TYPES OF COST ESTIMATES IN PROJECT MANAGEMENT

Types of Cost Estimates in Project Management

there are various types of cost estimates in project management. Before discussing them, we will understand about estimation.

What is an estimate?

An estimate is a calculation of quantities of a different item of work and their expenses likely to incur during project work.

The sum cost of all quantity of work gives the idea about total construction cost or estimated cost of project work. The calculated cost of a work is a close approximation of its actual cost. The accuracy of the estimated cost depends on the accuracy of estimating method and visualization of work by estimator. A correct and accurate estimate is essential for any project to become cost-effective.

Underestimated cost of the project results in many revision during the execution of work. This is due to a shortage of financial support due to underestimation. This may also result in the delay of the project and become a reason for dispute between contractor and owner. On the other hand, if the project cost is overestimated, the owner or builder get financial lost because of more quantity of material receive on-site than required.

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 Purpose of Estimating:

The main purpose of estimation is to give a reasonably accurate idea of the cost. The estimated accurate cost of the project is necessary to give the owner a reasonably accurate idea of the cost to help him decide whether the works have sufficient finance or need to arrange more money.  How many projects will cost to him and what are the returns from it after completion of the project.

In the case of government work or a project, the estimate is required to get financial sanction. Sometimes, small nonpriority work are given on a lump-sum basis; in which case the Estimator must be in a position to know exactly how much expenditure he is going to incur on them

1. Materials Estimating:

An estimate of material gives an idea about the type of material and their quantity is to be required for completion of the project. It will help in the advance arrangement of that material and make an order.

2. Estimating Labor:

Labor estimates provide the quality and quantity of manpower required during project work. Sufficient and skilled labor is essential to complete the project in given time limits.

3. Estimating Plant:

An estimate will help in determining the different types of equipment and plant required for completion of the project.

4. Estimating Time:

The estimation of the quantity of item work helps in deciding the time of completion of the project. Also, the accurate estimation of project duration is important. It is a fact that as our time of completion increases the cost of the project also increase with that, so making an accurate estimate of project duration is essential.

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TYPES OF COST ESTIMATES IN PROJECT MANAGEMENT

Types of Cost Estimates Used in Construction

1. Preliminary Cost Estimate:

The preliminary cost estimate is also known as an approximate cost estimate, abstract cost estimate or budget estimate. It is generally prepared in the preliminary phase of project planning to know the approximate cost of the project. By this estimate, the project authority can judge the financial position and policy for the administration section.

The preliminary cost of the project is calculated from the cost of similar type projects practically. This estimate, the cost of an important item of work is calculated individually to know the necessity and utility of each item of work. In this estimate important item of work includes the cost of lands, cost of roads, electrification, water supply costs, cost of each building, etc.

2. Plinth Area Cost Estimate:

Plinth area estimate is prepared by considering cost per plinth area of similar type of construction in the locality. It is an area covered by external dimensions of building at the floor level and plinth area rate of the building which is the cost of similar building with specifications in that locality.

Plinth area estimate of the proposed building is prepared by multiplying plinth area of building with plinth area rate.

For example, if the plinth area of propose building is about 100 sq.m in a particular locality and plinth area rate of a building in the same locality is 2000 per sq.m then,

 Cost of the building by plinth area estimate is 100 X 2000 = 200000.

The open areas, courtyards, etc. are should not be included in the plinth area.  For multi-storied construction cost of each floor must be calculated separately.

3. Cube Rate Cost Estimate:

Cubical content of building is obtained by multiplying plinth area with the height of the building. The height of the building is considered from floor level to the top of the roof level. This method is more appropriate for high rise buildings.

Cube rate cost estimate method is more accurate than the plinth area estimate. The cubical rate of construction is obtained dividing total construction cost by its cubical content.

 The cost of the proposed project is calculated by multiplying the cubic rate of similar type of buildings situated in that location with a cubic content of future work.

Suppose, the cubic rate in an area is Rs. 5000 / m3 and area of propose construction is 1000m3

Approximate cost of construction = 5000 x 1000 = Rs. 50, 00,000

TYPES OF COST ESTIMATES IN PROJECT MANAGEMENT

4. Approximate Quantity Method Cost Estimate:

In this method of the estimate, Total length of the wall of the whole construction is calculated and this length is multiplied by the rate per running meter which gives the cost of the building. for foundation and superstructure rate per running, the meter is calculated separately.

For cost estimation of foundation rate per running, the meter is calculated by considering quantities such as excavation cost, brickwork cost up to plinth. The superstructure quantities like, brickwork for the wall, woodworks, floor finishing, etc. are considered for deciding rate per running meter.

5. Detailed Cost Estimate:

A detailed estimate is prepared after approval of preliminary estimate competent administrative authority. In this estimate, each item of work is measured accurately and the cost is calculated separately. It is the most accurate estimate among the other method of estimation.

The cost of an item of work is calculated from current market rates and the total estimated cost is calculated. For miscellaneous expenditure, the contingencies amount of 3 to 5 % of the estimated cost is added to the total estimated cost. A detailed estimate is a major estimate required to get final financial sanction from the competent authority.

The detailed estimate should include the following details and documents.

Report:

General Specifications

Detailed Specifications

Drawings/plans – layout plans, elevation, sectional views, detailed drawings, etc.

Designs and calculations – In the case of buildings design of foundations, beams, slab, etc.

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TYPES OF COST ESTIMATES IN PROJECT MANAGEMENT

6. Revised Cost Estimate:

The revised estimate is prepared when the original sanctioned cost of the project is exceeded by 5% or more. It detailed estimate but improper estimating or underestimated cost of the project, it needs to be revised.

The reason behind preparing revised estimate may sudden increase in the cost of materials, cost of transportation, etc. the major reason behind the preparation of this estimate should be mentioned on the last page of the revised estimate.

7. Supplementary Cost Estimate:

The supplementary cost estimate is a supplement to a detailed estimate and it is prepared freshly when there is a requirement of additional works during the progress of original work. After approval of the supplementary estimate, the total estimated cost should include detailed estimate cost as well as the cost of supplementary work for which sanction is required.

8. Annual Repair Cost Estimate:

The annual repair cost estimate is known as annual maintenance estimate which is prepared to know the costs of maintenance of building which will keep the structure in a safe condition. It includes the cost of whitewashing, painting, minor repairs, etc.  are considered while preparing annual repair estimate for a building.

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