Since construction projects are complex and dynamic, it is crucial to estimate and plan the project cost in advance. In this blog post, we emphasise the difference between cost plans and cost estimates and provide advice on when to choose one or the other.
Cost estimating is particularly useful in the early stages of a construction project, where design plans and other specifications are not defined in detail. Therefore, cost estimates serve as a cost benchmark by attempting to provide a comprehensive cost overview of all stages of construction projects. The cost estimates are often not entirely accurate since they are based on incomplete data. However, cost estimates remain reliable as they play an important role in projecting the project and making crucial decisions regarding funding and budgeting.
Cost estimation is based on the analysis of the project scope, goals, design, and other specifications. Since there is limited information available to finance managers in the early stages of the projects, a significant portion of estimation relies on predictions and assumptions. Occasionally, a technique called benchmarking is employed, which involves comparing the cost with similar construction projects that have already been completed in order to gain a comprehensive understanding.
Another approach to cost estimating is to break down a construction project into its component parts and make separate estimations for each part.
It is important to mention that cost estimates should be periodically revised for improved accuracy. As project details are revealed and specifications are defined, cost estimates can become more precise.
There are four main types of cost estimates in the construction industry:
Cost planning involves providing a detailed and precise list of total costs for a construction project. It relies on cost estimating and utilizes existing cost estimates as a baseline. Additionally, it takes into account other factors such as contingency planning, supply chain management risks, fluctuations in pricing, and contractors’ hourly rates.
The primary objective of cost planning is to assist in the planning and creation of a detailed project budget. It also aims to map out all defined costs to ensure the project stays within the allocated budget.
Cost planning occurs after a detailed analysis of all project aspects, including design, specifications, scope, and the type of building. It encompasses all costs related to the project, such as labour, materials, licences, taxes, contractor fees, and similar expenses. The result of cost planning is a comprehensive and precise overview of the project’s costs at different stages. This overview aids in establishing the initial project budget and serves as a benchmark for comparing planned and actual project costs.
Cost planning plays two crucial roles in project management: creating a project budget and a resource plan.
The project budget defines the overall project cost and allocates it to different stages, resources, and activities. It serves as a useful tool for comparing the total cost to the planned cost and determining whether the project is within budget.
The resource plan assists in assigning the predetermined project costs to specific resources and activities, such as manpower and materials. It aids in resource management and cost tracking.
Cost planning involves a comprehensive analysis of all project aspects and their associated costs. The result of cost planning is a detailed overview of the project’s costs at different stages. In contrast, cost estimates are less precise and resemble predictions based on limited available project data.
There are several important factors that affect cost plans and estimates:
It is recommended to use cost estimates in the early stages of project management when there is limited information about the project requirements. They are typically utilized to evaluate the feasibility and viability of the project and provide a foundation for cost negotiations with contractors and suppliers.
On the other hand, cost planning provides a detailed overview of costs and should be employed in later stages of a project where there is sufficient reliable data to create accurate budgets and predict project timelines.
With over 20 years of professional experience as quantity surveyors, we have developed comprehensive cost plans and estimates for numerous clients in the construction industry. Throughout the entire project lifecycle, from the initial stages to the final stages, we have played a crucial role in assisting our clients in defining accurate project estimations, plans, and budgets. Get in touch with us today.