Cost estimate
The GAO reports that "realistic cost estimating was imperative when making wise decisions in acquiring new systems.
[4] In system, product, or facility acquisition planning, a cost estimate is used to evaluate the required funding and to compare with bids or tenders.
In facility maintenance and operation, cost estimates are used to establish funding or budgets.
"[5] Various projects and operations have distinct types of cost estimating, which vary in their composition and preparation methods.
Some of the major areas include: Common cost estimate classifications historically used are These correspond to modern published classes 5, 3, and 1, respectively.
Published quality requirements generally have to do with credibility, accuracy, confidence level, precision, risk, reliability, and validity of the estimate, as well as thoroughness, uniformity, consistency, verification, and documentation.
If the project ended up having a different scope or conditions, an unadjusted computation does not fairly assess the estimate accuracy.
High-quality cost estimates can be produced by following a rigor of 12 steps[17] outlined by the U.S. GAO.
Therefore, a good cost estimate—while taking the form of a single number—is supported by detailed documentation that describes how it was derived and how the expected funding will be spent in order to achieve a given objective.”[18] This documentation is often titled Basis of Estimate (or BOE).
"[19] A contingency may be included in an estimate to provide for unknown costs which are indicated as likely to occur by experience, but are not identifiable.
Pricing transforms the cost estimate into what the firm wishes to charge for the scope.
These factors promote time adjustment of capital costs, following changes in technology, availability of materials and labor, and inflation.
[24] A definitive estimate is prepared from fully designed plans and specifications (or nearly so), preferably what are called contract documents (CD).
"[25] Some jurisdictions or areas of practice define the itemization and measuring in certain terms, such as RICS and may have specific rules for development of a bill of quantities.
This includes using the Construction Specifications Institute Uniform Numbering System (MasterFormat) to ensure that all work is accounted for.
"[25] ASPE recommends the "quantity times material and labor costs format"[27] for the compilation of the estimate.
[30] Other costs and pricing are added, such as overhead, profit, sales or use taxes, payment and performance bonds, escalation, and contingency.
[32] The labor requirements are often the most variable and are a primary focus of construction cost estimators.
The labor hours required to construct each installation item are calculated by using a man-hour rate times the take-off quantity (a similar method is to divide the take-off quantity by the production rate).
Direct costs include costs for general requirements (Division 1 of MasterFormat), which includes such items as project management and coordination, quality control, temporary facilities and controls, cleaning and waste management.
Indirect costs include overhead, profit, sales or use taxes, payment and performance bonds, escalation, and contingency.
Various techniques are employed for these estimates, including experience and judgment, historical values and charts, rules of thumb, and simple mathematical calculations.
[37] The 7 divisions are: Federal Acquisition Regulation 48 CFR § 36.203 requires the preparation of an independent government cost estimate (IGCE) for construction projects.
