WHAT IS THE IMPORTANCE OF COST ESTIMATION FOR CONSTRUCTION? 7 NEW METHODS

 Cost estimation for construction is a major and necessary part of any construction project Cost estimation or accurate pricing is a crucial step towards a successful project. Whether you have to win a project by bidding or you have to execute a project after getting a contract, a precise estimate is of vital importance and it’s not only a need for construction projects but is valid for any type of work that involves labor, resources and time.

What is cost estimation for construction?

Cost estimation for construction is a keenly calculated rough or anticipated draft of fiscal resources that could be needed to complete a project in a given specified time.

Importance of accurate cost estimation for construction:

Cost estimation for construction basically gives an idea to the contractor and the client if the project is feasible and inside the clients’ budget limit. It is of vital importance to prepare an accurate estimate so that any unwanted surprises such as insufficient finances or material resources during the course of execution, could be avoided.

Points to consider before estimating costs:

• Each and every material, including raw and technological materials (equipment, machinery, infrastructure, cost estimation techniques software and their maintenance, etc.), services (electricity, water, etc.), rents (warehouses, offices, transport), and labor costs (wages, supervision and inspection needs), taxes and insurances, all must be precisely calculated and included in the gross estimate.
• All the possible contingencies and delays such as natural disasters, damage to the equipment, machinery, and raw materials, delays due to the market crashing or workplace accidents must be kept in mind before finalizing an estimate.

All of this is based on data gathered during project planning, scheduling, deciding labor hours and the number of personnel, and possible risks that could be faced during the course of execution.

Elements to make a cost estimation for house construction:

Several factors play an important role while preparing a cost estimate:

• Cost Management Techniques Plan:

This plan is actually a detailed enlistment of tools, techniques, and procedures that are employed to estimate the cost of a project. 

• Human Resources Management Plan:

It encircles the number of personnel needed on a project, their working hours, and salaries as per their expertise and performance.

• Scope Baseline:

It is a collection of data of required legal and contractual aspects, holding monetary importance. This entails environmental regulations of the workplace, occupational health and safety maintenance, accidental or damage insurances, property rights, licenses, and permits.

• Scope Statement:

Scope statements enlist any direct or indirect costs that could affect the project before even it starts, such as any possible restrictions, budget limits, etc.

• Project Schedule:

Includes details on resources or workforce used for a specific project as well as estimated time to complete that project.

• Risk register:

Sometimes, certain measures can be taken while investing a little before starting a risky project to minimize any damage to personnel or equipment. This avoids huge expenses on damage during later stages of project execution. Risk registers are used to save that data.

• Market conditions:

Any market factors such as variations in currency exchange rates, interest ratios, and financial regulations must also be kept in mind.

Types of cost estimation for construction

• Analogous estimate:

Real costs of the latest and similar projects are taken, adjusted according to the current project and a final quote is prepared for the ongoing project. This one is a fast but relatively less accurate type of estimate.

• Parametric estimation:

Based on using old or historical information to prepare an estimate for future costs. This one is considered a bit more accurate than the analogous estimate.

• Ascending estimate:

This one encompasses fine details of costs of work components, i.e. cost of each activity, cost of all work packages, etc.

This whole process of cost estimation for construction is not a one-man’s job rather it’s teamwork that requires a lot of research, experience, judgment, and decision making. The better the precision of an estimate, the better is the project planning, operation margins, and adjustment for the future, and hence, the chances of a successful project execution increase. Whereas, a bad decision based on a poorly predicted estimate can result in a serious loss of resources and profits.

Problems with inaccuracy:

Underestimating can create a financial emergency midway through or at an important time in a project and put its completion at risk. Insufficient resources or manpower support can cause unnecessary delays or even put a project down, resulting in reduced or even loss of profit for both parties.

Overestimating- results above resources in a project which are then wasted, again decreasing the profit and increasing liabilities.

Maintaining the conceptual estimating:

A good estimate keeps the schedule on track. Once an estimate is finalized, companies are forced to stick to the schedule and complete it in a specified timeline and budget to avoid loss of profits. This ultimately affects all the business activities to come under budget, while meeting the customers’ objectives.

Improved decision making:

Cost estimation for construction always results in better decisions for the project. It is significant while deciding about the investment of monetary resources and cost-cutting for savings. On contrary, inaccurate estimates lead to last-minute emergency changes in planned moves to compensate for the losses. To avoid such unpleasant circumstances, it is better to get the estimates right the first time.