Analysis Cost-estimating Methods
Chapter One
OBJECTIVES OF THE STUDY
General Objective
The prime objective of this research is to assess methods of cost estimation method in the Menschen fur Menschen foundation
Specific Objective
The Specific objectives of the research are
- Identifying major factors that influence the accuracy of project cost estimation which can be unique to the nature of Menschen fur menschen foundation works, design and supervision.
- Showing the implication of errors in project cost estimation on the effectiveness / success of projects running by the Menschen fur menschen foundation.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
THEORETICAL LITERATURE
Here in this part the researcher will try to see what is project cost estimation, cost estimation techniques and the impact / factors that can affect the accuracy of cost estimation explained in different books.
Introduction
Project Cost estimating is the process of calculating the costs of the identified resources needed to complete the project work. The person or group doing the estimating must consider the possible fluctuations, conditions, and other causes of variances that could affect the total cost of the estimate. There is a distinct difference between cost estimating and pricing. A cost estimate is the cost of the resources required to complete the project work. Pricing, however, includes a profit margin. In other words, a company performing projects for other organizations may do a cost estimate to see how much the project is going to cost to complete (Philips, 2004).
Project management is the supervision and control of the work required to complete the project success. The project team carries out the work needed to complete the project, while the project manager schedules, monitors, and controls the various project tasks. Projects, being the temporary and unique things that they are, require the project manager to be actively involved with the project implementation. (ibid)
Project Cost Management
Cost management is the process used to minimize the cost of the project while maintaining acceptable levels of quality as well as the scope of the deliverables for the duration of the project. Th objectives of the cost management process are to track progress, compare actual values to planned values, analyze the impact of variances, and make adjustments in light of these variances (Rad 2002). As the business need undergoes analysis, progressive elaboration and estimates are completed based on varying levels of detail, and eventually the cost of project will emerge. Often, however, the predicted costs and the actual costs vary (Philips, 2004).
On the other hand, Rad (2002) argued that the mission of a cost management system is not to control the costs at the original estimate level, which may or may not have been accurate. Instead, the cost management process should be designed to manage the inevitable changes to the project with the least combined impact on the triple constraints of cost, schedule, and scope.
According to (Rad 2002), the circumstances for changes to the project are grouped under five categories as follows:
- Changes in owner’s needs. This includes those generated by the client. The client may not have articulated the project objectives correctly or accurately at the inception of the project.
- Unexpected site conditions. This include items such as changes in operating system, hardware characteristics, site platforms, or site conditions, as well as occurrences such as strikes, tornados, or snowstorms
- Evolution in the design philosophy. The occurrence of major evolutions of design philosophy depends on new technology and their introduction into the project plan will have a negative effect on the cost and schedule.
- Design or budget errors. Shows that the category of cases where the projects design team discovers a flaw in the basic design of the project. Depending on the character of this design flaw, corrective measures and product restructuring will impact the cost and schedule.
- Implementation errors. Account for errors in implementation such as substandard equipment, low quality components, or excessive error rate for a software component.
Philips, (2004) noted that poor planning, skewed assumptions, and overly optimistic estimates all contribute to such variations. So he suggested that, in management of project cost, planning the project resource, identifying the resource requirement and cost estimation are the activities that should be performed by project managers and presented as follows.
CHAPTER THREE
RESEARCH METHODOLOGY
RESEARCH DESIGN AND APPROACH
This research is done to examine the possible significant factors that can affect the cost estimation of the projects and to analyze and show their effect on the effectiveness of project management and recommend possible solutions, The type of research Design employed in this research is descriptive research design. The research is also observational in reviewing financial performance of projects from the annual budget utilization report of large scale projects in order to assess to what level of accuracy the cost estimation can predict the actual cost of the project. The Menschen fur menschen foundation procedural manual indicate that projects with annual income above birr 3,000,000.00 treated as large scale projects, projects with annual income between birr 1,000,000 and 3,000,000.00 treated as medium scale projects and projects with annual income below birr 1,000,000.00 treated as small scale projects. The data on the research questioner will be gathered from sample of employees who are expected to be involved in the preparation of technical proposal and project cost estimation since relevant information can be provided by those professionals.
