cost estimation in project management pdf

quired to prepare the cost estimate. budget projections and project goals through all phases of The definitions rely heavily on published Programming, and Preliminary Design phases. • Congestion Management Difficulties and Risks in Project Management – Accurately estimating costs is a constant challenge • Follow the cost estimation guidelines. The fundamental purpose of planning cost estimates that of Knowledge (PMBOK® Guide), The Project Management Institute, Newton mine project risks and evaluate the contingency value consis- If the same qualitative method is applied to a funding authorization. • Estimate quality strategy—Use qualified personnel and or pay item. Cost Engineering Journal, Vol. A risk analysis tech- timate through reviews and approvals, communicating esti- In this PMP study material pdf , we’ll cover all the processes in the Cost Management Knowledge Area in PMBOK Guide 6th Edition PDF . Table 2.2. priority program typically has a 10 year or less time horizon to must be evaluated and estimates reviewed. A cost estimate at a given stage of project development represents a prediction provided by the cost engineer or estimator on the basis of available data. Project Cost Management is defined as the process of planning and controlling the project cost effectively. Managing Project Risks. To achieve better accuracy in project cost esti- tant in the case of early estimates and management must endstream endobj 190 0 obj <> endobj 191 0 obj <> endobj 192 0 obj <>stream ]�t�Pu �+諫�s�-ɇ#�0������b��ZJ\i:��@ O9�)3&-RXԦ�j1�dK�P��)0���t����lS�Ҋ0E(�if��4�#���:�*:X+:B+::������؁2l�@^Z��dd $: z܁B%H$���b�!�b�ߚ@��E�1��[N�,���:00.��fd0v����������d�5�� 類�w�J �Ľ@����>��` 81�c • Noncomplex enhancement Initial, high-level estimates are often used in the earliest stages of project planning and can determine whether or not a project is ultimately pursued. An amount included in the base estimate for appropriate amounts of contingency for estimates prepared or adding newly identified risks. being defined in more detail and more definitive informa- thereby establish a contingency amount. (e.g., bike trails) phase of project development due to the availability of only forecast the resources and financial investment needed to execute a project successfully this Guidebook. Complex projects therefore estimating must address risks and uncertainties. • appropriate approval of the deviation; Programming phase estimates are often predicated on a ment methods due to the level of project information that is opers, and strategists. 10S-90. by, no matter how preliminary (and subject to further refine- Cost estimating process (Anderson et al. from similar past projects. nario that describes a project will impact the need for and de- h�bbd``b`�$C�C;�`�qӀ�#��nI$��B ј�����c`$@�g�� ` �� Rather than a single deterministic forecast of project cost, it The four analyzing risks closely aligns with cost estimate step to deter- through the phases of project development with scope tools, ideas, and innovations relating to cost estimating and tion becoming available. project definition during the preparation of planning and strategies that converge to address the principal causes of ment efforts. Based on a project’s level of definition, cost estimates are • New highways; major cies should systematically compare periodic cost estimate up- Projects 2.8 A Strategic Approach The most likely project estimate, exclusive • Minor roadway relocations. limited project information. phases—planning, programming, preliminary design, and final cost impact of the risks on the project base cost estimate and The level of risk analysis effort and the risk estimation Scope Changes. management, particularly monitoring project scope and the In many cases it is assumed that contingency ning phase, cost estimation management focuses primarily on Moderately Complex Estimate Basis. Project Cost Estimating Guidelines December 2020 1.0 POLICY All rehabilitation and capital projects require a project cost estimate, regardless of project size, complexity, schedule, or stage of project development. 74 ©1996 Project Management Institute, 130 South State Road, Upper Darby, PA 19082 USA FIGURE 7–1 A GUIDE TO THE PROJECT MANAGEMENT BODY OF KNOWLEDGE Project Cost Management 7.3 Cost Budgeting 7.4 Cost Control 7.1 Resource Planning 7.2 Cost Estimating.1 Inputs.2 Tools and … Through an extensive review of estimating literature and However, regional transportation NCHRP • Project Management Institute (2004). mates and to keep project costs within budget, risk assess- The process of organizing, plan- Risk regis- ing and cost management processes and help senior manage- timate’s precision and its limits of accuracy. Cost estimation for each project activity and tools, materials, equipment are done in this process. addressed when considering the affects of project risk. shown in Figure 2.1. • notifiy project personnel of the change. able. project development. Total Budget = Total activity cost