Cost Estimating Methods
This article is about cost estimating methods. There are 4 common cost estimating methods in construction projects. They are Resource Costing, Unit Costs, Empirical Methods and Historical Costing. Each of them has its plusses and minuses. If you are interested to understand more about these 4 cost estimating methods, you can read these following explanation.
Cost Estimating Methods
A common technique for cost estimating is to list the resources you need for the project and to total their costs. Typical resources include equipment, material, services and labor. You can get costs for equipment, material and services by consulting price lists or by going out for bids for the larger pieces. Labor costs are hourly, and you can base the total costs on estimates from similar projects or ask for bids to carry out the work. Small businesses use resource costing for larger or more complicated projects.
Small or simple projects can be evaluated using a cost-per-unit that is characteristic of the project. The characteristic unit is a measure of the size of the project that is indicative for the particular project. It might be a cubic foot, a square foot or a work station. Typical applications are for building costs, paving, renovating or for standard systems such as data processing. Costs are a dollar amount per unit. To get the total cost, you decide how large the building or surface is or how many people will be working on the data. Multiply that by the unit cost to get the total. You can get typical unit costs from prospective suppliers or from industry associations.
If your project is typical of your industry and businesses have completed similar projects over the past few years, an empirical approach can be highly accurate and take the least time. To use this approach, you usually have to buy software or a paper-based system that contains statistical information about the other, completed projects. You choose the characteristics that apply to your project from a list, fill in the overall parameters such as size and location, and ask for the cost breakdown. The system will provide typical costs for that kind of project. Consultants active in your industry will have information on empirical systems and might be able to supply them.
One of the most transparent ways of estimating the cost of a project is to base it on previous work. If your company has completed a similar project recently, all the required costing information is available from the project files. If you don’t have such a project, other work your company has done in the past can help determine the cost of similar work on the new project. If a local business that is not a competitor has completed a similar project, it might be willing to help. Where available, historical data often gives the most accurate prediction of future costs.
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