DATA COLLECTION AND SAMPLING TECHNIQUES
The study covers the cases of study, different development projects. In the research process, non probability sampling specifically purposive sampling technique is used for data collection from professionals to identify major methods of the project cost estimations related to the nature of the Menschen fur menschen foundation. In MFMF employees from different disciplines are participated in providing valuable inputs to the technical proposal preparation committee. Topographic surveyors, Soil Survey technicians, geological & geotechnical experts, hydrologists & hydro geologists, agronomists, sociologists, environmentalists and laboratory technicians are those who are involved. According to the information from the HRM sub process the total number of these professionals in the foundation which are above the junior level are about 151 employees. From the total population who has direct and indirect involvement in the process of cost estimation, the professionals selected as a sample are the one who directly participate on the preparation of technical proposal and project cost estimation. Therefore the researcher chooses this sampling procedure that can yield results favorable to the purpose of the research. Study, Design and construction supervision core process managers, sub process managers, project managers and coordinators, Internal and external top technical team members and staffs from planning and market promotion process are used as a sample for primary data collection. The sample constitute 4 core process executive officers, 9 sub process managers, 14 project coordinators, 28 project managers, 5 top technical team members with a total of 60 samples.
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION
INTRODUCTION
In this chapter Findings obtained through the instrument used in the study are discussed. It presents the primary data, analyze them and interpret the findings. The findings are presented according to the method used to analyze the data.
Here, document analysis of 50 different large scale projects was made. Accordingly, financial and physical performance of 13 construction supervision projects, 16 study projects and 31 design projects with annual income of more than 3,000,000.00 over the last six years are presented. These documents were used as a fair representation of the foundation portfolio of work. The documents were obtained through permission from the chief executive officer of the foundation. Using these data, the study shows how the estimated costs of the projects are varied from the actual cost.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
SUMMARY OF FINDINGS
This study covers the case of higher scale projects of Menschen fur Menschen foundation in assessing the methods of projects cost estimation. Professionals who directly participate on the preparation of technical proposal and project cost estimation are selected as a sample to assess cost estimation factors related to consultant, design parameters and information, factors related to projects and client characteristics, external factors and market condition. Based on the literature review, the questioner consisted of all factors mentioned above were prepared and measured on 5 point likert scale. The respondents were also granted a space provided to mention other factors related with the nature of the projects run by the foundation.
In this research six years data concerning the physical performance of the projects and percentage of actual cost utilized with budgeted (estimated) costs of projects were analyzed. Comparison of budgeted cost of work performed with actual cost of work performed for study, design and construction projects was made. As a result
- Among 43 constructions supervision projects during the 6 years period 69.77% were overestimated and 13.95% were underestimated. Only 16.28% of the higher scale projects were under acceptable range of variance
- Among 32 study projects during the 6 years period 59.36% were overestimated and 25% were underestimated. Only 15.64% of the higher scale projects were under acceptable range of variance
- Among 31 design projects during the 6 years period 67.74% were overestimated and 19.35% were underestimated. Only 12.91% of the higher scale projects were under acceptable range of variance.
In general, the study found that costs of more than 80% of the projects of MFMF have accuracy problem in their estimation.
The research tried to find out the cases that contribute for such inaccuracies using the data collected through questioner. The questioner was distributed to relevant respondents with the majority of project managers and supervisors who have plenty of years of work experience and higher educational status. Technical proposal preparation team and Estimators work load during estimation was described as the main influencing factor concerning the factors related to consultant, design parameters and information. Unavailability of adequate time for estimation and incomplete technical and socioeconomic information are also identified as the factors that affect the cost estimation. In addition to the involvement of inadequate number of estimating staff, the data shows that the responsibility given to project managers in cost estimation is very low and their roll in controlling projects schedule and costs is insignificant.
The study shows that the type of client, its financial situation and budget are identified as the major factors to influence the cost estimation from the factors categorized as factors related to client characteristics. The study also shows that factors related to project characteristics like project type and complexity and location and site constraints of the projects are the major methods of cost estimation. Some geological factors, access road unavailability and social problems which were unforeseen during estimation make the actual cost different from what was predicted.
The answers given by most of the respondents show their disagreement for the availability of labor with the required skill in the market at predetermined cost since some input to the study or design projects may not be provided by the internal labor. Therefore, the foundation face challenges of getting sub consultant or freelancers whose payments can be covered by the cost previously estimated. Unlike the skilled labor, the availability of scientific instrument and other equipments in the market is not the affecting factor. Moreover, the study indicated that all costs related with delayed project due to weather condition increase the total cost more than what was estimated. The government policies forced project works to follow fast truck approach that expose for rework and inaccuracies in project cost estimation.