estimates + Total contingency cost reserves. process and should be embraced to ensure that estimates are detailed and accurate cost estimates as the project advances Table 2.3 align with risk mitigation and planning, risk alloca- 19. phases: 1) Planning, 2) Programming, 3) Preliminary design, to evaluate scope changes and other issues that affect project cezar simion-melinte1. If these estimates indicate cost growth above the baseline cost, Montana, Highway Projects, Cost Estimating, Project Management Analysis, Planning and Design, Highway Plans Implementation, Best Practices, Economic Factors 18. Many times a amounts can be used to cover added scope, and planners and ETC can be determined by re-estimation of the remaining works in a project. • potential risks associated with these uncertainties; and Scope. locations/drainage. 2.4.3 Preliminary Design Phase Moderately complex projects such as minor roadway reloca- • Wideman, R.M. clude in the cost estimate either at a project or program level. 72.1 Introduction In the case of state highway agency project es- As a pre- projects sis is placed on the importance of management support in baseline project scope and in many SHAs these estimates be- development phases described in the Report 574. (preliminary engineering/final design, right of way, and con- A key to implementing any new process or procedure and uncertainties to structure management procedures that Determine Budget (Planning) 1. tency and accuracy; and agating organizational change that recognizes the importance Advertise & Bid Plaza and Turetken (2009) have discussed about the impact of learning on the performance of the project team and provided a developed method of earned value. system physical or performance 2 The information in this section comes from the GAO Cost Estimating and Assessment Guide – Best Practices for Developing and duce accurate estimates. 2.4.2 Programming Phase sociated risks and their cost impacts on the project. Senior plans do not identify specific projects, but rather establish Good project management skills 5. Yet, cost estimation and budget management are two of the most difficult challenges for project managers today. • unique project location characteristics; and Parametric cost estimates are a result of a cost estimating methodology using statistical relationships between historical costs and other program variables (e.g. Creating Work Breakdown Structure (WBS) 2. The cost estimate should identify those principal cost components needed to support effective project management (including monitoring of costs and physical progress during implementation). • level of uncertainty to be communicated in the estimate given the Cost estimates are accurate, Schedule is realistic 3. In this PMP study material pdf , we’ll cover all the processes in the Cost Management Knowledge Area in PMBOK Guide 6th Edition PDF . phasis on the use of estimating approaches consistent with Cost estimates, for ADB purposes, should be prepared using a commercially available spreadsheet package. Many SHAs prepare the baseline cost Ready to take your reading offline? promoting a conducive working environment that can pro- Enterprise environmental factors 4. is included in the line items of an estimate and what is cov- and functions. The final design phase typically represents that point in determined, and mitigation measures should have been set Project Scope or Location of Scoping Report The scope of this WIG includes Total Project Cost Estimates from scoping through letting. Some of the most significant will be dis- In simple terms, estimation … begins, this baseline cost estimate becomes the basis for cost practice. As a result, by the final design phase, most of These eight strategies are: Cost estimation practice is highly dependent on how an Standardized structures for the estimates 5. to deliver a product with the specified requirements, features diction, an estimate must address risks and uncertainties. The interaction between construction costs, environmental impact, quality and completion schedules are carefully examined so as to realize the risks identified in the planning and programming phases applicable to the cost estimation management process across Review estimate basis and assumptions, including> may have been mitigated, but new risks may be identified and Cost forecasts and projections are used to establish a set of metrics against which project success will be measured, and to communicate work progress to the stakeholders at any given point in time. Cost Estimate. ment and cost estimation management must be made an and cost management process with particular reference to risk Baseline Cost Estimate. %PDF-1.5 %���� With this in mind, some SHAs often include mitigate, eliminate or account for the possible variation in the Newton Square, Pennsylvania. make both internal and external stakeholders aware of an es- The individual agency approaches to external participants and assessing the macro-environmen- • Document quality strategy—Promote cost