W13_Ocharlie_Types of Estimates

Problem definition

 Estimating Classifications

Estimate classifications are commonly used to indicate the overall maturity and quality for the various types of estimates that may be prepared during the life cycle of a project. An understanding of the characteristics of the different types of estimates is essential before they can be produced and reviewed.  There are variances in terminology and number from industry to industry. Four types will be addressed here; Conceptual,  Cost estimating is the predictive process used to quantify, cost and price the resources required by the scope of investment option, activity or project. Depending on the stage of the project, three main methods are used to estimate costs. What are the features of the cost estimating methods

Feasible alternatives

Conceptual Estimate

Preliminary Estimate

Detailed Estimate

Definitive Estimate

Develop the outcome of each alternative

1 Conceptual Estimates

As the name implies this is the first type of estimate produced at conception stage of the project. It goes by various names; order-of-magnitude, screening, round table, blue sky, expert, study and back of the envelope. It provides a relatively quick method of determining approximate probable cost of a project without the benefit of detailed scope definition. Table 1 is a conceptual estimate of building a 1500 room capacity hotel with the cost of an existing 1000 room capacity hotel known..

Table 1 An example of Conceptual estimate

Parameter	Existing system	New  system	Cost of new system (assuming linear relationship)
Hotel	1000	1500
Rooms	1000	1500
Cost	$67,500,00	X	($67,500,000/1000) X 1500 =$101,250,000

 

2 Preliminary Estimates

Preliminary estimate is prepared after all the engineering decisions have been made. It reflects project specific information to provide a number tailored to the particular project at hand. It goes by other names like budgetary estimate or appropriations estimate. It is used to develop initial budget. At this stage engineering is 10-20% complete and information is available on file like major equipment costs. In the hotel example of Table 1, the lobby, restaurant, conference rooms, parking, swimming pool and night club decision have been taken and costed based on information available.t

 

3 Detailed Estimates

The detailed estimate serves as a basis for evaluating development, production, or construction bids and awarding contracts. This is prepared at the lowest level of detail of the full account structure. Every component part is identified and itemised.

4 Definitive Estimates

 This is the final and most detailed type of estimate. This is prepared to establish a detailed baseline for the monitoring and control during execution phases of the project. This time the design is almost complete and equipment and material prices are known.

Selection of criteria

The attribute for the selection criteria is;

·         Strength

·         Weakness

·         Application

 Analysis of alternatives

Table 2 Comparison of estimate Types

ATTRIBUTES	Strength	Weakness	Application
Conceptual	·         Requires few data ·         Based on actual data ·         Reasonably quick ·         Good audit trail	·         Least accurate ·         Very risky ·         Cannot be used to award contract	·         Studying alternatives ·         Making go/no-go decisions ·         What if studies ·         Rough check to detailed estimate ·         )
Preliminary	·         Reduced cost risk ·         Greater detail available ·         Blind to cost drivers	·         Difficult to assess effect of design change ·         Subject to variances	·         Initial project budget ·         Documentation of schedule activity duration ·         Variance analysis
Detailed	·         Improved accuracy ·         Scope definition detailed ·         Minimal risk	·         Require detailed design ·         Slow & laborious ·         Cumbersome	·         Budgetary estimate ·         Design-to-cost trade studies ·         Cross-check ·         Baseline estimate ·         Cost goal allocation
Definitive	·         Improved accuracy ·         Most detailed	·         Slow & laborious ·         Cumbersome	·         Cost baseline ·         Monitoring & control during execution ·         Variance reporting ·         Productivity analysis ·         Estimate at completion development

 

Selection of preferred alternative

The primary differentiating features that separate the estimate types are the amount of information and time available to develop them and the point in the life cycle of the project. The requirement determines which estimate type to employ.

Performance monitoring and evaluation

Estimate accuracy improves with time due to advanced engineering/design completion and amount of time available. It is always necessary to review the estimates with independent estimates and difference reconciled.

References

Dysert, L. R. Estimating, Skills & Knowledge of Cost Engineering (5^th ed.), (PP 9.1.-9.34) WV, AACE International

Developing a Point Estimate, GAO Cost Estimating and Assessment Guide (February 2005.), (PP. 107-123) Washington, DC, retrieved from http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP .

Humphreys, G. C. (2011). Types of Estimates, Project Management Using Earned Value (2^nd ed.), (PP. 395-399) CA, Humphreys & Associates Inc.

Project Management Estimating Tools & Techniques, Project Management Guide retrieved from http://www.projectmanagementguru.com/estimating.html.