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Why is Cost Estimation Important in Industrial Projects?

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Roshini

I have been in Besten since the inception of the company.
Roshini
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When creating plans at the beginning of a project, there is usually insufficient information to prepare a cost estimation accurately. Project schedule and cost estimation are very complex activities.

 

A little inaccuracy sometimes saves tons of explanation. – Saki

 

How much will this project cost? Are we on a budget? These are the most frequently asked questions during a project review. Being on a budget is achieved by two steps, first being Cost Targeting and the second being Cost Controlling.

Cost targeting

During the earlier phase of project discussions between BESTEN design professionals and the client, a reasonable cost expectation is fixed in the form of a budget along with the functional requirements of the project.

During the detailing of the project, key components shall be continuously monitored, reviewed, and adjusted to fall within the budget. At the same time, it needs to be ensured that the project quality is never compromised and distinctive size and form of the project are not disturbed.

Cost Estimation

Even though the project cost estimate and budget are prepared in the initial stage of the project, refinement of the same will happen at various stages of engineering design and detailing. There are no hard and fast rules to decide on the number of steps to be followed for the preparation and refinement of the cost estimate of a project. But most projects shall have the following minimum 4 steps of estimate preparation and refinement.

At each stage of estimation, the details of the projected increase with a correspondent increase in the accuracy of the estimate and a decrease in contingencies. A variance report also shall be submitted by BESTEN along with the estimate clearly showing what changed and why it is changed from previous estimates. In all estimates starting from the first estimate to the final, the total expected construction costs would reflect regardless of what is detailed.

 “First, have a definite, clear practical ideal; a goal, an objective. Second, have the necessary means to achieve your ends; wisdom, money, materials, and methods. Third, adjust all your means to that end.” ~ Aristotle

Class ‘D’ Estimate

This is the first-ever estimate prepared for a project and is characterized by an accuracy level of ± 30%. The cost assessment is based on initial information regarding functional requirements, the comparative cost of similar projects already completed, etc.

Class ‘C’ Estimate

This estimate is typically prepared after the conceptualization of the project and is characterized by an accuracy of ±20%. This is still a rough estimate of the project based on the agreed functional requirements, size, and form of the project.

Class ‘B’ Estimate

This estimate is characterized by, an accuracy level of ± 10% and is typically prepared after the completion of the schematic design phase and the detailed design has progressed to sufficient stage to estimate the breakup costs of various components of the project.

Class ‘A’ Estimate

This shall be the most accurate estimate of a project cost and would be characterized by an accuracy of 5%. This cost estimation is prepared after a detailed engineering process is completed and complete details of the project are available, before the tendering process.

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