Too often cost estimating is underestimated (no pun intended…) as a profession within the overall project organization. Establishing the right budget is essential for the right decision making and selecting profitable projects. Of course, this is not the only factor of completing a project successfully within time and within budget. Proper cost control is also needed to keep the project within boundaries during execution.
Without a good cost estimate, you are off to a bad start, so here are four tips that can help you improve your cost estimating results right away.
1. Cost Estimators need to live the project
Cost estimating is not just a job you can do at your desk. To deliver an accurate and reliable cost estimate for your project, you should know in detail what is going on in the project. Experience of the estimator plays an important role, but still every project has its special conditions and circumstances. A good cost estimator has to take part in site visits, talk with all stakeholders to identify these conditions and incorporate them in the estimate. In other words, he or she needs to live the project and should know what’s going on at all times.
2. Pareto’s Law: the 80/20 rule
One of the most famous laws is arguably Pareto’s Law. This is also known as the 80/20 rule, meaning that 80% of the effects come from 20% of the causes. This rule certainly also applies to cost estimating. Think about it; no matter what type of project you are looking at, there are always elements that determine a large part of the overall cost. It is better to focus on these items than spending valuable time on trying to accurately estimate parts that will only have a minor impact on the overall result, as this could lead to ‘fake accuracy’.
3. Close the loop with cost management
The easiest way to determine the eventual quality of your estimates is by comparing the actual outcome of the project with your original estimate. This asks for short communication lines with the cost control department, who can give you valuable information on actual costs incurred. They can also share key performance indicators (KPIs) and ratios that are valuable measures to support conceptual cost estimates.
There are also specialized cost management tools that support both cost estimating and cost control within the same (database driven) application. This makes it that much easier to establish this feedback loop.
4. Have your cost estimates validated
Being involved on certain types of projects for a long time can make you blind for certain conditions that could influence the quality of your cost estimate. This often happens unintentionally, but could have a major impact in the long run.
It is therefore advisable to have your cost estimates (or the EPC contractor’s estimate) validated and benchmarked by external experts. At Cost Engineering Consultancy, we have performed numerous independent cost estimate validations and benchmark reviews. These often bring to light gaps in scope, false assumptions or incorrect use of allowances, contingencies, escalation, etc.
It is better to have your estimate checked on these aspects, before making the investment decision and find out something was forgotten in the estimate when there’s no way back.
Something to add to this story? Contact us at contact@costengineering.eu
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