Construction cost management

Answer 1

Estimating Project Costs

Estimating project cost means developing an estimate for the monetary resources needed to complete the project work; that is, activities. These estimates are based on the information available at a given time. The estimates in the beginning are less accurate; for example, their accuracy may be only as good as + or - 50 percent. For example, if you say the cost will be $50,000, it could be anywhere between $25,000 and $75,000. As the project moves along and more information becomes available, the cost estimates can be improved to get better estimates.

Determining Project Budget

Determining the project budget is the process of aggregating the cost estimates for all project activities and assigning a timeline to them. Cost aggregation is the technique used to calculate the cost of a whole by summing up the costs of the parts of which the whole is made. You can use the bottom-up estimation technique to aggregate the costs of all the components and activities to calculate the total cost of the project. The timeline assigned to this cost will be important to reconcile the expenditure with the funding limits. The reconciliation may require rescheduling some activities.

Controlling cost means monitoring and controlling updates and changes to costs, budget, and the cost baseline of the project. Monitoring and controlling costs has two dimensions to it: expenditure of project funds and the work performed as a result of those expenditures. One major aspect of cost monitoring and controlling is to determine the relationship between the expenditures and the accomplishments. The cost performance depends on this relationship. The other main aspect is to control the changes to the approved cost performance baseline.

Trivia:

Like any other change, change in cost and budget must also be processed through the integrated change control process and should only be implemented after its approval.

To be more specific, monitoring and controlling the project cost includes the following tasks:

• Influence the factors that can create changes to the approved cost baseline.

• Monitor the following:

o Work performed against the funds expended

o Variance of cost performance from the approved baseline • Prevent unapproved changes from creeping into cost reports and expenditures.

• Act to keep cost overruns within the planned acceptable limits.

• Ensure the following:

o Change requests are dealt with in a timely fashion and managed as they occur.

o Expenditures do not exceed the approved budget by period or by total amount. Any change to the budget must be approved before implementation. • Communicate with the appropriate stakeholders about the cost associated with the approved changes.