Cost estimate - Wikipedia, the free encyclopedia. A cost estimate is the approximation of the cost of a program, project, or operation. The cost estimate is the product of the cost estimating process. The cost estimate has a single total value and may have identifiable component values.
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A problem with a cost overrun can be avoided with a credible, reliable, and accurate cost estimate. An estimator is the professional who prepares cost estimates. There are different types of estimators, whose title may be preceded by a modifier, such as building estimator, or electrical estimator, or chief estimator. Other professional titles may also prepare estimates or contribute to estimates, such as quantity surveyors, cost engineers, etc. In the US, there were 1. There are around 7. UK. Overview[edit]The U.
S. Government Accountability Office (GAO) defines a cost estimate as, "the summation of individual cost elements, using established methods and valid data, to estimate the future costs of a program, based on what is known today." The GAO reports that "realistic cost estimating was imperative when making wise decisions in acquiring new systems."[2] A cost estimate is often needed to support evaluations of project feasibility or funding requirements in support of planning. A cost estimate is often used to establish a budget as the cost constraint for a project or operation. In project management, project cost management is a major functional division. Cost estimating is one of three activities performed in project cost management.[3]In cost engineering, cost estimation is a basic activity. A cost engineering reference book has chapters on capital investment cost estimation and operating cost estimation. The fixed capital investment provides the physical facilities.
The working capital investment is a revolving fund to keep the facilities operating.[4]In system, product, or facility acquisition planning, a cost estimate is used to evaluate the required funding and to compare with bids or tenders. In construction contracting, a cost estimate is usually prepared to submit a bid or tender to compete for a contract award. In facility maintenance and operation, cost estimates are used to establish funding or budgets. In an attempt to manage liability risk, some firms avoid the use of the word estimate and instead refer to the estimate as an "Opinion of Probable Cost."[5]Cost estimate types[edit]Various projects and operations have distinct types of cost estimating, which vary in their composition and preparation methods. Some of the major areas include: Construction cost.
Abstract. This article reports the results of a survey of budgeting practices of American manufacturing firms. It is based on the responses (27.4% response rate) from a systematic, random sample of all manufacturing firms. This table summarizes vehicle cost estimates published by the American Automobile Association. It represents typical costs during the first five years of vehicle operation, and so tends to overestimate depreciation and. Overview. The U.S. Government Accountability Office (GAO) defines a cost estimate as, 'the summation of individual cost elements, using established methods and valid data, to estimate the future costs of a program, based on. In computer programming, tracing garbage collection is a form of automatic memory management that consists of determining which objects should be deallocated ('garbage collected') by tracing which objects are reachable by a.
Manufacturing cost. Software development cost.
Aerospace mission cost. Resource exploration cost.
Facility operation cost. Facility maintenance and repair cost. Facility rehabilitation and renewal cost. Facility retirement cost.
Cost estimate classifications[edit]Common cost estimate classifications historically used are. Order of magnitude. Detailed estimate. Preliminary. Definitive. These correspond to modern published classes 5, 3, and 1, respectively. The U. S. Department of Energy and many others use a system of five classes of estimates: Estimate class.
Name. Purpose. Project definition level. Class 5. Order of magnitude. Screening or feasibility. Class 4. Intermediate. Concept study or feasibility.
Class 3. Preliminary. Budget, authorization, or control. Class 2. Substantive. Control or bid/tender.
Class 1. Definitive. Check estimate or bid/tender. Methods used to prepare the estimates range from stochastic or judgment at early definition to deterministic at later definition. Some estimates use mixed methods.[6]Cost estimate classifications have been published by ASTM[7] and AACE International.[8] The American Society of Professional Estimators (ASPE) defines estimate levels in the reverse order as Level 1 – Order (Range) of Magnitude, Level 2 – Schematic/Conceptual Design, Level 3- Design Development, Level 4 – Construction Document, and Level 5 – Bid.>.
ACost. E defines a Class I Estimate as definitive, a Class II Estimate as semi- detailed, and a Class III Estimate as pre- budget.[1. Other names for estimates of different classes include: Class 1.
Class 3. Class 5. Detailed estimate. Semi- detailed estimate. Conceptual estimate. Final estimate. Scope estimate. Pre- design estimate. Control estimate.
