Cost estimation is the process of clearly defining all expected and potential expenses of a project. Leaders must be able to estimate the cost of a project as a core component of successful construction management. Proper estimation ensures profitability and budget accountability.
According to a McKinsey survey, 80% of large construction jobs end up over budget, and about 20% took longer than expected. Another survey found that just 31% of construction jobs end up within 10% of their budgets. Careful cost estimation in construction management leads to better profits. Company leaders need to consider all strategies for accurate estimates.
Quantity Takeoff
Quantity takeoff, also called construction takeoff, is the process of analyzing drawings and models of an expected project to measure the material and labor necessary for the project. This method can help estimate costs and create accurate budgets.
Quantity takeoff occurs as soon as possible during the preconstruction phase. It breaks down individual components of a larger project to allow for better estimation. Construction management teams can create very clear, detailed construction plans. This is often done using drawings, blueprints, and models.
Unit Costing
Unit cost estimating is another common method for determining the projected cost of a project. It is done by multiplying the quantity of each work item by the unit price of that product. This is completed at all project stages, including by contractors and architects. This method can provide insight into budgeting as well as initial bidding and negotiating contracts with suppliers and vendors.
The objective of unit costing is to break down costs into simple assemblies. The next step is to create a multiple-out equation for product needs.
Parametric Estimating
Parametric estimating is a different approach. This method is statistical and accuracy-based. It calculates not only materials but also the time, cost, and resources necessary to complete a project successfully.
To achieve this objective, construction management teams must gather additional information, including historical and statistical data from various resources. This is done during the project planning phase. It utilizes a formula or algorithm carefully selected by the company based on the project objectives and historical data. It then uses specific costs or time needed to complete the task. This method offers a more mathematical approach to cost estimating. It is used in modular and prefabricated construction projects as well as traditional builds.
Analogous Estimating
Analogous estimating is considered a top-down method. It looks at historical project data to develop an estimate for the next phase of a project or for a new project. This process is often used alongside other cost estimation tools. It uses information from a past project similar to the current one to estimate the cost and duration of the new build.
This method is often limitedly used because it can be significantly inaccurate. This is common in periods of high inflation. It is also used with significant changes in methods and strategies within the construction project. It can be used with better reliance when other data is limitedly available. Generating accurate estimates means carefully selecting comparable projects. Next, data analysis tools will be used to refine those results.
Vendor Quotes
With a clear idea of the project’s scope, a secondary option for estimating value is to encourage vendor quotes. Construction management teams send a request to a vendor for a product, material, or idea. The vendor then calculates the cost for that objective.
This process is nearly always used at some point in the cost estimation for a project. However, it is not a full view across all aspects of most projects since multiple vendors may be used. Furthermore, ensuring that those vendors provide accurate insights is critical. Take into consideration timelines and project scope.
Takeaway
Project owners must take the time to create very accurate and detailed cost estimations for any project. This is a component of good leadership in construction management. Doing so eliminates confusion and overages that can derail a project later and keeps all parties involved happy with the results. The key to this is understanding the complexities of each project. In addition, technology can be utilized to guide project-specific estimation. Doing this creates a balance of expectations with vendors and contractors.
With good cost estimation, financial planning and control of costs throughout a project are efficient. That builds success from the ground up. Construction teams that are on time and on target price-wise tend to be sought after within most areas. This helps to build a solid reputation for the business.
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