Cost Estimate

Approximation of the cost of a program, project,

or operation.
The product of the cost estimating process.
Has a single total value and may have identifiable
component values.
Often needed to support evaluations of
project feasibility or funding requirements in
support of planning.
Often used to establish a budget as the
cost constraint for a project or operation.

A problem with a cost overrun can be avoided

with a credible, reliable, and accurate cost
estimate.

Cost Overrun
An unexpected cost incurred in excess of a
budgeted amount to an underestimation of the
actual cost during budgeting
Should be distinguished from cost escalation,
which is used to express an anticipated growth
in a budgeted cost due to factors such as
inflation

Accuracy of Estimate
Since a cost estimate is the approximation of the cost of a
project or operation, then estimate accuracy is a measure of
how closely the estimate is able to predict the actual
expenditures for the project or operation.
This can only be known after the project is completed.
The accuracy of an estimate is measured by how well the
estimated cost compares to the actual total installed cost.

The accuracy of an early estimate depends on

four determinants:

who was involved in preparing the estimate

how the estimate was prepared
what was known about the project
other factors considered while preparing the estimate.

Contingency
A contingency may be included in an estimate
to provide for unknown costs which are
indicated as likely to occur by experience, but
are not identifiable.
When using an estimate which has no
contingency to set a budget or to set aside
funding, a contingency is often added to
improve the probability that the budget or
funding will be adequate to complete the
project.
Being unable to complete a project risks public
ridicule.

Cost Contingency
When estimating the cost for a project, product or other item
or investment, there is always uncertainty as to the precise
content of all items in the estimate, how work will be
preformed, what work conditions will be like when the
project is executed and so on.
These uncertainties are risks to the project.
Some refer to these risks as known-unknowns because the
estimator is aware of them, and based on the past
experience, can even estimate their probable costs.
The estimated costs of the known-unknowns is referred to by
cost estimators as cost contingency.

In
project
management,
project
management is a major functional division.

cost

Cost estimating is one of three activities

performed in project cost management.
In cost engineering, cost estimation is a basic
activity.
The engineering practice devoted to the project cost
management, involving such as activities as
estimating, cost control, cost forecasting, investment
appraisal, and risk analysis.

In construction contracting, a cost estimate is

usually prepared to submit a bid or tender to
compete for a contract award.

Estimates for the cost of facility construction are a

major part of the cost estimate domain
A construction general contractor or subcontractor
must normally prepare definitive cost estimates to
prepare bids in the construction bidding process to
compete for award of the contract.

 In many countries, specifically defined by

legislation, which requires that such projects
should be carried out by registered engineers
and / or registered engineering companies.

That is, companies with license to carry out

such work as design and construction of
buildings, power plants, industrial facilities,
installation and erection of electrical grid
networks, transportation infrastructure and the
like.

 The scope of the project is specified in a

contract between the owner, the engineer
and construction parties.

As a rule, an engineering project is broken

down into design and construction phases.
The outputs of the design process are
drawings, calculations, and all other design
documentation necessary to carry out the
next phase.
The next phase would normally be sending
the project plans to a developer who will then
help construct the plans (building).

Cost Estimating Methods and

Best Practices
Estimating methods may vary by type and class of estimate.
The method used for most definitive estimates is to fully
define and understand the scope, take off or quantify the
scope, and apply costing to the scope, which can then be
summed to a total cost.
Proper documentation and review are also important.
Early estimates may employ various means of cost modeling.

Pricing transforms the cost estimate into what the firm

wishes to charge for the scope.

The basic characteristics of effective estimating

include:
Clear identification of task

Broad participation in preparing estimates

Availability of valid data
Standardized structure of estimate
Provision for program uncertainties
Recognition of inflation

Recognition of excluded costs

Independent review of estimates
Revision of estimates for significant program changes

Application of best practices helps ensure a high quality

estimate. Certain best practices should be followed if accurate
and credible cost estimates to be developed. These best practices
represent an overall process of established, repeatable methods
that result in high-quality cost estimates that are comprehensive
and accurate and that can be easily and clearly traced, replicated,
and updated.
Tools that may be part of costs estimation are cost indexes. These
factors promote time adjustment of capital costs, following
changes in technology, availability of materials and labor, and
inflation. Due to the inferent unavailability of up-to-date cost
literature, several inflation or cost indexes are available.

Types of Estimator
There are different types of estimators, whose title
may be preceded by a modifier:
Building estimator
Electrical estimator

Chief estimator
Other professional titles may also prepare
estimates or contribute to estimates;
Quality surveyors
Cost engineers
Etc.

Quantity Surveyor (QS)

A professional working within the construction industry
concerned with building costs.

Cost Engineers
They budget, plan, and monitor investment projects.
They seek the optimum balance between cost, quality
and time requirements.
An engineer whose judgment and experience are utilized
in the application of scientific principles and techniques
to problems of estimation; cost control; business
planning and management science; profitability analysis;
project management; and planning and schedule.