Sanction estimate. Preliminary estimate. As- bid estimate. Pre- budget estimate. As- sold estimate. Evaluation estimate. CD estimate. DD estimate.
SD estimate. Parametric estimate. Rough order- of- magnitude (ROM) estimate.
Very rough order- of- magnitude (VROM) estimate. SWAG (scientific, wild- ass guess) estimate. PIDOOMA (pulled- it- directly- out- of- my- ass) estimate. Estimate quality[edit]Estimate quality refers to the delineation of quality requirements for the estimate. These requirements are set out in accordance with formal quality assurance standards.
There may also be other expectations for the estimate which are not specific requirements, but may affect the perceived quality of the estimate. Published quality requirements generally have to do with credibility, accuracy, confidence level, precision, risk, reliability, and validity of the estimate, as well as thoroughness, uniformity, consistency, verification, and documentation.[1. The result of bidding without good estimates is certain: jobs that end up with less profit, no profit, or a loss.
The bidder ultimately will go out of business; the only question is how long will it take. Since a cost estimate is the approximation of the cost of a project or operation, then estimate accuracy is a measure of how closely the estimate is able to predict the actual expenditures for the project or operation.
This can only be known after the project is completed. If, for example, a project estimate was $1,2. If the project ended up having a different scope or conditions, an unadjusted computation does not fairly assess the estimate accuracy.
Predictions of the estimate accuracy may accompany the estimate. Estimate accuracy is traditionally represented as a +/- percentage range around the point estimate; with a stated confidence level that the actual cost outcome will fall within this range.
An example for a definitive estimate might be that the estimate has a - 5/+1. The accuracy of an estimate is measured by how well the estimated cost compares to the actual total installed cost. The accuracy of an early estimate depends on four determinants: (1) who was involved in preparing the estimate; (2) how the estimate was prepared; (3) what was known about the project; and (4) other factors considered while preparing the estimate. For the same project, the range of uncertainty about the total estimate decreases, as illustrated in the cone of uncertainty diagram. High- quality cost estimates can be produced by following a rigor of 1. U. S. GAO. Detailed documentation is recommended to accompany the estimate.
The documentation addresses the purpose of the estimate, the program background and system description, its schedule, the scope of the estimate (in terms of time and what is and is not included), the ground rules and assumptions, all data sources, estimating methodology and rationale, the results of the risk analysis, and a conclusion about whether the cost estimate is reasonable. Therefore, a good cost estimate—while taking the form of a single number—is supported by detailed documentation that describes how it was derived and how the expected funding will be spent in order to achieve a given objective.
This documentation is often titled Basis of Estimate (or BOE). Additional documentation may accompany the estimate, including quantity takeoff documentation and supporting calculations, quotes, etc.
Although the pursuit of cost estimate accuracy should always be encouraged, a study in 2. Contingency[edit]A contingency may be included in an estimate to provide for unknown costs which are indicated as likely to occur by experience, but are not identifiable. When using an estimate which has no contingency to set a budget or to set aside funding, a contingency is often added to improve the probability that the budget or funding will be adequate to complete the project. Being unable to complete a project risks public ridicule.[2. See cost contingency for more information. The estimate or budget contingency is not intended to compensate for poor estimate quality, and is not intended to fund design growth, owner changes, or anything else unrelated to delivering the scope as defined in the estimate documentation. Generally more contingency is needed for earlier estimates due to the higher uncertainty of estimate accuracy.
Cost estimating methods and best practices[edit]Estimating methods may vary by type and class of estimate. The method used for most definitive estimates is to fully define and understand the scope, take off or quantify the scope, and apply costing to the scope, which can then be summed to a total cost. Proper documentation and review are also important. Pricing transforms the cost estimate into what the firm wishes to charge for the scope. Early estimates may employ various means of cost modeling. The basic characteristics of effective estimating include: clear identification of task, broad participation in preparing estimates, availability of valid data, standardized structure for the estimate, provision for program uncertainties, recognition of inflation, recognition of excluded costs, independent review of estimates, and revision of estimates for significant program changes.[2. Application of best practices helps ensure a high- quality estimate.
Certain best practices should be followed if accurate and credible cost estimates are to be developed. These best practices represent an overall process of established, repeatable methods that result in high- quality cost estimates that are comprehensive and accurate and that can be easily and clearly traced, replicated, and updated. Tools that may be part of costs estimation are cost indexes.