avoid the cost overruns during a project, forecasting the budget in a defined timeframe helps the decision makers to evaluate the performance of the overall project and take actions accordingly.

What Is Cost Estimation?

What constitutes a Cost Estimate?

A successful cost estimate can be accurate, credible and reliable for the project’s budget. It not only gives a list of costs but also allocates it in a specified set of time using a systematic approach. It is an on-going process to estimate the costs and keep a track of actual expenditures. This allows the decision-makers to understand if the construction project will be completed within the scope of definition or it will incur losses or more funds. It is a crucial task to allocate costs according to their nature. The main objective of the cost estimation is to allocate costs as per its nature. A well-known method of Work Breakdown Structure (WBS) can be effectively utilized to bring the costs on the negotiating table. The types of estimating can be classified as Preliminary Estimates, Intermediate Estimates and Final Estimates (Scott W. Cullen, 2016). The kinds of construction cost estimates include; Design Estimates, Bid Estimates and Control Estimates (Cost Estimation). A cost estimator is a key person who provides the approximate cost structure for the completion of the construction.

What are the traits of a good Cost-Estimator?

Well, a cost estimator managing a critical task, should be competent on the construction site and must possess analytical knowledge, communication and blueprint reading skills. A cost estimator should be a critical thinker, reliable, and trustworthy as the project runs on his/her monetary predictions. The basic objective of a cost estimator is to be responsible for understanding the budget and resources like manpower, material, equipment, services, and facilities and provide an accurate estimate for the project lifecycle.

Where there is an involvement of money, there are possible risks and uncertainties involved too. In the construction industry, funds can either raise a building successfully or let it remain as an incomplete plan. A cost estimator is supposed to consider all types of costs while preparing the estimate. The categories of costs include; Direct and Indirect cost, Fixed and Variable cost, Controllable and Uncontrollable cost and other overheads or miscellaneous costs. Due to high risks and unexpected concerns, a cost estimator includes a contingency allowance in the forecast. The uncertainties can vary from the unavailability of funds, lack of material or labors, natural calamities or any other uncontrollable events. Hence, it is wise to have a plan B in place.

The best practices to achieve the objective of the project can be:

  • Clear Task Identification
  • Data Validity
  • Systematic Cost Structure
  • Recognition of Uncertainties and Hidden Costs
  • Feasible Contingency Plans

These best practices can identify the problems or loopholes and suggest solutions and a plan of action immediately.

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