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Cost Estimate Development Plan

Introduction

To develop a high-quality cost estimate, the cost estimator has to have a plan. Such plan is implemented
every time we start working on a cost estimate. We adjust the plan to fit the current cost estimate
requirements and make changes to our plan as we learn what works and what does not.

Implement a system

Adjust for better performance

If we follow this two steps with every cost estimate we develop, we will increase the quality of our work
as cost estimators, and improve our efficiency.

The Challenges

Your biggest challenges as a cost estimator:

1. Availability of accurate and complete project information

2. Have access to cost data
3. Produce a cost estimate which meets the expectations of the review team
4. Meet the deadline for the cost estimate completion
5. Validate the cost estimate

To achieve the goal of developing the high-quality cost estimate, the cost estimator has to overcome
these challenges.

Overcoming the Challenges

Here are the steps we want to implement to overcome those challenges:

1. Plan the cost estimate development activities

2. Measure the performance
3. Ask for feedback from the review team
4. Adjust your plan for the next cost estimate

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5. Rinse and repeat!

The Strategy for Achieving High-Quality Cost Estimates

Drawing from my many years of cost estimating experience, and based on feedback I received from
many cost estimators, the following are my recommendations:

1. Review all available project documentation

Before we start working on a cost estimate, we need to understand the project scope. We also need to
understand if the documentation made available to us is complete to answer our questions related to
the project scope of work, technical requirements and commercial terms and conditions.

When we review the project documentation, and throughout the cost estimate development steps, we
want to:

• Ask for clarifications

• Take notes on all missing/incomplete information
• Set-up a request for clarifications registry
• Set-up a risk/opportunity registry and add all relevant information
• Make it a habit to review documents for all specifications which might have an impact on cost
• Build-up the project in your mind theatre and take the time to see the big picture

2. Define the purpose of the cost estimate

Not all cost estimates are created equal. Depending on the end use of the cost estimate, the time and
effort which go into the development of the cost estimate varies.

• Is the cost estimate required for a tender submission?

• Or is it a cost estimate for a budget on a project? If this is the case, what is the expected
accuracy?

3. Set-up the Cost Estimate Development Kick-off Meeting

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In the vast majority of cases, the cost estimator will go through a cost estimate review meeting once the
cost estimate is complete. Who is part of such meeting depends from company to company and from
cost estimate to cost estimate. Regardless, the cost estimate review meetings are an important step in
the cost estimate validation process, so we do not want to take any chances. This is why we have to
prepare ahead of time and increase the chances of delivering to the expectations of the review meeting
participants.

Here are my recommendations to follow for a successful kick-off meeting, step-by-step:

• Invite all cost estimate review team members

• Feel free to invite construction professionals within the organization you are part of; they might
have valuable input
• Discuss:
o Constructability methods
o Price sourcing strategy
▪ What scope of work will be subcontracted?
▪ What scope of work will be self-performed?
▪ How many quotations will be required to validate a price?

4. Develop the cost estimate schedule

If we do not have a plan, most likely we will fail. The cost estimate development schedule is the most
important item every cost estimator needs to create for every cost estimate. Why? It gives us insight
into the effort required to develop the cost estimate, and the roadmap to get there in time. Most likely
your cost estimate has a deadline. You want to assure yourself, and all other parties involved in the
process, that such deadline is achieved. For that to happen, this is what I recommend:

• List all activities required to be performed for completing the cost estimate
• Estimate the time required for each activity
• Build the schedule logic and determine the milestones
• Determine the resources required for the cost estimate completion
• Communicate with management regarding the resource requirements
• Build0in time for cost estimate reviews

You will be surprised of the insights such a schedule can provide. Armed with such a schedule, you will
be in a position to monitor the process, signal any short-comings and request additional help if needed.

If you ask the career cost estimators, most of them list the lack of time as the most impactful obstacle in
achieving high-quality cost estimates. Rushing through at the last minute to complete the cost estimate,
it is not only dangerous because mistakes can be made, but it also decreases the level of confidence in
the cost estimate quality overall.

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5. Develop the Work Breakdown Structure

One of the key ingredients of a great cost estimate is the work breakdown structure. I will not go into
detail of why this is the case here. At a high-level, a great WBS will have to meet the following
requirements:

• The tender closing and submission

• The cost estimate review process
• The price sourcing strategy
• The construction methodology
• The estimate validation and benchmarking
• The internal database structure

I cannot tell you how many times I came across cost estimators who do not grasp this concept. If you
want to be great at what you do, strive to keep the points listed above in mind when you develop the
WBS for each estimate. It will save you a lot of stress during and after the tender closing while giving the
cost estimate review team the confidence they need to make recommendations for changes and to
validate the cost estimate.

6. Develop the cost estimate

By now, you will be well prepared to start working on the cost estimate, by following this sequence:

• Develop the quantity take-offs based on WBS and price sourcing strategy
• Develop the direct costs
• Develop the indirect costs based on preliminary construction schedule
• Optimize resources
• Update costs as they become available from subcontractors and suppliers
• Incorporate all additional information if applicable (changes to the project documents,
clarifications, etc.)
• Price and incorporate risk items as applicable
• Review the cost estimate draft with the review team
• Update the cost estimate as per review recommendations
• Update costs as more information becomes available from subcontractors/suppliers. You will
see that this step will most likely be active until very close to the tender closing time.
• Perform the final cost estimate and tender submission review.

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As with all processes, we will want to amend and improve the cost estimate development plan. With
each cost estimate and tender we close, we learn what works and what does not work for our specific
circumstances. This plan is not intended to be the answer to all cost estimate development steps, but to
provide a baseline.

Delivering high-quality cost estimates is a skill which can be learned. If you are interested in learning
cost estimating, spet-by-step and in a format which follows a teaching and training format, please check
out my courses on cost estimating. Each course has a few free lessons, so you do not have to commit to
payment unless you feel the course is right for your learning objectives.

Best of luck with all the cost estimates you will be working on. Have any feedback? I will be happy to
hear from you. Send me a note to [email protected].

Thank you for reading!

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