Question

. Discuss the use and types of estimate you can use for:

a. project planning

b. establishing contract costs

c. managing the costs in the field

d. change order pricing.

Answer 1

a)project planning:Before beginning any significant project, it’s a good practice to lay out an in-depth project plan. A project plan communicates the overall goal of a given venture and details the specific tasks to be accomplished in pursuit of a clearly stated project goal. By using a project plan, a program manager creates a framework that allows a project team to stay on task, on schedule and on budget. Small businesses, even the smallest one-man operation, can use readily available and free online tools to manage all aspects of any size project planning.

5 Methods of Project Estimation:

Expert judgment

Comparative or analogous estimation

Top-down

Bottom-up

Parametric model estimating

b)Establishing contract cost:

Cost plans

evolve through the life of the project, developing in detail and accuracy as more information becomes available about the nature of the design, and then actual prices are provided by suppliers.

Cost plans may include:

• Initial cost appraisals, prepared during the feasibility studystage.
• Elemental cost plans, prepared during the project brief stage and carried through to detailed design.
• Approximate quantities cost plans, prepared from the end of detailed design through to tender.
• Pre-tender estimates, prepared alongside tender documentation.
• Contract sum, agreed with the selected contractor.
• Final account, agreed once the construction works are compcomplet

C)managing the cost in the field:By knowing the true cost of project work, you can make decisions on the value of taking on certain work, and you can ensure that the work you have decided to take on is not costing more than it’s worth.”

• Estimate: For field services companies, project and work order software needs to be able to break down cost by job role or service performed. If there are substantial wage differences between employees, or electrical work costs more or less per hour than mechanical work, then they need to be separate lines in the service budget.
• Track: Everyone on the project must be responsible for tracking costs as they’re incurred.When the company is tracking the individual labor transactions, they need to be allocated to the right cost item, based on how they were estimated. This means that if earned profit is materially affected, the company can move into controlling costs while it has the opportunity to do something about it. Again, having the ability to break down costs where there is variance is critical.
• Control: Don’t forget labor cost. Managing individual time allotments for tasks often requires coaching, as noted in The Project Management Hut article.
• Maintain: Use this cost data for estimation and planning during future projects.

d)change order pricing:The ability to manage change orders effectively has a direct impact on your project’s profitability. Establishing a consistent, detailed, and logical methodology to classify and justify costs for recoverable direct costs, overhead/markup, and consequential costs are vital to gaining change order acceptance and for project success.

Determine True Costs: 3 Types of Change Order Costs

. Direct Costs

Direct costs are the easiest to identify and quantify because they’re tangible. They also often visibly impact project outcomes; therefore, they’re generally easier to justify in the event of changes or alterations. Typical direct costs include labor, materials, equipment, and expenses related to the change. However, there are additional direct labor, material, and equipment costs that are often overlooked and therefore impact profitability.

. Indirect Costs: Overhead and Profit

Defining indirect costs and calculating overhead versus markup versus profit can present a challenge. The percentages for overhead and markup are often predefined in the contract documents and typically range between 5% to 10% for each. Thus, the problem is not simply with the definition but also agreeing to a percentage that properly recovers both overhead and profit

. Consequential Costs

The final piece in recovering your true costs is to understand and account for consequential costs. These are the costs incurred due to timing and scope changes, which may impact overall project costs or duration.