Construction Project Management Portal

Construction Cost Management

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How much? It is the first and most important question to ask before investing the time and money required to develop a concept into a realized project, and answering it incorrectly at the concept phase will assuredly lead to cost overruns and time delays later down the road.

Cost management is the process by which companies control and plan the costs of doing business. Individual projects should have customized cost management plans, and companies as a whole also integrate cost management into their overall business model. There is no single accepted definition for this term, because it has such broad applications and possible strategies. When properly implemented, cost management will translate into reduced costs of production for products and services, as well as increased value being delivered to the customer.

Types of Construction Cost Estimates

Construction cost estimates may be viewed from different perspectives because of different institutional requirements. In spite of the many types of cost estimates used at different stages of a project, cost estimates can best be classified into three major categories according to their functions. A construction cost estimate serves one of the three basic functions: design, bid and control. For establishing the financing of a project, either a design estimate or a bid estimate is used.

  1. Design Estimates. For the owner or its designated design professionals, the types of cost estimates encountered run parallel with the planning and design as follows:
    • Screening estimates (or order of magnitude estimates)
    • Preliminary estimates (or conceptual estimates)
    • Detailed estimates (or definitive estimates)
    • Engineer’s estimates based on plans and specifications

    For each of these different estimates, the amount of design information available typically increases.

  2. Bid Estimates. For the contractor, a bid estimate submitted to the owner either for competitive bidding or negotiation consists of direct construction cost including field supervision, plus a markup to cover general overhead and profits. The direct cost of construction for bid estimates is usually derived from a combination of the following approaches.
    • Subcontractor quotations
    • Quantity takeoffs
    • Construction procedures.
  3. Control Estimates. For monitoring the project during construction, a control estimate is derived from available information to establish:
    • Budget estimate for financing
    • Budgeted cost after contracting but prior to construction
    • Estimated cost to completion during the progress of construction.
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April 25, 2012 - Posted by | Cost Management |

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