Blog

07thJune

Setting up cost estimates for construction projects can prove to be a complex and time consuming task. On the other hand, for small maintenance tasks it might seem over the top to create a complete estimate report when you can simply order that new pump or send some people in the field to clean a piece of equipment. Still, in both of these scenarios it is vital to produce an estimate, as it is not just an administrative necessity but an actual deliverable of each project. Throughout the project’s lifetime, as short as it might be, there are 5 important reasons why estimating services are essential to the organization:

 1. Investment decisions

It is critical to have a proper cost estimate as basis to determine the possible return on your investment. The reason you start a project in the first place is to guard or increase the company’s profitability. The goal of the estimate is now to determine the required budget, taking into account both the capital investment and the future operational revenue and expenses. 

2. Compare alternatives

A little bit further ahead in the project, you start to scan for alternative plans. What is the best location? How can we optimize the product or facility to suit the market conditions? This leads to multiple design alternatives that all need to be priced. 

3. Validate vendors and contractors

When obtaining quotations from vendors and construction contractors you want to validate their offer and make sure all parties understand the scope of work. By making a cost estimate, a client gains the ability to challenge quotes and validate contractor’s estimates. It strengthens your position, but requires significant effort and understanding of locational effects and productivity to get to an accurate figure.

4. Cost control and earned value

During execution the budget is made into a cost control document to track the project’s progress and performance. It is during this time that a lot of changes, risks and other events happen that require you to adjust the budget and forecast what the effects will be on the total project cost. To be able to interpret what has actually been accomplished in the field, which is not the same as looking at the cash flow, requires skilled cost engineers that understand both the scope of work and the resources it requires.

5. Evaluation and benchmarking

During and after execution you want to know how well the project performs against a benchmark. This might be an internal expected performance or an industry standard. Either way, estimating knowledge comes in handy in closing out the project and learning from it to improve future estimates.