The importance of cost estimation in construction management
The importance of cost estimation in construction management can’t be understated, regardless of your residential or commercial development scale. Whether you are a builder-architect, manage the construction for your employer, or work in a specialised trade, accurate cost estimates break down the scope of the project, allowing you to determine its overall profitability and feasibility.
With effective cost estimation in construction management, you can estimate the time and resources required to complete a given project, so you can share a transparent quote with your prospective client. In this article, we discuss the importance of cost estimation in construction management, share key benefits, and offer a brief overview of relevant cost estimates.
How important is cost estimation in construction management?
For accurate cost estimates in construction project management, you’ll need to consider every stage of the build individually, from conception to handover. Establishing clear parameters around the available funding and extent of the work before you start a project has several benefits. For example:
- You’ll understand the cost of all the components — When providing cost estimates for potential projects, it is imperative to make sure each expense is categorised by department. Cost estimations in construction project management must also account for fluctuations in the price of materials, equipment and labour, as well as any applicable currency exchange rates. This allows you to mitigate the effects of any unforeseen expenditures that could compromise the overall design and finish of the project. By continually reviewing costs throughout the process, you remain in control of the build and are able to protect your margins and profitability. Unexpected external costs often arise along the way, so it is essential to account for these factors wherever possible to limit the impact on a construction project’s duration, cost, and outcome. Some itemised expenses may include:
- Land rental and acquisition for assembly and holding
- Planning and feasibility studies
- Insurance and taxes
- Architectural and engineering design
- Materials and equipment
- Labour, including specialised trades
- Field supervision
- Office overheads
- Interior materials and furnishings
- Inspection and testing
- OHS requirements, such as safety barriers
- You’ll map out the project’s timeline — The importance of cost estimation in construction management can’t be understated when it comes to resource allocation. It forces you to consider whether your firm has the manpower to deliver a new build or renovation within the expected timeframe. Construction estimates also help you ascertain whether a prospective build could fit into your existing workload if you are managing multiple projects simultaneously.
- You’ll highlight your professionalism — Effective cost estimation in construction project management indicates preparedness and diligence, two valuable attributes for any firm. In providing accurate and transparent construction estimations, you’ll garner trust and authority among your clients and within the wider industry. With a reputation for water-tight cost estimation, you’ll become a preferred partner and ultimately win more tenders.
Approaches to cost estimation
Whether your firm focuses on residential, government or commercial projects, successful tendering is vital for growing your business. A construction project management cost estimate is essential for the tendering process, as it sets out the estimated cost for each stage of development. Cost engineers and estimators use many different approaches to inform their estimates. Some of these include:
- Allocation of joint costs — Joint costs are incurred across more than one department or contributing body. They’re divided on a case-by-case basis but should always be clearly outlined in advance to ensure transparency.
- Empirical cost inference — Empirical cost inference uses prior history and pricing data to determine the value of various elements involved in the project and provide the basis for its cost estimation. It requires more preliminary work to set up as the quality of this predictive model determines its accuracy.
- Production function — Commonly used in commercial developments, production function measures the value of the work against the cost of the resources invested.
- Unit cost estimating — This involves pricing the labour, machinery and materials involved during production. Some developers may use operational rate for estimations where a section of work is costed as a package.
- Stick estimating — If you want to create detailed itemised records, stick estimating might be suitable. It records every unit of labour and expense as the project progresses. This method is prone to inaccuracies and flawed data due to human error, which may give a misrepresented account of the budget.
Streamline your construction cost estimations
Accurate and transparent appraisals are invaluable for managing existing projects and acquiring new business. Since reliable cost estimates are critical to the success of your firm, you need the most qualified estimator in your team. You need Nexvia.
Nexvia’s cloud-based Enterprise Resource Planning software (ERP) combines resource planning, tendering, customer relationship management and document management in one easy to use platform. Whether you are in the office, on-site, meeting with vendors or presenting to clients, you can easily and quickly access important records and budgeting tools from your phone or laptop.
With Nexvia, it’s easy to make accurate, comprehensive and reliable cost estimations in construction project management. Our unique platform streamlines the process from start to finish, so you can stay ahead of your tendering requirements.
Here are just some of the benefits that Nexvia can bring your firm:
- Fast estimating with the ‘drag and drop’ builder
- Easily reference historical data & services information
- Pre-generated contractor responses for efficient communications
- Cost recovery margin/markup controls to protect your bottom line
- Compare multiple contractor quotes
- Manage inclusions and exclusions for accurate, reliable quoting
- Easily edit your T&Cs and payment terms
- Prepare quick and easy scope of works
- Identify preferred suppliers and contractors
To see Nexvia in action for yourself, book a live demo, and we’ll take you through a detailed demonstration tailored to the specific needs of your business. If you have any questions or would like to know more about how our platform calculates cost estimates in construction project management, please reach out. A knowledgeable member of our team will be happy to help.