Part of every construction project is to determine how much it would cost and other resources needed for its completion. A lot of important factors go into working on a project, from labor, materials, equipment, insurance and taxes, utilities, etc. To get an idea of how much all these would cost, a cost estimate accounts for each element required in the project and calculates the total amount so the management will be able to determine the project’s budget. A cost estimate is not only limited to projects but is also used to forecast the financial aspect of an operation or program. To understand why a cost estimate is important, let us discuss this further below. And if you need to prepare this document, check out our free cost estimate samples that are available for download on this page.
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What Is a Cost Estimate?
Organizing an operation, program, or complex project can be a tedious and challenging job for everyone in charge. More so you need to be able to determine the budget if the project is feasible enough, to begin with. A cost estimate is an important process that would forecast the financial aspect and other resources needed to complete a project or operation. In the early stages of the project, various methods are applied to developing estimates based on available data. Cost estimates are used to predict the quantity, cost, and price of the resources required by the scope of a project. Also, this is needed to provide project owners and investors the means to make an investment decision and to set up the right budget.
How To Prepare a Cost Estimate?
One of the most important parts of successful project work is delivering on time, within the scope and budget. And to do so, you need to do several things such as accurate forecasting, precise planning, and progress monitoring. A project cost estimate is a process applied by project managers to help with these predictions. The project manager and their team must work diligently most especially during the planning and forecasting stages of the project to be more or less accurate on their cost estimates. Take note, cost estimates do not stop when a project is underway, this would go on as the project progresses. So to start preparing a cost estimate, here are some tips that may help you.
I. List of Task and Resources
To begin, list down what sort of tasks is needed to complete the project as well as the resources. For example, you need to complete a commercial building so there are various stages when it comes to building construction so make sure to list this all down including what type of resources are needed such as labor, contractors, suppliers, outsourcing equipment, etc.
II. Comparing Previous Data
If a company specializes in a particular type of work and accepts contracts to carry it out, then chances are they have done the cost estimation before and have the appropriate data that they can use. For each project, adjustments can be made to fit the particulars of the project on hand.
III. Project Schedule
Each project has a schedule to follow, so to be able to accurately prepare a cost estimate you must be able to also assemble a proper schedule to help identify how long would it take to finish one task from another. Meaning you will be counting the number of hours to pay for labor and how many workers or staff are needed to complete the project.
IV. Identify the Types of Costs
There are two types of costs that you need to properly identify which is direct costs which are costs can include labor, materials, and equipment, and even travel costs. While indirect costs fall under overhead and administrative costs. These can include management salaries, legal and accounting services, rent for the office space, and general equipment or supplies that furnish the business.
V. Monitoring Your Cost Estimate
As mentioned, forecasting cost does not stop when the project or operation has started, along the way unpredicted expenses are bound to happen. So it is important to keep monitoring your cost, track the budgets in real-time and make all that necessary adjustments.
FAQs
Why is Cost Estimation Important in Project Planning?
Determining the right budget with the help of cost estimation is important to check if the project is feasible and if investors are willing to make an investment.
What Is a Project Quotation?
This is the process of a non-binding estimate of the work that must be performed.
What are the three types of Cost Estimates?
The 3 types of cost estimates are design, bid, and control estimates.
With the help of a cost estimate, you will be able to determine how much budget is needed to undertake a project or an operation. To make it easier for you to create one, don’t forget to download our free templates above!
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