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Basic Cost Terminologies

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18 views9 pages

Basic Cost Terminologies

Uploaded by

shapo292003.eng1407
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Estimating the

Construction
Project Cost Estimation:
Project Cost Management includes the
processes involved in estimating,
budgeting, and controlling costs so that
the project can be completed within the
approved budget.
Project Cost Management Processes
Estimate Costs:
The process of developing an
approximation of the monetary resources
needed to complete project activities.
Determine Budget:
The process of aggregating the estimated
costs of individual activities or work
packages to establish an authorized cost
baseline.
Control Costs:
The process of monitoring the status of
the project to update the project budget
and managing changes to the cost
baseline. 3
Estimating the
Construction
 The determination of probable
construction costs for a project
 Prepared from the contract
documents:
◦ Plans
◦ Project manual (plans, contract
documents and technical specifications).
Quantities of estimates are used to:
◦ Establish project budget
◦ Order materials
◦ Arrange Human Resources
Basic Principles of Cost
Management
 Tangible costs or benefits are those costs or
benefits that an organization can easily measure in
monetary terms like in Rs. / $.
 Intangible costs or benefits are costs or benefits
that are difficult to measure in monetary terms.
 Direct costs are costs that can be directly related to
producing the products and services of the project.
 Indirect costs are costs that are not directly related
to the products or services of the project, but are
indirectly related to performing the project.
 Sunk Cost is money that has been spent in the
past; when deciding what projects to invest in or
continue, you should not include sunk costs in
Estimates.
Basic Principles of Cost
Management
 Learning Curve Theory states that when
many items are produced repetitively, the unit
cost of those items decreases in a regular
pattern as more units are produced.
 Reserves are dollars / Rupees included in a
cost estimate to mitigate cost risk by allowing
for future situations that are difficult to predict.
◦ Contingency reserves allow for future
situations that may be partially planned for
(sometimes called known unknowns) and are
included in the project cost baseline.
◦ Management reserves allow for future
situations that are unpredictable (sometimes
called unknown unknowns).
6
Basic Principles of Cost Management
 Analogous Estimating: A cost-estimating
technique that uses the actual cost of a
previous, similar project as the basis for
estimating the cost of the current project; also
called top-down estimate.
 Bottom-up Estimating: A cost estimating
technique based on estimating individual work
items and summing them to get a project total.
 Project Baseline: The original project plan
plus approved changes.
 Cash Flow Analysis: A method for
determining the estimated annual costs and
benefits for a project.
 Cost Baseline: A time-phased budget that
project managers use to measure and monitor7
Basic Principles of Cost Management
 Cost Management Plan: A document
that describes how cost variances will
be managed on the project.
 Life Cycle Costing Considers the total
cost of ownership, or development plus
support costs, for a project.
 Cost Overrun: The additional
percentage or amount by which actual
costs exceed estimates.
 Profit Margin: The ratio between
revenues and profits.
 Profits : Revenues minus expenses.
 Definitive Estimate: A cost estimate
that provides an accurate estimate of8
Basic Principles of Cost Management

 Definitive Estimate: A cost estimate


that provides an accurate estimate of
project costs.

 Budgetary Estimate: A cost estimate


used to allocate money into an
organization’s budget.

 Rough Order of Magnitude (ROM)


Estimate: A cost estimate prepared very
early in the life of a project to provide a
rough idea of what a project will cost
9

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