Resource based vs Activity based estimating software

Group of people talking

More and more the field of cost estimation and cost control is seen as an important factor in total cost management. The field itself is getting the respect it deserves and with more people involved in the project cost management it is also maturing as a field in general. This newfound respect also means that people become more knowledgeable about the work an estimator could do.

When a BoQ or MTO is known it makes sense to use the activity based approach for your estimates. If however a rough schedule is available then resource based estimating is also an option. While one department benefits from estimations based on resource based estimating another will like the approach of the activity based estimating better.

What are the challenges in adopting one method over the other? Hereby a quick overview to help estimators align with their project managers and schedulers.

Activity based estimating, pros and cons

Activity based estimating stems from the experience one gained from previous jobs. For example, consider the number of activities typically required to install a heat exchanger. With the right cost estimation software, you can develop assemblies easily found in a central depository such as a knowledge base. These assemblies can be descriptive in nature or generated on the fly from parametric models.

The pros are that activity based estimating can be very fast. When you use mapping technologies for the output of your engineering systems, design sheets, material take off sheets (MTO), or Bill of quantities (BOQ), generating estimates can be a matter of minutes. When you couple these estimates with best use practices such as allowances, indirect cost, escalation, and contingencies, you really can create comprehensive views of cost. In turn, this could trigger all project controls and cost control facets at an early stage in the project.

The cons of activity based estimating are that you are never going to be exactly correct with your direct cost since that amount is generated by average experience. Meaning, if you want to do it right, you need to spend time benchmarking those numbers and keeping material prices up-to-date.

Resource based estimating, pros and cons

With resource based estimating, you are not looking at the average number of hours you use for the installation of said heat exchangers. Rather you plan the resource you need by calendars and schedules. Thus, in resource based estimating, you create all hour-related items in your estimate using schedules.

The pros are that when you use the right estimation software, updating the calendars means updating the hours involved for the items, and thus updating cost. This means that getting the final number right for your estimated hours is easier.

Additionally, this approach is more suited for industries which are highly reliant on getting those numbers right, such as the offshore industry. For instance, when a ship sails late, it most likely affects other numbers. Updating one scheduled activity saves valuable time by updating the entire estimate.

The cons are that attaching all resources to the schedules is quite labor intensive, doing it right does require some skill. The estimate will be on your desk longer before it goes to the other involved parties.

Resource schedules for resource based estimating in Cleopatra Enterprise

The winner is…

In general, it is quite easily deductible which of the methods will be preferred by which parties. Your manager will love the speed and accuracy of activity-based estimating, which allows for fast and accurate estimates that can be presented to the board and shareholders. Your work planners and schedulers most likely prefer the resource based estimating method.

Instead of declaring a winner here, I would suggest using cost estimation software that supports both methods, like Cleopatra Enterprise. I would even suggest that estimators use activity based estimating to provide the estimates to the board a.s.a.p. Afterward, they should run towards the work planners and give them access to or have them use the same cost estimation software to adapt to resource based estimating.

Estimators should have those options and should be capable of adapting to both styles quickly. Management, estimators and work planners are equally important in making your business a success. This means as an estimator, we need to be more creative and adaptive in how we store our data, but isn’t that why they call us Cost Engineers!

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