Projects typically involve many dynamic aspects, one of the most crucial aspects of project management is accurate project estimates. Estimation is an invaluable tool for anticipating and managing project uncertainties. Accurate project estimates help identify cost and schedule requirements with relative precision, and reduce the risk of running out of time, resources, and budget during a project. There are ways project managers can ensure their estimates are accurate which can lead to the project being a success instead of a failure.
The first step to estimating your project is to break down the actual work involved for your project. Although you may have a general idea of how much time the project overall will take, capturing scope based on estimating from the project level will likely result in wildly inaccurate estimates. Starting with estimating the effort at the task level will result in greater accuracy of the total project effort. Using a construction project as an example, you would assess the various components of the project. The amount of hours each phase will take, all the materials required, each subcontractor to perform the labour, and anything else that will be needed to complete the job. Then you can break down the project and consider the cost of each individual part. If we stay with the construction industry as an example, another way to ensure estimates are more accurate is to be aware of unit cost estimating guides. This can be a faster way of estimating cost but not always the most accurate.
Estimating based on unit cost or extent of per square foot can be a bad choice for accurate estimating due to the many variables of a construction project. These guides should be used as Ball Park only. A more accurate way is to list all the items needed for the job. Identify each piece of assembly required to complete the job and attach a unit cost to them. The sum of all the unit costs will help you reach a more precise estimate.
The use of a master checklist can also help to make sure the project stays on track and is completed in its entirety. It can be very easy to forget things like planning permission, landscaping, landscaping etc. They is why the WBS structure and diagram is so effective. The use of a master checklist to make sure you don’t forget necessary steps and items. Providing detailed description of where you need expertise and more importantly where you don’t, can help projects manager’s cuts costs across the entire project. It’s quite easy to be detailed on the portions of the project where you have the most experience, but it’s your own grey areas that will come back and bite you with cost overruns. Being more meticulous onthe areas you aren’t familiar with help you in gain your knowledge for future projects. Contacting specific subcontractors or consultants to help out on areas that require another set of eyes can also be very useful. Specialty labour, or craftsmen, must include normal wages and benefits. Be sure to take all this into account when establishing their hourly rate when estimating the cost of labour for the project. Once you have the rate established, build out the additional members of the specialty labour force and determine an overall rate.
Consider how many employees you will need to bring into this project. At the hourly rate, determine what it will cost for those workers. Construction projects can be very unpredictable. When you start the estimating process, you have to consider what could possibly go wrong during construction. Consider potential mishaps and factor them into the cost and timeline of the project. It is not easy to predict the future, but you can look back on old projects and try to find commonalities to determine what risks may take place. You can do this by looking at previous projects. Using this past knowledge as a guide when creating estimates for future projects can be valuable.
Understanding material and product prices can play a huge part when estimating construction projects. Material prices change, so paying close attention to factors that can affect pricing when estimating costs is a very worthwhile task. Factors such as:
- Is demand high for a specific material or product?
- Do you have specific delivery challenges?
- Is the product or material custom?
- Do you need the product or material faster than the manufacturer’s normal turnaround time?
It is also crucial to understand material availability and any potential scheduling delays that will have cost implications if you don't order the materials on time. Materials not arriving on time can have huge knock on effects for parts of the projects. If products will have a long lead time, then you should plan that accordingly during construction.
There are many different project estimation methods. Two common methods for project estimation are top-down and bottom-up. Using a high-level work breakdown structure and data from previous projects, you can add estimates for each project work item to determine the overall effort and cost. The top-down method lacks detailed analysis, which makes it best suited for a quick first-pass at a prospective project to assess its viability.
The bottom-up method uses a detailed work breakdown structure, and is best for projects you’re committed to. Each task is estimated individually, and then those estimates are rolled up to give the higher-level numbers. This process makes you think about what’s required in order to take a step back to see if the big picture still makes sense. You’ll receive more accurate results than the top-down method, but it’s also a greater investment of time.
Poor estimates are on the main contributing factors for under-performing or failed projects. Inadequate estimates are the single largest cause of projects that don’t deliver on their promises and it is a worsening trend, and has been for over a decade. These top 3 factors alone contributed to 53% of poor project performance. The top six factors contributed to 78% of poor project performance. (PWC Report on Insights and Trends: Current Portfolio, Programme, and Project Management Practices). One of the report’s most significant, and yet not surprising, findings is that poor estimation during the planning phase continues to be the largest contributor to project failures. Irelands new National Children’s Hospital and its cost overrun really backs up these findings from the PWC report.
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