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According to the Online Business Dictionary, "cost estimate" is defined as “an approximation of the probable cost of a product, program, or project, computed on the basis of available information." Cost estimation consists of looking at the details and design of the project, figuring out what it takes to get the work done, estimating each task, considering all resources, preparing a schedule and calculating the total cost. It is an important part of the planning and design phase of any construction project and one of the most critical tasks for a construction project manager. If a project manager has good cost estimation skills, he or she can save the project a significant amount of money.
Having a set of standards for cost estimation gives the project proper, documented and uniform guidance to follow when conducting cost estimation. Of course, each manager has his own way of calculating cost. While no one way is right or wrong, having standards and regulations provide process and governance that applies across projects and across teams. It also helps new employees ease into their jobs and guide them with concepts and formats that worked for others.
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Best Practice 1: Understand the Design Details Thoroughly
No matter what size a project is, project managers must thoroughly understand the project’s design details. Understanding the project’s design details is crucial to estimating the cost because each task within the project derives from a project’s design and these tasks require time, employees and other important resources that must be considered during cost estimation.
If project managers do not understand things within the design, they must ask for an explanation. Sometimes even the tiniest misunderstanding can create huge problems that cost the project extra expenses. Early detection eliminates future complications. The more details managers know and understand, the more clearly and carefully they can create a plan for the project.
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Best Practice 2: Plan for the Unexpected
Does the project happen during winter or summer? How much does the company save hiring people from company A than company B? Will the negotiations with the union turn out successfully?
If a project happens during winter, managers need to account for bad weather. If a project becomes stressed for funding, managers need to search for cheaper labor. And if negotiations with the union do not reach agreement, then workers on the project might go on strike.
During a construction project, many things can go wrong. It is up to the project managers to watch out for surprises and provide alternate solutions. Project managers need to plan for the unexpected while hoping for the best.
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Best Practice 3: Break Down Tasks
Enormous assignments are normally overwhelming for people to do and estimating the cost of such assignments seem even harder. However, if people break a big assignment into smaller tasks that all contribute to getting the assignment done, they will feel more at ease conducting and cost estimating the assignment.
For example, it is much more credible to say, “painting the house consists of finding a painter, mixing the color, painting, drying and examining for discrepencies, and it takes two hours to find a painter, one hour to mix the right color..." than to say, “It will take about two days to paint the house."
By meticulously breaking bigger tasks into smaller ones, the project can be seen in a detailed perspective and each task be planned for more carefully.
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Best Practice 4: Provide Justification
People often ask the question, “why?" They want to know the reasons behind a certain decision. If project managers designate a certain amount of time and money for a task, they need to provide proper reasons to justify their decision.
Being able to explain why each task is apart of the project plan and why it has been allotted the intended effort gives project managers’ decision reliability and credibility.
Managers need to provide justification for their decisions to not only the higher ups but also to contractors and those working under them because such information impacts the jobs of all parties involved in the project.
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Best Practice 5: Be Flexible
Many times, projects do not go according to plan and unexpected problems surface. Even though project managers conducted considerable planning and careful cost estimating, things change when the project is in full swing and new plan and estimation are needed. Project managers need to be flexible with their estimations and expect that unforeseen problems will rise and their original estimations will need adjustments quickly.
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Cost estimation is an important task on a construction project because it makes a huge impact down the line. If done incorrectly and irresponsibly, the project will suffer serious loss. It is an undertaking that takes practice, trial-and-error and experience to master. With best practices to refer to, however, conducting precise and trustworthy cost estimation that benefits the project and the organization can be achieved.
- Image credit: sxc.hu,ColinBroug
- Business Dictionary, Cost Estimate. http://www.businessdictionary.com/definition/cost-estimate.html