Cost estimation software: Resource based vs activity based

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. An example would be the number of activities described to install a heat exchanger on average. With the right cost estimation software you can develop assemblies that are easily found in a central depository such as a knowledgebase that can be descriptive in nature but could also be generated on the fly from parametric models.

The pros are that this method can be very fast. Generating estimates can be a matter of minutes when mapping technologies are used for the output of your engineering systems, design sheets, material take off sheets (MTO) or Bill of quantities (BOQ). When these estimates are coupled 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 are 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, time needs to be spent 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. So all hour related items in your estimate are created 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. It is also more suited for industries which are highly reliant on getting those numbers right, such as the offshore industry. When a ship sails late, it most likely affects other numbers. Updating one scheduled activity means a whole estimate is updated, saving valuable time.

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.

The winner is…

In general it is quite easily deductible which of the methods will be preferred by which parties. Your manager will love a fast and accurate estimate that can be presented to the board and shareholders. Your work planners and schedulers most likely prefer the second method.

Instead of declaring a victor here I would suggest using cost estimation software that supports both methods, like Cleopatra Enterprise. I would even go as far as suggesting that estimators should use activity based estimating to get the estimates to the board a.s.a.p. and then should run towards the work planners and give them access to or have 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!