Project Cost Estimating Methods

Question 1

What makes up price

Answer 1

Price = cost + mark up/profit

Question 2

What is accounting profit

Answer 2

Gross sales - cost

Question 3

What is economic profit

Answer 3

Gross sales - cost - opportunity cost of capital

Question 4

Value and cost relationship

Answer 4

Value = function/cost

Question 5

What is cost modelling/planning and what are its objectives

Answer 5

Symbolic representation of the significant cost items of a building or component in a manner that permits the analysis, prediction and control of a cost

Objectives - confidence in expected outturn cost, basis for cost advice during concept and design development & post contract cost control

Question 6

Sources of error in cost modelling

Answer 6

Inherent uncertainty

Optimism bias

Strategic misrepresentation

Incompleteness of information

Planning fallacy

Question 7

What is the planning fallacy

Answer 7

A cognitive bias in humans when forecasting whereby people tend to systematically underestimate costs, times and risks

Results in optimism bias

Question 8

What is strategic bias/misrepresentation

Answer 8

Forecasts being deliberately biased to serve strategic purposes e.g. project sanctioning

Question 9

Difference between inside view and outside view

Answer 9

Inside view - makes predictions based on an understanding of problem details (relates to planning fallacy)

Outside view - looks at similar pst situations and predicts based on those outcomes (relates to due diligence)

Question 10

Different types of estimating techniques

Answer 10

Order of cost estimating (realistic cost limit)

Elemental cost planning (critical cost breakdown into target costs for elements)

Comparative cost planning (comparing alternatives to identify optimum solutions)