This chapter provides a review on the existing literature regarding uncertainty in cost estimating in construction. There is an examination of the definitions of terms, and a review surrounding the practice and forms of cost estimating. The review will also analyse the factors effecting cost uncertainty and its relative importance to construction projects before focusing on design information as a major proponent of the inherent uncertainty in estimating.
Key points have been identified within the literature and will be expanded upon in the following sections:
• Cost Estimating
• Purpose of Cost Estimating
• Forms of Cost Estimating
• Importance of Cost Certainty
• Cost Estimating Performance in Construction
• Uncertainty
• Design Certainty
• Significance of Design on Cost Certainty
• Other factors affecting Cost Certainty
2.2 Cost Estimating
There are a variety of definitions of estimating within existing literature. The Oxford English dictionary (OED, 2013) defines an estimate as to“roughly calculate or judge the value, number, quantity, or extent of something.” This definition is very much in line with the Association of Project Management (APM) who defines an estimate as “An approximation of time and cost targets, refined throughout the life cycle.” They agree, but for the added dimension of ‘refinement throughout the lifecycle’ which is in cognizance of the construction industry’s use of estimating throughout the process, both preconstruction and construction.
Cost estimating within literature has found to have slightly different definitions. Ogunlana (1989) states that a cost estimate is there only to aid the future design of a project, this description contains little mention of the process used to get to that estimate....
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... set of assumptions to mitigate the effect of incomplete information at conceptual stage (Dell’Isola, 2003). As the project progresses the estimate will develop from being a ‘preliminary estimate’ to a ‘later stage estimate’ and the accuracy of the estimate is expected to improve (Ogunlana & Thorpe, 1991; Flyvberg et al, 2002; Jin et al, 2008).
2.4.2 Dual-Purpose Estimates
These estimates aim to determine the total costs and come into the wider field of cost planning. The use of this type of estimating would be brought about where a stringent requirement for cost control has been requested by the client. These estimates attempt to utilise ideas supported by Dysert (2006) that where uncertainty is present, a range of figures to represent the works rather than committing to a single point figure, would leave the client more informed about the scale of the project.
In today’s uncertain economical business environment there is an understandable pressure to improve the quality of decision making at all stages of the project. A number of techniques have been developed to address this concern, two of the leading approaches used in the construction industry are Earned Value Management and Risk Management (Hillson, 2004), those two approaches share a common aim of providing decision makers with the best information available when setting objectives and considering management strategies. However, they take differing approaches, Earned Value Management establishes project performance status and extrapolates that information to gain an understanding of future trends and the allocation of resources needed to successfully
Explain your approach to estimating the project cost (e.g. top down, bottom up, etc.) and why that method was chosen.
S.KENNEDY & A. AKINTOYE (1995) Quantity Surveyors’ role in design and build procurement method, [online] London : Royal Institute of Chartered Surveyors. Available from :
Compared to traditional construction project management, LPS approaches to smooth variations in construction work flows develop planning foresight and reduce uncertainty in construction operations.
Abstract is a condensed version of the full report; this was well formulated by using headings instead of single paragraph style, thus looked uncluttered (Macnee, 2004). The purpose had c...
Software development project managers should prepare several types of cost estimates for most projects. Three basic types of estimates include a rough order of magnitude or ROM, a budgetary estimate, and a definitive estimate.
Size of work. The cost is used for very small production runs, and the costing process is used for large series
To test the financial feasibility and plan acceptability, there must be information on the magnitude, and share of estimated project cost that are reimbursable. This information can be derived from cost allocation. Also where cost sharing is required in the multipurpose planning process cost allocation can be applied. Cost allocation also provides information necessary for allocating the real expenditures ensuring that the cost account are maintained in line with plan formulation and allocation principles during the subsequent c...
Particularly, the construction industry has shown a lot of difficulties to be able to cope with the increasing complexity of projects, there’s need to be a change from the traditional approach to deal with future challenges and requirements (Cooke-Davies, Cicmil, Crawford, & Richardson, 2008). Each building constructions just happens once, in other words, there doesn’t exist the same situation
The cost management is meant to make a balance between project’s scope and the expected quality and the project budget. It can be concluded as the following:
Cost estimation is another essential part of the construction profession. Spreadsheet programs such as Microsoft Excel are useful for cost estimation. Instead of figuring every single cost factor for every single project, you can do it once, and then input values for further projects.
Accurately forecasting the cost of projects is vital to the survival of any business or organization. Cost estimators develop the cost information that business owners or managers, professional design team members, and construction contractors need to make budgetary and feasibility determinations. From an Owner's perspective the cost estimate may be used to determine the project scope or whether the project should proceed. According to the U.S. Department of Labor there were about 198,000 cost estimators in 1994. That of which 58% work in the construction industry, 17% employed in manufacturing industries, and the remaining 25% elsewhere. From this we could conclude that a great deal of cost estimation lies in the construction industry, where multi-million dollar contracts are formed after a thorough cost estimation.
The concept of cost planning and cost control particularly in the tendering process of building project is not a new technique and have been successfully use for many years to achieve value for money on project. Involving a process of applying prices to the various elements of work that comprise the project, such as items of labour and materials so as to estimate the overall cost of the construction project. Added to the function of providing a means of determining the probable cost of the project, this technique is also used to assess achievement of best value for money of the project. The UK government describes achieving best value for money as having taken into account when making procurement decisions the optimum combination of whole life cost and quality necessary to meet customer's requirements (CPS.GOV.UK). It dictates the critical elements of the project such as design, schedule and quality all constitutes a stages where cost must be effectively planned and controlled.
Which one is more preferred for the job of cost estimation cost estimator or engineer?
A careful and close monitoring of time and cost must be performed to ensure a project is successful. Often, time and cost constraints are common issues with projects especially in construction projects; and if not monitored closely, it can have a devastating result for the project. Moreover, time and cost of projects can mean the difference between successful project completion or delay and added cost to the project. Therefore, a successful project requires detailed analysis of cost and time; project managers must explore ways to reduce time and cost where possible (Eckhart-Queenan, Etzel, & Prasad, 2016). Project managers can mitigate constraints by fast tracking or reducing project scope or when there are no constraints by adding resource