Cost Breakdown Structure and Estimation Techniques
To progress in any field in life we need careful planning, same way while building or constructing projects, a careful planning procedure requires tackling any overpaying before its ground break. Before construction starts a series of a few important aspects needs to be sorted like, calculating work-scope and estimating time.
Though initial estimates cannot be absolutely accurate, it surely increases the possibility of getting more accurate by the process of Cost Breakdown Structure (CBS). Depending on this accuracy level, it is usually used in planning different steps of construction.
Benefits of Cost Breakdown
• Project Cost Breakdown helps in calculating the cost of the project and its profit margins.
• It helps in having a mutual agreement relating to the final price of the structure.
The accurate and logically sound structure of the Project Cost Breakdown is very much essential.
Calculating this Breakdown though is a tedious procedure, but it helps in achieving transparency in future conversations with the clients. And it also helps in getting an idea, of how to manage the costs of construction.
Structuring Cost Breakdown
The first step in structuring a clear Project Cost is to point out its key elements.
• Cost Drivers: Items, tools, require completing any particular task.
• Amounts: Number of specific tools, amount of material components, calculating amount of work time.
• Hidden Chares: Indirect or hidden costs are to be considered.
By determining the purpose of the project, the project cost breakdown can be segregated into two major parameters, mentioned below:-
• By cost Type: Structuring Cost Breakdown based on cost data type s very much common thought. This helps in calculating the key cost drivers effectiveness and figuring out the final cost. It usually helps in reducing and managing the final cost of the construction.
• Time-related breakdown: This breakdown of cost structure shows the estimated costs of monthly, weekly, quarterly, etc. It is usually combined with workflow steps to increase its accuracy.
Estimation Techniques in Cost Break down
Let’s see a few estimation techniques in Cost breaking procedure that can be applied.
1. Expert guidance: A professional guidance or opinion can effectively help increase accuracy in Cost Breakdown. The difference between the final cost figure and the estimated cost figure can possibly change due to this advance and professional cost guidance.
2. Comparing Estimates: Comparing with the previous and current projects, having similar characteristics will surely help in improving cost estimation and breakdown accuracy.
3. Bottom-Up analysis: The cost data is usually prepared considering the costs of small tasks, services, and materials. High accuracy can be achieved by considering all the key factors relating to cost drivers, costs of routine work, and possible indirect costs.
To learn more, watch the following video tutorial.
Video Source: Online PM Courses - Mike Clayton
4. Top-down analysis: A top-down cost analysis can be used to get a vivid idea about the final cost of the construction. It is essential to consider a few vital factors while using a top-down technique like additional costs that are ignored in the initial calculation.
Download Template: Project Cost Breakdown
5. Parametric Estimation: This calculating method can be used with the cost data structure where the costs drivers are predictable. Compared with the existing data structure, various parameters and frameworks can be designed which may result in much more accurate output.
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