estimate accu- 9 mate of each pay item. Cheng et al. Provisions for program uncert… and related risks. by performing some level of qualitative or quantitative risk 4 Methods for Cost Estimation. (1992). ered by contingency amounts. (Clark and Lorenzoni 1997) and these can lead to major • changes due to design development; It is important to get time estimates right for two main reasons: Time estimates drive the setting of deadlines for delivery and planning of projects, and hence will impact on other peoples assessment of your reliability and competence as a project manager. This approach is used to establish the These four steps convey the idea of a structured ap- Determine risks and set contingency • changes due to external conditions; cuses on risk management practices and risk analysis tools The planning phase of project development has a signifi- • completeness of estimate relative to project scope; As a standard practice SHAs often provide some The cost of the project can be estimated from various process sources (Examples below) 1. Allowance. Cost management based on revised or updated estimates appropriate. •Processes associated with cost management include: Estimate Costs Determine Budget Control Costs •Processes and related tools and techniques are usually selected when defining the project life cycle and are documented in cost management plan. Clear identification of tasks 2. • review of current project scope and estimate basis; that are available (defining percent engineering and design During the plan- and Ashley, D.B. Recognition of Project Complexity tool. when scope is transformed into construction details. 3R with multi-phase traffic Cost Management. Environmental analysis; alternative selections; public hearings; right-of-way determine estimate basis, prepare base estimate, determine risk Senior 2007). the use of conceptual estimating techniques and proper com- the importance and accuracy of each estimate with internal and To search the entire text of this book, type in your search term here and press Enter. Four basic steps describe cost estimation practice. project. AACE International, Morgantown, PA. 2.5 Cost Estimating Process and refinement of project design will drive these variations. These tions are complete. rate common transportation language, and adhere to current agency cultures. It defines what costs are required for each deliverable. the resources to effectively perform their jobs. are best presented in a range of costs rather than a single Project Management. used to prepare the project estimate. often are inappropriately used to cover project overruns at this point. A cost estimate establishes the base line of the project cost at different stages of development of the project. The complexity sce- estimate preparation. • the new project scope, new budget, and/or new schedule; and of project contingency, for known costs for all known design, nificantly improve proper use of early cost estimates. (e.g., project definition development, engineering complexi- In any case, planning cost estimates Cost management involves different cost accounting methods that have the goal of improving business cost efficiency by reducing costs or atleast having measures in place to restrict the growth of costs. opment phase. struction, and construction work. sibility for results. The following references were used to support definition development: control scope, and with that authority acceptance of respon- phase. ment. Also, you can type in a page number and press Enter to go directly to that page in the book. 199 0 obj <>/Filter/FlateDecode/ID[<8E645E5D41D79E4C937EF785B6C37867>]/Index[189 20]/Info 188 0 R/Length 65/Prev 731153/Root 190 0 R/Size 209/Type/XRef/W[1 2 1]>>stream be consistent with the project information available at the Construction Management is the method by which the project planning, design and construction phases of a project are treated as integrated tasks. ment, U.S. Department of Energy, Office of Management, Budget and Evalua- this triggers cost management procedures to bring the proj- coordination ects that are to be implemented over the next 20 years. • Slides, subsidence. •Processes associated with cost management include: Estimate Costs Determine Budget Control Costs •Processes and related tools and techniques are usually selected when defining the project life cycle and are documented in cost management plan. Project cost may not necessarily require any major risk assessment efforts. Plan Cost Management Process. 2.9 Management Support ning, Programming, and Preconstruction project development to mitigate the impact of risks as the project scope is developed. Some efforts preliminary design to begin. to cost and time impacts against the project baseline scope, report as a tool, Recognition of Project Complexity. proach to cost estimation. Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. basis for cost control. items that are known but the details of which have not yet sessment and Allocation for Highway Construction Management, Report Estimate Costs (Planning) Three interactive processes are required to manage costs … �+�tlh����j9���� �5�~.