4 tips to roughly estimate project costs

In the early phases of a project, it is often hard to develop accurate cost estimates, since only little information is available. 4 tips on how to tackle this problem:

1. Collect historical cost data

Gather historical information from other projects you completed earlier. This includes quotations, contract values, actual hours, costs, overhead, etc. This is the starting point for creating a library with reference cost. Make sure you include technical scope information as well. Add value by indexing all material and labor to the current price level. This data now forms the basis for developing factor methods and parametric estimating models. You can make use of these in early phases or later, when you want to perform quick spot checks and validate your estimate.

2. Determine location factors

Perform location factor studies to learn about the influence of moving to different geographical locations across the world. Especially up front it is important to know about the influence of local market conditions, type of soil, experience of labor and climate. With location factors you translate the project costs to the location where the project will be executed. Keep a library of location factors that you regularly update to the current situation.

3. Distinguish labor and material costs

Always try to split material from labor in your estimates, even in your factor estimates. This allows you to adjust the required project resources to site-specific conditions using productivity factors. It also enables you to further improve your estimate by incorporating elements like working at height, enclosed spaces or difficult material types. An estimate made upfront might only need a few factors applied to rough parts of the scope. Don’t spend the time on a very detailed approach here, since you probably need to evaluate multiple scenarios and alternative projects.

4. Define project scope correctly

Always carefully study the contract: make a clear distinction of what is inside and especially what is outside of the scope. You can have the best historical price data, location factors and information about productivity, but if you incorrectly define the scope boundaries the estimate will still be way off. Whatever happens during the project, you will be reminded of that early figure you provided, so make it count.

When you first start with making rough estimates in the early phases of a project, it helps to use reference data from available literature. Information about the effects of location, productivity and estimating techniques is widely available. However, keep in mind that they are all developed to work for a wide range of industries and types of plants, so they will never be as accurate as when you develop your own data. 

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