In the highly competitive AEC marketplace, knowing and anticipating a project’s expenses correctly provides a definite advantage when competing for a contract. But, even in the best of circumstances, cost estimating is complicated and there are myriad risks and uncertainties to consider.
Delivering high-quality cost estimates depends heavily on the quality of data, for example, historical databases, comprehensive project plans, and standard work break down structures make it easier to make comparisons to similar projects. In most cases, the better the data, the better the resulting estimate will be. But you should always be on the lookout for common items that significantly increase risk in the planning and budgeting phase of projects, such as:
- Faulty assumptions
- Lack of supporting documentation
- No historical data for similar projects or comparison
- Out-of-date data
- Too much “grey area” in terms of the time required for the project
- Too much emphasis on precision vs. accuracy
These challenges often lead to underestimating project costs, thus resulting in significant losses or project shortcuts to mitigate losses.
With all of the competition out there, service providers have a need for cash revenue quickly, which trumps the requirement of making sure they’ll profit in the long run off their shot-gun estimate. By identifying and overcoming the common estimating and budgeting issues, service providers can bypass the underestimating barriers and increase estimating accuracy in the future.
As a project progresses, it is important to keep a pulse on how the estimate is holding up. It is important to keep abreast of whether there is significant difference between estimated cost to complete and budget for remaining work, whether there are work phases/tasks with no budget left and if there is frequent allocation of contingency reserve for newly identified in-scope effort.
With the best of these circumstances, cost estimating is difficult. It requires both science and judgment. If you need assistance with improving your estimating processes, download our whitepaper, AEC Project Estimating and Risk Management to learn about best practices, or contact us today to help implement the right estimating and planning solutions to keep your projects on track.