CONCLUSION
The results of actual project data, the conclusion can be drawn that most of the estimated cost of the projects is either under-utilized or over utilized which shows there is undeniable inaccuracies in the project’s cost estimation. The major findings of this study compiled from the data collected through the questioner shows the following are the most influential factors that affect the accuracy of project cost estimation.
Completeness of technical and socioeconomic information
Technical proposal preparation team and cost estimators work load during estimation Availability of adequate time for estimation and technical proposal preparation
Insufficient number of estimating staff
Nonattendance of project managers in cost estimation
The effect of client on cost estimation
Financial situation and budget of client
Location, site constraint, weather condition and complexity of projects
Availability of skilled labor in the market at predetermined cost
The impact of government policies
One of the nine knowledge areas that project managers should be familiar with is the project cost management. It involves estimating the cost of resources, including people, equipment, materials, and such things as travel and other support details. After this is done, costs are budgeted and tracked to keep the project within that budget. (James P. Lewis, 2007). Therefore, we can conclude that, the under utilization or over utilization of estimated project cost with large variance shows that, there is inefficiency in project success.
RECOMMENDATION
After detail analysis of the study, the researcher recommended the management of Menschen fur Menschen foundation that, they have to give more attention to the most influential factors that affect the accuracy of projects cost estimation that are identified in this research in order to achieve more reliable and realistic estimates.
The management of the foundation should pay more attention to the project cost estimating process by improving the completeness of technical inputs and socio economic information by engaging all relevant professionals or specialist required for a particular project type with sufficient number and adequate time. The amount of time and resources used to make the estimates should be appropriate to the size and complexity of the project. (Trost and Oberlender, 2003) argued the importance of time by stating as, Adequate scope definition, an experienced project team, and good cost information do not fully explain the estimate accuracy picture, but must be combined with an adequate allotment of time. All these factors will enable cost estimators come up with most accurate cost estimates of the project and has greatest in importance to the realization of a feasible estimate.
The top management of the foundation should enhance the responsibility given to project managers in cost estimation and their roll in controlling projects schedule and costs. As part of the planning process, (Philips, 2004) insist that the project manager must determine what resources like people, equipment, and materials that will be utilized to complete the project. To carry out this task, project managers must use work break down structure (WBS) and other valuable information. (Rad 2002) suggested that, the most accurate and most reliable estimate for a project can be developed when all the elements of the work breakdown structure (WBS) have been identified with a reasonable degree of reliability and when the resource breakdown structure (RBS) has been defined with the desired degree of certainty. Therefore the involvement of project manager on cost estimation will help to increase the level of accuracy. Such actions will also increase the roll of project managers in ensuring that all work is completed on time, within budget and scope, and at the correct performance level.
The foundation should also focus on capacity building by strengthening the existing short term and long term trainings. This will help the foundation to get internal skilled labor and minimize the chance of facing the unavailability of labor from the market at the predetermined fee on cost estimation. The planning and market promotion process executive officers should make market search and obtain accurate cost information about scientific equipment. This cost information has to be updated at the time of cost estimation to increase accuracy.
It is also recommended that training courses on methods of cost estimates should be conducted. These activities would improve the local method of cost estimating and increase the capabilities of estimators.
REFERENCE
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- Enshassi, A., Mohamed, S. and Madi, I. (2007), Cost estimation method in the Gaza Strip: A case study. The Islamic University Journal, pp. 153–176.
- Flyvbjerg, B., Holm, M.S. and Buhl, S. (2002), Underestimating costs in public works projects: Journal of the American Planning Association, Guide to the project management body of knowledge (PMBOK Guide), fifth edition, project management institute, Inc., USA
- Gunner, J. and Skitmore, M. (1999), Comparative analysis of pre-bid forecasting of building prices based on Singapore data. Construction Management and Economics, pp. 635–646.
- Holm, L., Schaufelberger, J.E., Griffin, D. and Cole, T. (2005), Construction Cost Estimating: Process and Method. Upper Saddle River, NJ: Pearson Prentice Hall, pp.3-12
- Polycarp O.A, Wasiu A.O, Saidu. I.A, Mustepha M. and Abdulmumin A. (2014), Assessment of the Methods of Accuracy of Pre-tender cost Estimate in KadunaState, Nigeria, IOSR Journal of Environmental Science Volume 8, Issue 5 Ver. IV
