CONSTRUCTION PROJECT COST ESTIMATION SITUATION a) Bid for construction project – commercial complex b) Organization worked previously on similar

project which one was the third size of this one c) Similar project in the past, one third size of the current one, was completed with the cost overrun 20% 1) Determine cost technique to use for the project 2) Discuss advantages and disadvantages of chosen technique COST TECHNIQUES Wysocky (2010, p33) defining that cost management is enveloping both and planning and control, where planning part is including budget and mapping costs into project schedule and same time that is enabling us to control consumption of budgeted funds across the time. In his book Project engineering: the essential toolbox for young engineers, Plummer (2007, p.22) stating that at the moment schedule starts taking the shape, budgeting starts where ‘cost engineers consolidate the engineering, procurement, and construction estimates for each activity into the control (baseline) estimate.’ Accurate cost estimation is helping with completion of project on-budget. Numerous software programs for cost estimation are in use which helping project manager to plan and establish project costs. Sanghera (2010, p.167) in his book discussing three techniques for cost estimation: 1) Analogous estimation 2) Parametric estimation 3) Bottom-up estimation Analogous Estimation Technique – using cost-related variables (rates, parts costs, activities costs etc.) used in the similar projects in the past for measurement of the same variables in the current project. Technique is useful in the cases when small number of component information is available and in general this technique is less costly, shorter in duration. Shortcoming of this technique is that it is less accurate than some other techniques. Goebel (2005, p.2) in his paper says that the simplest and quite often fastest way for estimation is to recall an equivalent historical project (or event) and use the associated historical costs in order to predict the costs of planned project. Further, in his conclusion on analogous estimation techniques he is establishing that ‘formal or rigorous application of analogous estimating requires an additional investment of time and energy’. Additional investment is occurring when tracking and maintaining historical cost data and requires time investment in interpretation and rationalization of analogous projects which are selected as the models for the prediction’. Parametric Estimation Technique – is using parameters and statistical relationship between similar projects and as per Sanghera (2007, p.167) ‘can generate quite accurate results depending on the accuracy of the quantity of resources and other data that goes into estimation’. In his paper Goebel (2005, pp.2-4) writing that ‘with additional effort, it should be possible to study our historical data and distill from it some general predictive equations’. The key challenge may be that data collection not occurred previously and that may create need and cost for performing additional historical research. In some cases when the projects are very unique, ‘it is difficult to capture enough data observations for each narrowly defined and easily compared project type to effectively perform linear regression analyses. Bottom-up estimation Technique – uses estimation of the part of a component cost and then with aggregation costs obtained that way in order to calculate cost of the complete component. Technique can generate accurate results which ones enable project manager to make better estimate.

F. ‘Effective Project Management: Traditional.4-5) when organization is lacking sufficiently precise historical data or there is no available good analogies bottom-up estimation is best strategy which can be applied. It is in theory theoretically straightforward approach: creating detailed inventory for the project’s component costs and obtaining cost data or estimation of the cost for each individual element.com. In conclusion he is stating that ‘significant advantage of bottom-up decomposition of the project is that it reduces the need to find directly comparable historical data for projects that match the overall project being estimated.liv. 2005. 2003 cited in Goebel. C. or are comparable as subsets to historically collected data’. (2010). P. 5th ed. Indianapolis. pp. b) Offers easy reporting and costs tracking c) Relying on the input from the people who will actually perform the given task. Project Management Institute.As per Goebel (2005. Butterworth-Heinemann/Elsevier. USA. Instead the project can be decomposed into subsets of deliverables with well-understood parameters that subject matter experts can easily and confidently estimate. I will use Bottom-up estimation Technique.5) shows that typical accuracies as follows: a) Analogous estimation -30% to +50% b) Parametric estimation -30% to +50% c) Bottom-up estimation -10% to +15% CHOSEN COSTS TECHNIQUE AND DISCUSSION Analyzing techniques in works mentioned in this paper for this particular project – commercial complex.ezproxy. Advantages of bottom-up technique: a) Taking all costs in account.K. pp. (2005). In addition to the above techniques Sanghera (2010. (2009). Research (Milosevic. http://www.ac. EBSCOhost. R. ‘Estimation Is Not An Event. p. It’s A Process!’ PMI Global Congress-Latin America . PMP® in depth: project management professional study guide for the PMP® exam. Panama.168) saying that three-point estimation used to establish time duration estimation can be applied here.sciencedirect.B. Goebel. which increases their commitment in completing the tasks within the pre-set budget Disadvantages of bottom-up technique: a) Taking a lot of time and effort to implement b) Too little information is likely to be available on the beginning of the project in order to have accurate estimations References Wysocki. Extreme’. even those incurred by the smallest units. p.. (Accessed: 21 May 2011) Sanghera. ‘What Do Project Engineers Do?’ in Project engineering: the essential toolbox for young engineers. Plummer. Panama.J.1-7 . Wiley Publishing Inc.uk/science/book/9780750682794. 2nd ed. Boston: Course Technology/Cengage Learning. (2007). Agile.

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