As we learned in parts one and two of our series, cost estimators are critical to construction projects. They develop the cost information that business owners, managers, design teams, and contractors need to make budgetary and feasibility determinations for a given construction project. When you know a project’s costs, you can better manage the job and make more profit.
Estimators must use certain techniques to accomplish an accurate estimate. In this section, our Nashville contractor attorneys will focus on the most common estimating techniques. In our final section, we will discuss common estimating mistakes and estimating software.
Cost estimators use a combination of estimating techniques to arrive at the most accurate estimate. Some of the most common cost estimating techniques include:
Analogous estimating is also called top-down estimating or historical costing. Historical project data is used to form estimates for new projects.
Bottom-up estimating is also called analytical estimating. It is the most time-consuming technique, but it is also the most accurate. It’s a complete work breakdown that divides project deliverables into a series of work packages in which the project team will estimate the cost of completing each task. A cost estimate is then completed for the entire project after totaling the costs of all tasks and work packages.
Delphi cost estimation is an empirical estimation technique where experts prepare anonymous cost estimates. Once submitted, a summary of the responses is prepared and distributed. From there, a new set of anonymous estimates is created. This is repeated for several rounds until a consensus has been reached, which is then used as a final estimate.
Empirical costing method draws from previous project experiences using software- or paper-based systems. Empirical costing methods draw from existing data and are becoming increasingly automated due to their accuracy and time-effectiveness.
U.S. Government Accountability Office (GAO) 12-step process is a systematic approach where an appropriate estimating technique is selected for each component of a work breakdown structure, the assumptions underlying estimates are fully identified, and risk and uncertainty analyses are conducted for estimates.
Parametric estimating is used for projects that involve similar tasks with high degrees of repeatability to create highly accurate estimates using unit costs.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.