Project Cost and Schedule Estimates
Project Cost and Schedule Estimates
Project Cost and Schedule Estimates
Every construction project carries some risks. These risks must be addressed in terms of preparing for them in case such an eventuality occurs. Risks are based on unknowns or the uncertainties of the future. For instance, a construction project may be delayed by customs clearance of imported raw materials at the port of entry. Also, the delay in the project may be occasioned by an unforeseen natural event such as a landslide that covers the project site and stops the work. All these unforeseen eventualities present risks to the project and will definitely prolong the project and add to its cost. In project management, a project usually has a determined start date, expected duration, and a finish date. Each individual task within the project is expected to last for a given period of time. Therefore, if all the project tasks are completed within the allocated time, the project will be completed on time as per the schedule and within the estimated budget. Any deviations from the initial project plan that may be caused by unforeseen eventualities as discussed above will impact the project both temporally and financially. This is why risk management in project management is essential. An important part of project risk management is an estimation of the cost and schedule of the project. This paper presents what has been learnt from chapter two of Cretu et al. (2011), in terms of project cost and schedule estimates.Project Cost and Schedule Estimates
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The Meaning of an Estimate in Project Risk Management Terms
An estimate can be defined as a tentative computation of what it will take to complete a project. It is essentially a prediction into the future. For this reason, an estimate must be informed by experience and competence in the project being undertaken. Estimates can be made in the early stages of a project as well as in the later stages of the project. According to Cretu et al. (2011), project estimates that are made mid-project or towards the end are usually more accurate than those estimates that are made in the planning stages of the project. The implication of this is that when the estimate is off, there will be financial hardships for the owner of the project. This can only be mitigated if the project manager and the owner of the project took the necessary contingency measures. There are different kinds of estimates, some of which are stated below.
Cost Estimate
This involves the forecasting of the financial costs of the materials, regulatory processes, and labor that will be needed for the proper and timely completion of the project. In order to come up with close estimates, the person estimating must have experience and competency working in similar projects in the past (Cretu et al., 2011).
Schedule Estimate
This involves the delineation of the different tasks that will be done during the project. It is the clarification of how long each task will be expected to last and in what order they will be carried out. Together with the cost estimate, the schedule estimate allows for a complete estimation of the project requirements (Cretu et al., 2011).Project Cost and Schedule Estimates
Base Cost Estimate
This is the global estimate for all the requirements and reflects the best case scenario where the project is completed on time and with the allocated resources. The base cost estimate normally takes into account expected inflation and rise in prices of commodities such as steel or oil (Cretu et al., 2011).
Others
The other type of estimates in this context of risk management in project management include parametric estimate, cost-based estimate, risk-based estimate (RBE), historical bid-based estimate, and engineer’s estimate (Cretu et al., 2011).
Methodologies for Estimating Project Cost
Estimating the cost of a project can be achieved through the use of several methodologies, four of which stand out. The methodologies include (i) cost-based (ii) historical bid-based, (iii) risk-based, and (iv) parametric. It is possible to use the same methodology to estimate the cost of different stages of the project. As a matter of fact, many project managers follow that pattern. However, it has been found out that using a mixture of the cost estimate methodologies above makes the estimate more accurate. In order to carry out the risk-based estimating process properly and accurately, however; there must be a base estimate (Cretu et al., 2011).
The Cost Estimating Process
It has been stated above that carrying out project cost estimation requires a combination of two or more methodologies as presented. But even with that, the task of project cost estimation needs to be meticulous. It also has to be thoughtful and painstaking. At each stage of the project life cycle, different cost estimating methods, procedures, skills, and inputs are required. In order to achieve successful project cost estimation, the person doing the estimation must exercise good judgement. This person must also be experienced with regard to cost estimation in past projects that are similar.Project Cost and Schedule Estimates
As a process, the task of project cost estimation encompasses several steps that are:
- A statement of the basis of the project cost estimate to be undertaken.
- Working out of the project cost estimate, informed by experience and good judgement.
- A comprehensive reassessment of the project estimate as worked out in ii above.
- An evaluation of the associated risks followed by the preparation of a contingency plan for any eventuality.
- A decision on the communication approach to be used to pass around information on the project cost estimate. This includes the format in which the cost estimate of the project will be as it is presented to the project’s management.
- A thorough independent reassessment of the process which will then be followed by either acceptance or rejection by the project manager and his/ her team. This is because project cost estimation is important for decision making in project management (Cretu et al., 2011).
Data on Project Cost Estimation
It was earlier stated that project estimation is broken down into phases according to the different stages in the project life cycle. For this reason, the cost estimation of a project phase needs to be complete, clear, and unambiguous. In other words, the data for each stage of development of the project must be discernible, meaningful, and specific. An especially important characteristic of the estimate data is that it should serve as a cross-sectional look (snapshot) at a particular point in time in the project life cycle. The data is then used by the project manager to make important decisions about the project. All project decisions are usually data-driven and depend on statistics. It is also acknowledged that the decision to carry out cost estimation of the project at each stage is usually skewed towards the latter stages of the project. This is because – as had been stated earlier – predictions made later in the project life cycle usually tend to be more accurate than those made at the start or planning stage. Lastly but not least, it is very important that data on project cost estimation is documented continuously and properly kept for reference by the project manager (Cretu et al., 2011). Project Cost and Schedule Estimates
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Project Cost Estimating and Project Development Phases/ Levels
There is an inverse relationship between the project development phase and the project cost estimation accuracy. What this means is that the earlier or higher the phase/ level of project, the lower the accuracy of project cost estimation and vice versa. Project development is made up of four phases or levels. These are (i) planning (ii) scoping (iii) design, and (iv) bidding/ letting or final estimate (Cretu et al., 2011).
Planning
Cost estimates at the level of planning are done with little detail and most of it is concerned with long-term project funding. The methodology most used in planning level cost estimates is that of parametric estimating (Cretu et al., 2011).
Scoping
Cost estimates at this phase re supposed to come up with baseline costs upon which future estimates will be based and compared. It is important to clearly state any assumptions made in the process of carrying out the cost estimate at this level of project development. The methodologies that can be used to prepare estimates at this scoping level include cost-based, parametric, and historical bid-based amongst others (Cretu et al., 2011).
Design
Design level estimates are important in following up on earlier estimated costs and determining any changes in the estimated cost of the project. Cost estimating methodologies used at this level include historical bid-based and cost-based amongst others (Cretu et al., 2011).Project Cost and Schedule Estimates
Bidding/ Letting Level
The final contract assessment for the project makes use of the engineer’s estimate. Final estimates are done using cost-based or risk-based methodologies amongst others (Cretu et al., 2011).
Estimate Documentation and Basis of Estimate
In order to be effective and efficient in cost estimation in project development, the matter of strict documentation must be taken very seriously. There should be an easily accessible folder containing all the cost estimations from the planning phases up to the final phase estimate. The basis of estimate or BOE can be defined as the definition of the project’s scope (Cretu et al., 2011).
Conclusion
Estimation of the cost of a project at the different stages of project development forms one of the measures by which risk is managed by project managers. This is what happens in construction and other projects that have well-defined project life cycles.
References
Cretu, O., Stewart, R., & Berends, T. (2011). Risk management for design and construction. John Wiley & Sons, Inc.
RiskManagementforDesignandConstruction-1 (4)
Project Cost and Schedule Estimates
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