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All projects pass through different phases along their timelines, be it any field of work. Staying to specific construction projects, one of the most important milestones in the initial phases is cost estimation.

Cost estimation includes calculating all costs associated with the activities involved in the project such as direct costs, indirect costs, consultations, taxation, legal, government related, etc. An estimation engineer must have in-depth knowledge to ensure that all activities of the projects are covered as direct cost must be accurately calculated. Other costs like indirect costs, etc. are variable and may vary depending on project constraints.

Direct cost of the project includes following important sub-divisions:

• Material costs (direct materials & consumables)
  • All the materials directly related to specific activities are listed and quantified.
  • All the consumables indirectly related to activities are listed and quantified.
  • Wastages are added according to previous projects data or industry norms.
  • The latest market rates are used.
• Manpower costs (effort-based analysis)
  • Manhours are calculated for each activity as per standard norms.
  • The latest market trades rates are used.
• Machinery costs (rentals, depreciations & fuel costs)
  • Equipment to be engaged is calculated for activities involved.
  • For company assets, depreciation is charged accordingly.
  • For non-company assets required, rental values are used.
  • Fuel costs to incur are estimated according to equipment.
  • Latest fuel prices are used.

Irrespective of variable costs like indirect, administrative, taxation, legal, margins (if estimating as service provider / contractor), the direct cost is usually constant with the set basis of price. In case of market fluctuations, the direct cost will become variable but can be assessed based on the changes in base prices of material, manpower & machinery.

These estimates help in developing detailed budgets as the project enters the phases of planning and execution. Project cost estimation empowers the project manager to take decisions accordingly to prevent cost overruns or budget constraints. A lookahead into the cost head enables managers to take preventive actions in case of field adjustments and interface management. These estimates eventually lead the management to critical business decisions as they reflect all the expected expenses to incur for achieving project deliverables.