Approaches to Cost Estimation
Without a consistent system of cost estimation, it would be difficult to get projects approved by investors. Cost estimation is undoubtedly one of the predominant duties of a project manager, as it represents a vote of confidence in the firm and helps plot a course through various stages of construction development. Cost estimates are predicted by cost engineers or estimators who use any available data to quantify a value for a given project.
According to the American Association of Cost Engineers, cost engineering is defined as the practice of utilizing engineering judgment and experience in the application of scientific principles and techniques to determine cost estimation, cost control, and profitability. In this article, the Lakeland construction attorneys at Cotney Attorneys & Consultants will explain various approaches to cost estimation used by cost engineers. If you have worked with a cost engineer or estimator who has given you a faulty estimation, you may need to consult a Lakeland construction attorney to see how you should proceed.
Production function is a microeconomics term that examines the relationship between the output of a process and any resources required to drive the process. Construction professionals define the production function as the correlation between the total volume of construction and one of numerous factors of production like labor or capital. A production function considers the amount of input required to produce a single output of construction.
Carnegie Mellon University notes that “the amount of output Q may be derived as a function of various input factors x1, x2, …, xn by means of mathematical and/or statistical methods.” Therefore, after establishing a specified level of output, we can ascertain a set of values for the various input factors to help offset production costs. One example of a production function for construction is the relationship between the size of a building project (square feet) and the input of labor (labor hours per square foot).
Empirical Cost Inference
This system of cost estimation requires statistical techniques to help establish a relationship between the cost of construction and integral characteristics or attributes of a system. Empirical cost inference aims to assign parameter values to assumed cost functions by using regression analysis techniques.
Unit Costs for Bill of Quantities
This straightforward method of cost estimation assigns a value to every unit of labor and materials to provide a comprehensive breakdown of the various components of a project as well as the total cost. This system is overtly laborious and time-consuming, but it provides the investor with a thorough estimation. However, once you have established the estimation for a single building unit, you can simply multiply this cost across the number of planned units.
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Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.