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The Importance of Location Factors in Cost Estimation

Location factors

Before starting a Cost Estimation for a technical project, it is important to have the knowledge of both the content and the circumstances of the project. One should be aware of the specific details during project execution along with an overview of the required equipment and labour activities.

Location factors are essential for reliable cost estimates as they capture these particular conditions. Below, we delve into essential considerations when determining your location factors. Let’s explore each aspect in detail:

Make use of historical data        

Before starting to map the location factors, always look for the relevant historical data. There is no point in trying to invent the wheel yourself when others have already done it before. Data from similar projects in the same region can serve as a basis for establishing location factors. However, keep in mind that the process doesn’t finished here.

You need to define the differences between the two projects since the scope of the two projects is never the same. Even if it were to be the same, there is no assurance that all costs have been covered. Additionally, if there is a difference in time, then you need to apply indexation.

Keep an eye on the project site characteristics

Always keep an eye on site characteristics that include properties such as landscape morphology, on- or offshore site, the accessibility of the site, and the availability of utilities such as electricity.

Remember that projects at remote locations have higher costs compared to the same type of projects in urban areas. This is because of the increased costs of transporting construction materials and equipment to the site. On the other hand, the costs of acquiring land are usually higher in urban areas.

Check the political and legal factors around the technical projects

Policies with regards to large technical projects strongly differ per country. For example, the environmental legislation in countries in Europe can be classified as extensive when being compared to countries in Africa. As a result of this, a huge amount of the budget needs to be allocated to environmental mitigation measures for projects in Europe.

Another important aspect is political stability. When carrying out a project in a country with an unstable political situation, consider the possible events that could influence the project’s performance. Assign a possibility and a cost to these possible events. Use contingency factors to include them in your estimate.

Create your library of labour, rental, indexation and exchange rates

Labour and rental rates differ strongly between countries and often between regions in a country. Before starting an estimate, it is strongly recommended to have a library in place which contains all relevant labour and rental rates for the region where the project is executed.

Also, make sure that your information and rate lists are up to date. A special case would be when you need to perform an estimate with multiple currencies involved. Given the volatility of exchange rates, you would need to update them frequently.

Conclusion

Understanding the impact of location factors in project cost estimation is crucial for achieving reliable cost estimates. It requires more information than just the materials and labour activities involved. Knowing the site-specific conditions and how they affect your project’s costs helps you increase your estimate’s accuracy. Collect all the data required to start working on your estimating; knowledge is the key to success!

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