Cost estimation in project management is defined as the cost which is required to complete the project within given instructions and time. Cost estimation includes the cost of labors, material and other miscellaneous expenses. Accurate cost estimation is one of the essential parts of project management. Before the start of any project client has a budget in his mind, cost estimation plays a vital role in matching the budget by giving accurate cost estimation. In cost estimation we mostly include the cost which is associated with the project especially material and labor etc. Cost estimation is a very important and critical step during the phase of project planning. When a project manager makes the budget for the project it must consider the cost estimation.
How to estimate project cost
We can estimate the project cost by the following steps
- First, we define the purpose of our cost estimation. This step includes the scope of the cost estimation
- We make an estimation plan like what we have to do in our cost estimation. In this step we make the schedule for what purpose our cost estimation has to be used.
- Make a baseline description of the project and evaluate how our cost effects on the different parameters which are include in our cost estimation
- By using given estimation method is the effective and accurate way to calculate the cost estimation
- We have to select the right and accurate tools for the estimation of cost for our project
- By using the right method and right tools we can estimate the accurate cost for our project in a given time.
Types of project costs
There are following types of project costs
1. Fixed cost
Fixed is defined as the cost which we don’t change in any case. This cost is associated with the whole project. It may include the cost of material or labor etc.
2. Variable cost
Variable cost is linked with the production of material or any other good which is associated with the project. Variable cost may be increased or decreased depending on the material and labor available on the site.
3. Operating cost
The cost which is used for the fulfillment of the daily needs. In operating cost there is no role for the construction material or any labor. It is like the cost of Travelling, food or other daily utilities.
4. Direct cost
These are the expenses which are directly associated with the construction work. It may include the material, equipment or labor cost.
Techniques of project cost estimation
There are the following techniques for the cost estimation
- At the start of the cost estimation expert should consider from the individuals or groups with some extra knowledge
- Before the start of project estimation engineers should make some plans before the start of cost estimation. It clears the vision for the project cost estimation.
- At the start of the project some uncertain material, equipment and labor can be used but for the accurate estimation we should keep an eye from start to end of the project.
- Sometimes cost has to be spent on the quality of the material and work. So, this cost must be taken into consideration while cost estimation.
- In cost estimation we have to keep in view the cost which are spending at the different project purposes
- Sometimes everyone has to be agreed in order for there to be unanimity, there is common consensus
Why cost estimation is important
When we start any project before the proper cost estimation techniques. Client has an idea of the budget and how much the cost has to be spent on the project. It helps for getting a budget and forces the contractor to do quality work within the estimated budget. It eliminates the all-hidden cost which may irritate the client during or after the project. Usually, a vote is used to determine a majority or plurality. More than half of the participants must concur on the choice for there to be a majority.
Software used for project cost estimation
Following software can be used for project cost estimation.
- Clea Estimates
In the profession of project management, cost estimation is essential to establishing the route and outcomes of any project. It works as the navigator that directs the allocation of funds, the formulation of budgets and ensuring financial continuity. The cost estimation increases with the project development, from the early projections used for project selection to the final figures which justify the cost commitments. Its methods offer an understanding through which risks and uncertainties can be evaluated, permitting emergency planning, regardless of whether they are based on past information, quantitative modeling and expert evaluation. Cost estimation is an imperative as well as a technical work, providing the foundation of successful project management.