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What Is The Key To Preventing Cost Overrun?

There are several uncertainties in project management. These uncertainties and the various stakeholders involved in projects result in the difficulty of the managing the cost, resulting in cost overruns. Cost overruns are often regarded as one of the most critical issues during execution of projects.

“Cost overrun occurs when the final cost of the project exceeds the original value at the time of completion”

Here are some factors (but not limited to) that contribute to cost overrun of projects: –

  • Inaccuracy of cost estimate
  • Difficulty in achieving the design of the drawings that form the basis of the project
  • Inaccurate projection of duration of the project
  • Inflation of raw materials that makes it hard for suppliers to stick to initial agreed prices.
  • Employees not well-equipped with the right skill set to take on the project
  • Improper monitoring and measurement
  • Disagreement between project parties
  • And many more…

Cost estimation is the solution to the problem.

While the answer seems like a no-brainer, improving cost estimates is the key to solving the cost overrun problem at its root.

“Cost estimation is an approximation of the probable cost of a product, program, or project, computed on the basis of available information.”

Cost estimate accounts for all items that are included in the contractor’s bid. While it is often mixed up with project budget, but essentially they are different. Project budget includes the total cost of the cost estimate, inclusive of the soft costs as well. These soft costs include land acquisition, architectural and design fees, equipment, permits, fees, etc.

There are four common types of cost estimates: –

  1. Planning estimate – rough approximation of cost within a reasonable range of values
  2. Budget estimate – an approximation based on well defined cost data and established contract rules
  3. Firm estimate – figure based on cost data that are accurate enough to be included into a legal contract
  4. Not-less-than estimate – the maximum or minimum amount required to accomplish the project, based on a firm cost estimate

Cost estimating essentials is a 3-day course that provide participants with knowledge of cost estimation, cost control & planning. A good quality estimate is the first step to keeping the cost of project within the budget. Participants of this course will also get a good understanding of quantitative methods and insight into the build of unit rates and ways to apply them. For more information, please visit us at http://www.opuskinetic.com/training or contact us at info@opuskinetic.com

Opus Kinetic believes that people are why organisations are successful, and giving people the knowledge to perform well at their job is integral for success. We pride ourselves as the premier provider of knowledge, offering acclaimed in-house training, leadership training courses, oil and gas training courses, courses that target health safety and environment, etc. Our training courses are well researched and updated with the latest industry trends. For more information on our professional training programs, you can visit us at http://www.opuskinetic.com/training.