The relation between project managers and the use of cost estimate techniques seems quite evident. Various cost estimation techniques have arrived as of today. You can incorporate them into your project management tasks. Let have a look at the detailed explanation of cost estimation techniques used in the construction industry.
Planning for a project budget remains a time-consuming task. However, using any of these cost estimation techniques may ease your job. You can utilize these practices throughout your project life cycle.
If you correctly estimate the project budget! Then it will surely bring a positive impact on every single facet of your project. And a poorly designed budget gives you unrealistic expectations. Even, it may lead to a failed project.
Basics on Construction Cost Estimation
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We have commonly witnessed the cost estimation process in various construction project management fields. It makes your project budget planning phase reliable. Through this cost estimation process, It gets easy for project managers to reasonably determine the cost projections. While you carry out this technique, It remains a must to include both the direct and indirect costs.
Various Types of Cost Estimates in Project Management
Analogous Estimating
Firstly, we have this analogous estimating technique. It counts itself as one of the popular cost estimation techniques. In this method, the estimator usually calculates the expected costs of the future project based on a similar project executed in the past. Furthermore, this method of estimation exclusively relies upon historical data. It even depends on the expert judgment given by the project manager.
Parametric Estimating
Then we have this parametric estimating technique. It is commonly used by lots of beginner-level project managers. And here, dollar value remains assigned to project costs. Besides, the dollar value gets based on the combination of historical data and statistical modeling. It is a more accurate cost estimation technique as compared to analogous estimating. However, this technique needs more amount of initial data. This way, costs can get assessed accurately. Most importantly, this technique identifies the possible number of cost drivers. And even helps you develop suitable cost models!
Bottom-Up Estimating
Moving on to this bottom-up estimating technique! It seems highly suitable for larger projects. In this technique, we break down the project into smaller components. In this way, a clear cost estimation process can be carried out. We split the project between several departments. And costs are then estimated by each department. With the help of the bottom-up estimating technique, project managers get a clear picture. They tend to give a close eye look to each of their project components. Hence, this technique has become a popular choice because of its accuracy.
Three-Point Estimating
In this cost estimation technique, the project manager identifies three separate cost estimates. The first stage of this cost estimation technique requires preparing an optimistic estimate. Here project tasks get done in an efficient manner. And the project manager spends funds most efficiently.
Moreover, the second point of this technique usually represents the “pessimistic” estimate. And here, project funds remain utilized in the least efficient style. Lastly, we have the third stage! It depicts the most likely situation and lies in between the two stages mentioned above.
Factor Estimating
This technique gives us a feasibility glimpse of our project plan. In addition, this respective technique guides us on whether that specific project should get accepted or not. It signals us whether it will be a waste of time for us. Or give us a maximum return on our investment. In short, we can get a go or no-go decision based on the factor estimating technique.
Equipment Factored Estimating
In this method, the cost of process equipment gets estimated individually. And then, we have to multiply it by an installation factor. This way, the project manager can reach the final cost estimation. Besides, this technique comes with lots of practical implications. Undoubtedly, it has become a proven cost estimation technique. Under this category, one can estimate subcontracted costs. We can even estimate associated direct labor costs as well as other materials costs.
Lang Method and Hand Method
This is a famous cost estimation technique used in construction projects management. It needs a lot of project information to make an accurate estimation. This hand method got introduced by W.E. Hand. This technique was initially an extension of the Lang method. And it generally makes use of different factors to estimate the cost of project equipment. Moreover, this technique does not compute the cost per process type. In this category of Hand’s factors, We have seen that indirect field costs like home office costs are usually excluded.
How Much Time is Needed to Learn Cost Estimation Skill?
Undeniably, learning cost estimation skills has become the need of time. It should now get known by all project managers. Though this practice needs a lot of time as well as training. But sooner or later, you get a grip on it.
Getting hands-on practice on this skill gives you a lot of career advancement opportunities. You become proficient enough in managing budgets. If you wish to work as a project manager then make sure to get formal training in this domain.
Getting a master’s degree in project management will help you in successfully developing your cost estimation skills. Furthermore, you get added benefits that can excel your career.
Hence, we have identified some of the basic cost estimation techniques used in the construction field. And sooner more and more techniques will get introduced by professionals. If you want to advance in your project management career then you should practically learn and implement these techniques. Keep in touch with us to know more about project management and cost estimation.