A cost estimate is a representation of the overall project cost. It must be reevaluated at significant milestones and tracked throughout the project.
When preparing an estimate, it is important to use the best information available and engineering judgment. It is also critical that the estimate be consistent with the scope of the project and complete in its indicators of costs.
Cost Breakdown Structure
The cost breakdown structure (CBS) is a project budgeting tool that shows you the costs associated with the tasks in your project. Using a CBS is important for many reasons, but one of the most crucial is that it can help you track and control your costs.
The first step in creating a cost breakdown structure is to divide your spending into logical categories. This will make it easier to track and control your expenses, and it will also give you an accurate representation of your actual costs at any point in time.
Once you have divided your spending into logical categories, it’s time to determine what you need to do to keep your cost down. Depending on your industry and the type of work you’re doing, you may need to consider things like material costs.
In addition to these costs, you should also include overhead or indirect costs in your CBS. These can include administrative expenses and other non-related costs that will not be directly tied to the specific tasks of your project.
Another benefit of a good cost breakdown structure is that it helps you monitor your project’s progress. This can make it easy to spot deviations from your original budget early on, which can help you improve your budget accuracy and prevent any overspending or underspending from occurring.
Finally, a good cost breakdown structure will allow you to compare your estimates with your available budget at any point in time. This can help you identify any areas where your costs might be overspending or underspending, which can lead to a significant financial loss for your company.
A good budgeting system will include a cost breakdown structure and a reporting system. This will allow you to monitor and control your budget and its costs at any time, and you can also create new budgets or alter existing ones to compare the results with your original plans.
A good cost breakdown structure is a vital tool for project-based companies. This can help you accurately estimate your costs and keep them under control throughout the project. It can also help you detect any deviations from your plans early on, which can improve your project’s success and minimize your company’s financial losses.
Cost Elements
Cost estimating is a process of analyzing the project, developing a set of estimates that are accurate and complete and then communicating those estimates to the public. It is a critical part of the overall project management process and it is essential to maintain public confidence and trust in major projects throughout their life cycles.
A number of factors impact the development of estimates for major construction projects. The most important are the underlying structure of the project and the adequacy of the available information to support the estimate. The amount of uncertainty in the estimate is also a factor that must be considered.
The basis for a cost estimate should be based on the best information available, which may include bid-based pricing. Historic prices for similar work and similar sized projects should be used as the basis for the estimate, but engineering judgment must be applied when making assumptions about price increases or declines.
In addition to a logical basis for a cost estimate, the cost estimate should be validated by an independent team. A competent unbiased team will provide managers and decision makers with a second set of eyes to review the estimate and ensure that it is correct.
Estimates should be re-evaluated at significant milestones and tracked throughout the project. This is particularly important when the scope of the project is constantly changing or when the cost estimate has been updated to reflect changes in assumptions or costs.
Continual Documentation: The cost estimate should be prepared at the same time that all other phases of the project are documented, such as Feasibility Study, NEPA, Preliminary Engineering, Final Design and Construction. The documentation should be in a form that is easily understood and checked.
Contracting Method: Innovative contracting methods, such as Design-Build or lane rental, should be taken into consideration when preparing the estimate. These types of contracts impose a higher risk on the contractor and may increase the Contractor’s bid, but may also result in lower construction costs because contractors have greater control over the use of their labor resources.
Cost Variance Analysis
If you're running a business, it's important to understand how your budget compares to actual costs. This helps you make evidence-based decisions about your financial future so that you can keep cash flow steady.
A cost variance analysis measures the difference between your planned budget and the amount you actually spent on a project. It also allows you to identify areas where your expenses can be reduced so that you can hit your target budget.
The most common types of variances are material and labor. However, there are other variations that can be found as well.
For instance, material variances measure the difference between the actual price of materials used and their standard cost. This lets you know how efficiently you are using your materials.
Similarly, labor variances measure the difference between the actual amount of labor you use and the amount you originally planned to spend. Taking the time to calculate these variables can give you a clearer picture of your employees' performance and their efficiency.
Variances may be favorable or unfavorable depending on how they relate to the budget. If they're favorable, they indicate that your actual costs are lower than expected. On the other hand, if they're unfavorable, they mean that your actual costs are higher than planned.
This can be a problem for your budget if you're running a small business that relies on a lot of direct materials or labor. For instance, if you're sewing dresses, you need to know how efficiently your workers are spending their time so that you can determine if you're meeting your targets.
You can use variance analysis to spot potential problems and fix them before they become larger. Whether you're analyzing your employee productivity or your overhead costs, variance analysis is an essential tool for your business's financial success.
Getting the most out of your cost variance analysis requires that you have detailed expense reports that separate your actual and planned costs. This helps you identify specific variances and their causes so that you can take action quickly.
Estimating Methods
General contracts us use a variety of estimation methods to develop their cost estimates. They may use a preliminary estimate that is based on costs experienced on similar projects recently completed by the contractor, or they may use a detailed estimate that breaks down the project into smaller unit prices and includes the materials, equipment and labor required to complete the work.
A construction estimate is an important part of the overall process for any building project, and a good estimating technique can help a general contractor ensure that it provides an accurate and fair estimate to its customers. Estimating tools are key in this process, so it’s a good idea to invest in a software program that makes the estimating process easier.
The general contracting industry is a competitive one, and estimating techniques can make the difference between a successful bid and a failed bid. Some contractors have well-established cost estimating procedures while others are less organized in this area.
In preparing an estimate, contractors look at three components: estimating technique, degree of accuracy and data source. They also consider the level of expertise and experience they have in preparing a cost estimate.
Regardless of the type of estimation method, it’s essential to keep track of costs for materials and equipment that fall into general conditions. These items often fluctuate in price over the course of a project, and it’s important to have an updated list of those items to refer to in your cost estimates.
For example, job site fencing can vary in price over time. This can impact the estimating costs for fences, and it’s a good idea to have a strategy in place to forecast these types of expenses.
Additionally, if a contractor plans on using futures contracts to secure specific prices for material and equipment, it can be important to keep track of these prices in order to create more accurate estimates.
A good cost estimating tool can help you manage these issues by offering the ability to update multiple items simultaneously and allowing you to apply formulas to your estimates. This will make it easy to create more accurate estimates as your business grows.