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A Research Paper Outline on the Cost Estimating Process

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Abstract

Although many organization involve contractor cost estimating during their projects, not most organization know or use the best cost estimating procedures in the cost estimating process. This paper shows that the main cause of failure in achievement of organization goals is use of traditional cost estimating procedures and methodologies. Therefore, this research paper evaluates and analyzes the process of cost estimation and the factors that might lead to a bad cost estimate.

Introduction

In general, organizations function with the help of resources such as capital, human, finance and others to achieve its goals. However for the organization to achieve these goals, a well prepared and adhered contractor cost estimate should exist. A cost estimate is a prediction of price, cost and quantities needed by a project or activity. Cost estimates are applied as inputs for value analysis, budgeting, project planning and decision making. The cost estimation process is very formal especially in executive and legislative organizations with members assigned certain tasks to perform. For an organization to be successful have a contractor cost estimate that has followed the correct procedure (Hegazy et.al, 2015). Unfortunately some organizations fail to use the correct cost estimation procedure and hence end up coming up with an ineffective cost estimate. Despite having the cost estimation process in place, goals set by such organizations are not achieved. Thus, this research paper evaluates and analyzes the process of cost estimation and the factors that might lead to a bad cost estimate.

Literature Review

The cost estimation process as described by Ross (2005) in his research entails these steps: determining estimate basis, preparing base estimate, reviewing base estimate, determining risk, determining estimate communication method and finally obtaining management endorsement. Law (2014) says in his research that in determining the estimate basis, project information such as the previous projects schedule, scope and data is obtained and a project estimate is established from that information. Preparation of base estimate involves estimated costs development on every project component excluding future cost escalation. The estimate is reviewed in the reviewing stage to ensure proper assumptions, accurate reflection, proper schedule and reasonable data for the project. The cost estimate is communicated using a communication approach to all external and internal teams. Finally the estimates go through individual reviews and revisions are done where necessary. Another study by Kwakye (2014) showed that most organization apply traditional cost estimation methods which are unstructured inaccurate and rely on the judgment of the estimator.

Findings

From the findings I realized that the contractor estimating process starts from determining the estimate basis where project information such as the previous projects schedule, scope and data is obtained and a project estimate is established from that information. The estimate reviewed in the reviewing stage to ensure proper assumptions, accurate reflection, proper schedule and reasonable data for the project. The cost estimate is communicated using a communication approach to all external and internal teams. Finally the estimates go through individual reviews and revisions are done where necessary (Ntuen et.al, 2009). Another finding is that an effective cost estimation process contributes to the achievement of organizational goals. Traditional cost estimating processes and the methodologies are the main causes of developing a bad cost estimate (Kwakye, 2014).

Conclusion

For an organization to attain its goal, the correct estimation process and methodology should be followed. In order to come up with an accurate estimate traditional cost estimations methods should be avoided during the cost estimation process. A correct cost estimation process should involve every member of the contractor cost estimating for them to give their contribution on the best process to be followed to come up with the best contractor cost estimate.

References

Hegazy, T. and Moselhi, O. (2015) Elements of cost estimation: a survey of Canada and United

States, Cost Engineering.

Kwakye, A. A. (2014) Understanding Tendering and Estimating, Gower, London.

Law, C. (2012) Building contractor estimating: British style, Cost Estimating,

Ntuen, C. A. and Mallik, A. K. (2009) Applying artificial intelligence to project cost estimating,

Cost Estimating.

Ross, A. (2005) A Model of Factors Affecting UK Contractors’ Economic Organisation of

projects, PhD thesis, University of Salford, Salford.