What Is Cost Estimating?
Construction and manufacturing projects are often large scale endeavors that require enormous sums of money to complete. More often than not, a wrong estimate of the expenses for a particular project can spell its doom since not having enough money to complete it will mean that it won’t ever get finished until and unless it gets funded again. Based on this premise then, it becomes obvious that getting a handle on the cost of major projects is a very important task. It leaves little room for error that could adversely affect the outcome of the project.
Thankfully, this important activity has been brought down to a science in the process known as cost estimating. Detailed cost estimates are often prepared by professionals known as cost estimators to help clients understand how much money they should allocate for a particular project. The estimate also serves as a way for everyone involved in the project to validate the budget especially if the preliminary estimates given happen to be substantially different from the final detailed estimates.
Cost estimating can happen in the realms of construction, manufacturing, aerospace missions, software development and resource exploration, among others. They take into consideration the various aspects of the project before providing an estimate of the expected costs. In the area of construction, for example, cost estimates usually include the acquisition of the land, the feasibility studies that need to be done for the construction to proceed, the materials and equipment needed and the cost of labor for those who will be working on the project. For other projects, it may be necessary to factor in the cost of software, hardware and other services into the equation.
There are many different techniques and approaches that are employed in order for cost estimators to provide the most accurate figures. Some use their expert judgment honed by previous experience in the field of project management in quoting the project’s overall cost. Others utilize three-point estimates to provide a range for the total expenses that will be incurred by the project. In this technique, estimates are given in the best case, most likely case and worst-case scenarios. Another way for cost estimators to figure out the cost of a project is to review bids from vendors and based on the data given, analyze how much the project is likely to cost. Software programs can now also be used to come up with the detailed estimates that clients ask for. What makes using project management cost estimating software applications advantageous is that it has the power to provide multiple cost estimates quickly. There are also cost estimators who use data from gleaned from a previous project that is similar to the present one and uses the former as a baseline to determine how much the latter will cost. Known as analogous estimating, cost estimators take such factors as project size, duration and complexity of the current project into account to come up with the latest estimates. These are just a few examples of the techniques used in cost estimating.
For cost estimates to be accurate, cost estimators must be knowledgeable about the basic economic principles and methods that apply to the industry or project for which an estimate is sought. They should also know the materials and processes that are going to be used as well as the specific details related to the costs. They should also know the scope and parameters of the project before they can provide the final estimates.