The Benefits of Cost Planning Versus Estimating
by Marcel Broekmaat
When a budget is prepared for a project, the cost calculation tends to go through a number of phases. Typically the estimate goes from a “back of a napkin” cost calculation to a highly-detailed cost estimate that can later be used for cost control in the production phase. The AACEI (Association for the Advancement of Cost Engineering International) rates cost estimating work in 5 classes, starting at “Concept Screening” (Class 5), followed by “Study and Feasibility” (Class 4) and “Budget, Authorization & Control” (Class 3). The final cost plans are either a Class 2 or a Class 1 cost plan, based on a 30%-70% complete project definition or on a 50%-100% complete project definition.
The results of the cost estimating work, done throughout the phases defined as “Classes” by AACEI, are often autonomous. Relations between cost estimates do not always exist and it can therefore be hard for project teams to understand what the impact of a certain design decision is.
Also, because preparing a cost estimate is a laborious effort (especially during bid and tender checking phases, when the set of project information is most detailed), the number of estimates that can be completed during the design and bid phases is limited, which may lead to large variances between versions of the cost estimate for a project, due to the amount of significant design decisions made in between.
This situation could be improved by building on a previous estimate to create the next version of the estimate, which results in “evolving” the estimate to the next phase of a project. Benefits of this approach are that the variance with the previous budget can be analyzed immediately, as line items (or “allocations”) are gradually replaced with more detailed information. In addition to this, “evolving the estimate,” or “planning cost” as we like to call it, allows for releasing an unlimited number of cost plans, because a 100% complete cost is available at any moment (items that have not been replaced with more detailed cost items continue to be part of the overall cost plan). Using the approach, a theoretically unlimited number of cost plans can be created with the same amount of work.
Because the 5D platform is integrated, a change in the model geometry is reflected in the quantities which drive the schedule and estimate.
The gradual increase in cost plan granularity allows the cost planner to determine when additional information can be added to replace previous assumptions and where this is needed – typically in those parts of the project that carry the highest risk. The ability to generate a 100% cost plan at any time provides benefits for project team and owner, because “cost variance surprises” are reduced to the individual line item level, which has the potential to dramatically improve cost status awareness situation in projects for all participants.