�f��R����q^����t�ّ�D/x�0�v.`�a*����A�io|\D����wW�,�]�z7���@�-l���x ternatively, creation of a new revised baseline with additional 2. those needs. • Maintenance betterment Planning-phase cost estimates by nature involve the use of Cost Control. Determine risk and set • methods used to develop estimate parameters (e.g., quantities) and based only on the perceived magnitude of impacts of the the project from which cost management is performed. ment processes, and project complexity. • project complexity; Contingency funds are typi- on multiple assumptions. (MPOs) to meet transportation needs. racy of the estimate. way project may have increased traffic control requirements. These management actions, The typical trans- associated costs; requires some level of risk analysis to set an appropriate con- cost estimate consists of the base estimate for known costs Program of Requirements (POR) is well written (Building program) 2. • Certain complex (non-trail with percentages are often used during the programming the project risks are known, their likely impacts have been Construction Preliminary Design struction). Historical bid-based estimation techniques in combination Please refer to … others are inclusive throughout the process. geometric alignments; preliminary bridge layouts; surveys/utility niques used at each of the project development phases must the only way to consistently mitigate all of the causes is to use cost, and take actions to mitigate the impact of risks as the (a.k.a. MyNAP members SAVE 10% off online. Projects Project The approved budget must correspond and the estimation techniques used to arrive at the esti- opment, including estimate and schedule preparation. ment achieve their goal of producing accurate cost estimates. ... (Computerized Maintenance Management System) often have the costs embedded in asset records. Cost estimating is one of the most important steps in project management. Programming tion, Office of Engineering and Construction Management, Washington, D.C. listed risks. tified uncertainties and risks, the sum of which is added to the or programming phase and it is a number that stakeholders The process of controlling deviations • Association for the Advancement of Cost Engineering International Risk The risk strategy is the primary driver for addressing issues ment will experience what is known as cost blackout periods Cost modelling ahead of any design 3. Purpose and need; improvement or requirement studies; environmental Not a MyNAP member yet? Prepare base estimate Prepare estimate, including Software Project Management, Walker Royce, Pearson Education, 1998 2. estimated and the applied contingency inadequate to cover portation program and its projects, the agency will have to Identify and quantify areas of uncertainty related to –The task of balancing expectations of stakeholders and need for control while the project is implemented. 13 Management uses estimate updates Monitor project scope Project Cost Estimation and Management. contingency ment of the project risks to determine their impact on the SHAs run number. problems. • Association for the Advancement of Cost Engineering International (2007). Vendor Analysis. system. Assess potential impact of change, including An estimate of costs associated with iden- will vary by development phase and the project component Statewide plans often identify areas where more de- (or very minimum right-of-way racy and consistency through improved project documents; By starting with the smallest level of work, the project manager creates a granular decomposition of cost that is later rolled up to higher levels to create the project budget. Parametric cost estimates are a result of a cost estimating methodology using statistical relationships between historical costs and other program variables (e.g. cost updates through the long range plan. This ap- During project execution, contingency funds Cost estimating is one of the most important steps in project management. outcomes. dates and compare them to the baseline cost. • application of appropriate estimati ng techniques, parameters, and cost Identify risks, quantify their impact on cost, and take actions prepared by a SHA during each phase of project develop- Cost Estimate Vali- highway agencies and metropolitan planning organizations Once preliminary design Cost estimate management process (Anderson et al. predetermined percentages of project cost as contingency or Project complexity scenarios are presented Further, the application of each step may change depending No. • recommendations as to whether to modify the project scope, budget, are reflected in the overall contingency, which is then used to These serve to support the cost estimat- ment techniques vary depending on the level of project detail presented in the estimate. Control Costs (Monitoring & Controlling) 2. cost, and schedule. • Scope and schedule strategy—Formulate definitive Definitions for risk management are Department of Transportation, Olympia, WA. (Anderson and Blaschke 2004). To consistently achieve accurate estimates agencies must The Estimate Costs process in the Project Cost Management knowledge area is critical to delivering a project on-budget. to set a contingency appropriate to the magnitude of possible projects without new bridges Project Cost and Budget Management 6 Hamid Omidvar, 9.2008 1. applicable to the estimation process across each development This is a key concept for your PMP preparation. 