3 project cost estimation examples to learn from

Estimating a project’s cost is an art in itself. But it doesn’t stop when you find your totals. Interpreting and reporting your estimate is equally important. When the project progresses, an estimate allows you to look ahead, but also to look back at where you came from, to determine the performance of your project.

3  examples of project estimates

A common challenge we all encounter in cost estimation is the measuring and reporting of the accuracy of your estimate. To illustrate this, consider the following three projects:

Project 1

• Cost estimate     : $ 231,500,000

• Actual outcome : $ 234,244,600

Project 2

• Cost estimate     : $ 45,800,000

• Actual outcome : $ 53,950,000

Project 3

• Cost estimate     : $ 100,000,000

• Actual outcome : $  77,428,000

How to compare project cost estimates?

‘For which project did we deliver the most accurate, and thereby the best estimate?’

Mind you, this is often the only information that is communicated. Therefore, you might be tempted to say that cost estimate 1 is the most accurate one. The first question you should ask is: are we comparing apples to apples? Let’s see:

Estimate 1 is a Final Funding Estimate on chemical production facility (AACE Class 3 estimate). It shows a difference between the actual cost of +1.2%. However, after the estimate was approved, a number of scope changes were introduced: two storage tanks were removed, including the associated civil, piping, electrical and instrument costs. Additionally, the truck loading area was reduced from 4 to 2 bays. This all contributed to a reduction in scope of $ 55M. As a result, the difference between the estimated and actual cost of the project is +25%.

Estimate 2 is a Class 3 estimate as well, for a hotel resort, to which scope was added after estimate approval: improved quality finishing and additional landscaping. This contributed to an effective difference of +13% between estimated and actual cost.

Estimate 3 is only a screening estimate for the expansion of a refinery. The difference between estimated and actual cost amounts to -22%. However, this is considered to be a much less accurate AACE Class 5 estimate. Even more, after the overall capacity increase, the difference became even less.

Learning from the cost estimation examples

The comparison shows that the last estimate might have seemed the least accurate one, but it is actually pretty good. The Class 5 estimate was considered to be between +/- 50% of the actual outcome, which was achieved. The Class 3 estimates were supposed to be reported within +/- 15% of the actual project outcome, which estimate 1 did not achieve and estimate 2 only by a small margin. This is why you always have to make sure you are comparing apples to apples!

To further improve estimate accuracy, consider using cost estimating software. It will streamline your cost estimating process and help you create more solid and accurate estimates in the long run.