Significance of Cost Estimation Methodology cannot be overstated as it paves the way towards effective planning and proper allocation of the budget. These techniques are utilized to determine how costly a construction project is.
In cost estimation, the main focus point is accuracy. A hired company needs to understand the requirements of a project. At SMA Estimating LLC, a detailed evaluation of a project is done to determine what methodology is the most viable choice for a particular project. Estimators are equipped with knowledge about various approaches and can use it to create precise budgets.
Why Choosing Construction Cost Estimation Methodologies is Necessary
Construction Cost Estimation Methodologies must be implemented at the initial stages of a project. Estimates serve as a framework upon which a project’s practicality is determined. If the wrong methodology is applied then it can compromise the profit margins. For example:
- If the estimates are too low then it will negatively influence the profitability
- Estimates being too high can lead to losing a bid
Why Does the Right Approach Matter?
Selecting the right methodology can make a huge difference in a construction project. It does so in the following areas:
- Enhance Budgeting and Financial planning
- Provides effective ways to allocate resources
- Make sure that the bidding process is seamless
- Incorporate proficient risk management strategies
- Builds trustworthy relations with clients
Types of Cost Estimation Methodology
Below are some of the major approaches in construction:
1) Analogous
In this type, a project manager computes the costs of a project at hand by utilizing previous data from similar projects. This method completely depends upon expert judges of historical data. It is noteworthy that now the two projects are 100% similar.
Furthermore, another drawback of this method is that it is done at the early stages of pre-construction where the information is very little. Hence the level of accuracy is low.
2) Parametric Methodology
This Cost Estimation Methodology uses numerous statistics and algorithms based on past projects and builds a relation for the present project’s estimates. In this Methodology, an expert is aware of all the average costs, errors, and the complete square footage of a project.
The parametric technique is more accurate than analogous but one limitation is that a sufficient amount of data must be present for this Methodology. The level of accuracy in this method is higher when compared to analogous.
3) Bottom-up Methodology
It is also known as the Detailed Estimation Methodology. It includes analyzing the scope and complexity of a project and then creating a breakdown of numerous tasks. Although this is one of the most accurate methods, on the other hand, it is very time-consuming. As it involves accounting even for the lowest level of details. If we are talking about large commercial projects, then this method is not a feasible approach. The Estimated accuracy of this method is satisfactory as compared to the previous two.
4) Three Point Estimation
This estimation method is computed using statistics and appropriate formulas. In this Cost Estimation Methodology, an expert creates 3 estimating scenarios which are as follows:
- Optimistic Estimation
In this approach, the available funds are spent in the most efficient manner
- Pessimistic Estimation
This approach involves less efficient cost management leading to ineffective spending of investments
- Balanced Estimation
As the name suggests, this approach is considered to be a balanced approach between the above two discussed.
5) Expert Opinion Methodology
A Cost Estimation Company leverages its expertise in providing estimates about the cost of a construction project. Their knowledge of industrial experience makes them invaluable for accurate estimates.
Conclusion
In the end, selecting the most suitable Cost Estimation Methodology solely depends upon the characteristics of your project. It is an expert’s primary responsibility to evaluate the parameters of a project and decide which method is appropriate. This article provides you with various methods along with their level of accuracy and limitations. A cost calculator needs to be aware of different ways of predicting expenses as it helps to create accurate estimates.