What are the cost estimation methods? Before any form of real estate or building project starts, it is often a good idea to do cost estimation. You can use one of many cost estimation methods to do this efficiently and to get a detailed budget for your project.
The cost of construction varies according to a dynamic set of relationships. Direct wages for labor can vary from location to location, often as much as 50%. When payments are considered, the cost of construction work is determined by labor productivity. High productivity results in lower building costs while the cost increases with low productivity.
Construction work conditions, particularly with renovation, often affect efficiency, such as accessibility, lay-down/staging areas, dust, dirt, and general job clean-up requirements, as well as the available workspace. Scheduling requirements can force multiple work activities to be conducted simultaneously or at the same place. The way equipment and services are managed efficiently will also affect productivity.
The Cost Estimation Methods
It is relatively easy to estimate the surface area of a room or the number of marbles in a jar and can be done very accurately using simple thumb laws. Evaluating the overall cost of an offshore LNG platform or a high-speed railroad is a little more complicated.
Luckily, several methods can help you measure the costs over the different phases of the projects.
You can use several factor estimation techniques in the initial phases that allow for an estimate with limited precision, but ample confidence for yes or no decision. The factor estimation method derives its name from the application of derivative factors in the preparation of a project’s investment calculation.
The approach is often referred to as a top-down calculation and is based on minimal scope. To provide appropriate cost data, it uses thumb rules, parametric models, or historical databases. For example, it can be used to determine the cost per square foot for a house or cost a specific piece of equipment.
Factor estimation is used for many purposes, including:
- The project still isn’t complete.
- Most proposals won’t go forward, and it can be deemed a waste to spend time in planning a project that may eventually be abandoned.
- Preparing a detailed calculation is time-consuming, and therefore more costly.
Quantity Survey Method
The quantity survey method is the method of measuring the cost of construction by estimating the cost of all the original parts in the projects, including the cost of installing them, and then considering the indirect costs associated with such construction.
Square Foot Method
The method of measuring the construction work expense by referring to the number of square feet inside a building. Houses of a specific size, for example, could cost $100 per square foot.
You may get a wide range of offers for subcontracting work, such as plumbing and painting, due to the willingness of some subcontractors to analyze proposals and measure the jobs, supplies, overheads, and income they need to accept the responsibility, while others use a basic square footage approach and hope it all works fine.
Equipment Factored Estimating
The capital cost figures for construction plants are mostly based on a cost estimation of the purchasing cost of the significant equipment products needed for the operation. In contrast, the other costs are calculated as cost factors for the equipment.
A detailed calculation is the cost of all the operations and resources that will be used for project completion. The real depth of detail varies from an initial/rough cut calculation. Typically it is done after the drawings are finalized.
A methodology used by appraisers to estimate the expense (new) of reproducing a structure. The approach includes determining the cost of the production and installation of individual parts, such as base, exterior walls, and plumbing. The system of trade breakdown and the system of divided costs are related approaches.
Parametric estimation is one of the most reliable techniques used to assess the length and cost of a project. Parametric estimation is, luckily, relatively easy to implement. First, you describe the requirements of the deliverables for each device. Next, detailed research about published information to know how many hours of work are needed for each unit and the cost, if available.
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