 # Cost Estimation Techniques in Construction Projects

Cost Estimation Techniques in Construction Projects

No matter what type of construction project you are working on, you must have accurate cost estimates if you want it to be a success. With strict timelines and budgets, estimating helps ensure that your project hits its milestones on time and within your budget. While there are many unknown variables during a project, being able to forecast the resources and costs needed will set you up for success.

The key to cost estimation is understanding all of the different costs and categories. The two most significant types of costs are classified as the direct and indirect costs. Direct costs usually include things such as team wages, fuel for equipment, etc., while indirect costs typically include things such as security costs, utilities, etc.

### Some of the other categories of costs come from:

1. Labor
2. Materials
3. Equipment
4. Services
5. Software
6. Hardware
7. Facilities
8. Contingency costs

All of these expenses, along with the direct and indirect costs, are compiled to make a “basis of estimate” report. This report gives a good understanding of the actual and approximated costs in a project.

Now that you understand the basics of cost estimation let’s take a look at some of the most commonly used estimating techniques.

1. Analogous Estimating – Also called top-down estimating, analogous estimating looks at historical project data to develop estimates for new projects. The basis of this technique is the reliance on an archive of older and similar projects.

1. Bottom-Up Estimating – Also called analytical estimating, bottom-up estimating divides projects deliverables into a series of work packages which are made up of a series of tasks. The basis of this technique is to estimate the total cost of completing each task and add them all up to calculate the total costs. This technique is known to be one of the most accurate, but also one of the most time-consuming.

1. Parametric Estimating – In parametric estimating, teams divide a project into units of work and then determine the cost of each unit. By multiplying the number of units by the cost per unit, you can estimate the total cost of the project. If you can calculate the correct cost per unit, this technique can be very successful. This technique is best for projects that involve repetitive tasks. 1. Empirical Costing Methods – For projects that are similar, empirical cost estimates may be a good choice. In this method, data is drawn from previous projects in order to calculate a cost estimate. This technique has proven to be timely and accurate due to automation.

1. Expert Judgment – This technique can only be conducted by experts and specialists who have a vast background knowledge and experience with similar projects in the past. The specialist must compare a past project with the current project to create and adjust the cost estimate. This technique can’t give an exact number, so it most often used when determining if a project is feasible or not.

1. Three-Point Estimating – The three-point estimating technique comes from the Program Analysis and Review Technique, which analyzes activity, project costs, and durations by determining optimistic, pessimistic, and most likely estimates. This statistical method uses various formulas to calculate expected costs. This technique can work well, but only if the initial estimates are accurate.

While there are many different cost estimation techniques to choose from, the best cost estimates are successful because of their accuracy, credibility, precision, and reliability. With a better understanding and knowledge of the cost estimation process, you’ll be on your way to better estimate in no time. 