As part of best practice, builders should ensure, all estimates must be consistent and reflect the most likely cost, not a ‘padded’ or ‘guessed’ cost’.
The 4 commonly used estimating approaches include:
1. Gross Comparison Method
2. Parametric Comparison
3. Composite Comparison
4. Detailed Calculation
1. Gross Comparison Method.
Usually referred to as an analogy method:
- Estimates are based on comparing the project or parts of a project with cost data from a similar project;
- Adjustments are made for differences such as: size, time and location etc.
Results will be a order of magnitude or a large range in cost information
Sometimes referred to as factored estimate:
- Estimate is based on parameters of individual systems or project elements;
- Based on statistical relationship between historical costs and relevant project variables;
- size, capacity, performance, output etc.;
- The results will be a ‘feasibility’ or ‘preliminary estimates’ ;
- The range will be closer to the accurate cost estimate.
It part Analogy (Gross Comparison) and Factored (Parametric) estimate that is more detailed.
- Results in a ‘appropriate’ or ‘budget’ estimate.
Definitive or pre-tender bid estimation.
- Based on detailed information as a result of detailed planning and design data;
- Considerable input of time and effort;
- Results - ‘definitive’ or ‘tender’ estimate;
- Target range is much more accurate than the other methods.
In summary the more time and effort you spent on your cost estimation method the more accurate of the cost of the project will be.
However; the project value has to justify the time and effort you put into your preferred method.