Starting a project is one thing. Seeing it to completion is another entirely new thing. That’s why it’s common to see projects finished halfway. This gets experts pondering: why do projects fail? Simple! Poor project costing estimation. Without proper project estimation, you risk abandoning your project halfway. However, with good project cost estimation techniques, you can get it right and complete all your projects in time. In this guide, experts are going to share the nest project cost estimation strategies.
Cost estimating is the process of predicting the cost of completing a particular project with a defined scope. Being an essential component of project management, cost estimation involves planning, monitoring, as well as controlling the project’s monetary costs. The forecasted cost estimate is often used to authorize the project’s budget and effectively manage its costs.
When deciding whether or not to take on a project, you seriously need to consider the estimated cost. This value also plays a significant role in determining the project’s eventual scope and ensuring that all projects remain financially feasible. Plus, it also helps you avoid cost overruns. You can also utilize a cost estimate when preparing a project cost baseline.
Components of a Cost Estimate
A cost estimate typically refers to the total costs involved in completing a project. These project costs can be classified into numerous levels of detail, but the most common classification divides them into the two broad options:
- Direct Costs: These include all costs that are directly associated with a specific area. In project management, direct expenses are costs billed exclusively to a particular project. They can incorporate project team wages, fuel expenses, money for producing physical products, and cash spent on addressing any project-specific risks.
- Indirect Costs: Indirect costs aren’t associated with a specific area. Instead, they’re the costs incurred by several projects simultaneously. In project management, utilities, quality control, as well as security costs are often categorized as indirect costs because they’re shared across various projects and aren’t billable to a specific project.
Aside from the broad classifications, more specific types of project expenses include labor, materials, services, software, facilities, hardware, as well as contingency costs.
When Should Project Estimates Be Made?
Cost estimates are essential to the success of every project. Thus, your team should produce a reasonably accurate estimate during the initial phase as far as construction project costs are concerned. These estimates are then adjusted for precision during the planning phase since project stakeholders as well as sponsors might ask for revisions before they approve a budget.
Cost estimating is an ongoing process. So, estimate revisions are continuously done so as to ensure optimal accuracy throughout project execution. Work that’s scheduled in the near future will typically have more accurate cost estimates, whereas work that’s scheduled far away in time is likely to have less accurate estimates.
Cost estimation is an extremely important aspect of any project. Among other things, proper cost estimation makes it easy to plan and manage a project to completion. That’s why project managers should equip themselves with the best project estimation techniques. The above guide will help you navigate through the project estimation thorny field. Good luck!