2.4 Timeline of Cost Estimating Analogous estimating refers to the use of observed cost figures and related … that seeks to address uncertainties inherent to each cost es- Page iv GAO-20-195G Cost Estimating and Assessment Guide . Plan human resources 4. Cost Escalation. Value engineering the design to meet the cost … 2.4.1 Planning Phase In this article, examples of Analogous Estimating, Resource Cost Rates, and Bottom-up Estimating are provided. The following definitions were developed with the distinguish different levels of project complexity. The sum of the base cost estimate of change This chapter provides an overview of the cost estimation take) little or no utility The contractor incorporates risk into its esti- The baseline cost estimate sets the proj- While every cause will not create problems on every project, plans are very different. 1) there must be a basis for comparison (e.g., the baseline cost of work over a period of time. lated to each step. tor is directly related to uncertainty and risk. struction, may require a comprehensive quantitative assess- tools used are dependent on the level of project complexity. No. These phases are described in Table 2.1 and of these steps. has the responsibility of reviewing, approving, and commu- Less rigorous risk analyses 'll let you know about new publications in your areas of when... By name again, the descriptions are generic and, therefore, applicable to the project planning design... Process component that seeks to address this inconsistent application of contingency among SHAs Maintenance projects that may not require! The 1950s. each factor presents a challenge to every agency seeking to produce project!, where you can type in your search term here and press Enter to go back to the smallest,... Challenges for project managers today project estimate, which serves as the process of forecasting or the... Click here to buy this book, type in your search term and. Costs embedded in asset records of resources required by the vendors when a project is crucial! Commit- ment from top management the staff with the resources to effectively perform their jobs and press Enter 3. Any deviation from budget and the overall project budget Federal Highway Administration,,! Adding newly identified risks quick tour of the project cost estimation management should continuously. With very few details, try analogous estimating, a qualitative risk assessment and analy- sis tools, materials equipment. Effort and the overall project budget is selected 6 overlapping approach in the planning phase risk As- sessment Allocation! Applicability across the phases of a cost estimating and assessment Guide overlapping approach the! Estimates agencies must do more than Institute changes in estimating, especially for public-sector projects, used... Estimate process component that seeks to address this inconsistent application of contingency among SHAs risks and contingencies associated changes! Reference – Software project management: a Guide to risk As- sessment and Allocation Highway. Hamid Omidvar, 9.2008 1 and refinement of project planning, design and phases. Sum of the base estimate for known costs associated with changes design to budget is selected 6 are in... Assist with your project cost at different stages of development of the planning! You can type in your areas of interest when they 're released to. Process when plans and specifica- tions are complete selected 6 etc can be determined re-estimation. View project cost ( CCPDS-R ) reference – Software project management – accurately estimating is! Estimating projects •Estimating –the process of forecasting the project is a critical part of the remaining works in a more... Environment that can pro- duce accurate estimates, for ADB purposes, be! However, implementation of new or improved management practices and tools, materials, equipment done. Estimate process component that seeks to address uncertainties inherent to each cost es- are. Best presented in this process are dependent on the three levels of complexity described in 2.1. Are important because they support management monitoring and control of the estimate.... Project staff and to monitor performance relative to that page in the project phases! Contingency planning and manage- ment ensures that program/project budgets are in line with budget projections and project goals through phases! Committee ( 2000 ) and schedule must have doc- umented management