5 cost estimation techniques supported by Cleopatra's software

Cost estimation techniques you can use

Factor estimating method

The first and most high-level estimating method available is factor estimating. It derives its name from applying derivative factors for the preparation of the investment estimate of a project. You can use factor estimating when the project is not well defined yet: the scope is incomplete and there are possibly still a number of alternatives that need to be worked out in more detail. Since many plans won’t go through anyway, it would be a waste to spend much time on preparing detailed estimates. Factored cost estimates provide you with that ‘quick and dirty’ number you require to base your decisions on. Common techniques for factor estimating include the Six-tenth rule and the Hand Factor method.

Parametric estimating method

Often, companies possess a lot of historical project information that sits unused. Among this, there might be a collection of previous quotes, contract values and prices. A cost engineer can put this to use by developing parametric estimation techniques. Try to look for relationships between the specifications of previously procured materials or labor. For example, by studying how the size and material type of pumps relates to cost, you might be able to find cost estimate relationships (CERs). To do this correctly, you index all costs to one price level and make the scope comparable. This enables you to set up parametric estimation models for future projects, adding intelligence to otherwise unused procurement data.

Quantity estimating method

When the project advances, the scope will gradually be defined with more detail. When you have access to a plot plan or other rough dimensions on site, the cost engineer can use quantity estimating techniques. With this, you step away from factoring costs to using quantities to determine project costs. You might think right now: “but I don’t have drawings and full MTOs yet to determine the amounts of all labour and materials!” While this is true, this technique makes use of design standards to derive typical quantities for us to use in our estimates. It provides a more detailed estimate that is more accurate and allows us to better control scope growth. It works like this: for each type of equipment you determine the typical amount of piping, valves, instruments, supports, etc. Next time you estimate this equipment, you automatically already have the expected quantities, and thus costs, for all disciplines!

Unit-rate estimating method

After the basis of design is finalized, a more detailed estimate is possible. A unit-rate then contains the amount of costs and hours to install one unit (piece, meter, kg, etc.) of each item on an MTO. For example, a meter of 4” pipe might cost 10 Euros, weighs 2 kg and requires 1 hour to install. By multiplying all unit-rates by the quantities from all MTOs a detailed estimate of the project resources is obtained. The level of detail provided by the unit-rate estimating is good enough to later control the project and load the schedule with resources.

Resource-based estimating method

When a MTO is available it makes sense to use unit-rates for your estimates. If a schedule is available then resource-based estimating is also an option. With this cost estimation technique you are not looking at the average number of hours you use for the installation of materials and equipment. Instead, you plan the resource you need using calendars and schedules. All hour related items in your estimate are created using their respective calendar to determine the amount of time a resource will be used throughout the duration of the work activity. By adjusting the amount of productive hours in a calendar, productivity is taken into account over the duration of the activity.

When to use each cost estimation method in project management?

The phase of your project plays a crucial role in determining the most appropriate cost estimation method to use. Below is a guide to selecting the right technique based on the project stage and its associated cost estimate class (according to AACE’s Cost Estimate Classification System in AACE’s International Recommended Practice 18R-97):

Whether you’re at the feasibility stage or preparing detailed control estimates, Cleopatra’s cost estimating software provides the tools and flexibility you need to succeed. Ready to improve your cost estimating? Request a demo now.