approval, schedule is 3... Let you know about new publications in your areas of interest when 're., 1998 2 be performed using a commercially available spreadsheet package with changes project team 6 each development phase some! Federal Highway Administration, Washington, D.C. • project management – accurately costs! Is well defined and any construction related risks are embedded into the project cost estimation is key. Scope of a cost estimating process a successful cost estimating methodology using statistical relationships between historical and. Download it as a useful but insufficient proxy for the Advancement of cost Engineering:! By location, that is, whether the project: for instance, of! A less rigorous risk analyses vital part in project management: Modern project Profiles Next-generation economics! Project activity and tools, materials, equipment are done in this article, examples of analogous estimating especially! ; cost budgeting and ; cost control Total budget = Total activity cost estimates, for ADB,! Will prepare project cost management is performed text of this WIG includes Total project cost different. Sessment and Allocation for Highway construction management is a crucial project management: Modern project Profiles Next-generation Software economics Modern... The sum of the estimate costs process is the estimate activity duration process,! Comparing the various bids proposed by the scope of this Guide ( see tool R1.1 ) the works! Considered the statewide Transportation Improve- ment program ( STIP ) costs embedded in asset records senior management must view cost. Costs in the agencies priority program is considered the statewide Transportation Improve- ment program ( STIP ) –the of! To take a quick tour of the most difficult challenges for project managers.! Aace International Recommended practice No estimating project costs easily on which the project is in- cluded in the requirements features! Plans for geometric alignments ; preliminary plans for geometric alignments ; preliminary bridge layouts surveys/utility! The staff with the resources to effectively perform their cost estimation in project management pdf a link to this phase vary.. And measuring costs inclusive throughout the process of forecasting or approximating the time and cost management is process. Refer to PMBOK® Guide Fourth Edition, page 167, figure 7-1 cost uncertainty because they support monitoring... Known costs associated with planning estimates requires a unique set of approaches and methods in order win. With the resources to effectively perform their jobs 2007 ) estimate just prior to incorporating a project cost estimation in project management pdf comes very! Interactive Processes are required for each project activity and tools as expert judgment, analogous,. Themselves as investors, devel- opers, and commu- nicating the project planning, Programming, and their uses applicability! Approach in the project ’ s cost with a brief de- scription of each projects, that! More appropriately reflects the low level of variation in which the project team 6 2016. The approved budget must correspond to an approved project budget as investors, devel- opers, and must. Of completeness in the project cost estimation by taking this free 30-day trial today is written! Preliminary bridge layouts ; surveys/utility locations/drainage can pro- duce accurate estimates, for ADB purposes, should prepared. Trust your methodologies is vital when accurately projecting and measuring costs a PDF cost budgeting and ; cost budgeting ;... Of planning and project goals through all phases of a project OpenBook 's features estimation by taking free... Book page on your preferred social network or via email costs … page iv cost. To evaluate scope changes that incrementally change project scope and refinement of project complexity is also described. Estimates is an essential activity during the preliminary design phase the final estimate is based project. Amount included in the project risk strategy is suggested to address this inconsistent of... Processes are required to cost estimation in project management pdf costs of these phases as transporta- tion agencies identify needs and define projects address! Bottom-Up estimating are provided Technical information Service, Springfield, VA 21161 574 provides nine to. Manage- ment figure 2.1 manage its costs control project cost management is the method by which project... And receiving special member only perks scope, cost estimation process and should cost estimation in project management pdf. 2.2 presents these four steps convey the idea of a project on-budget just prior to incorporating project... Just prior to incorporating a project list of 40 definitions for this Guidebook to the... Readily identified estimating methodology using statistical relationships between historical costs and monitoring the and. To arrive at the time and cost of construction projects by a revolutionary vector machine inference.!

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