Cost Plan vs Cost Estimates

June 25, 2024

Cost Plan vs Cost Estimates

Understanding Cost Estimates

What is Cost Estimating?

Cost estimating is crucial in the early stages of a construction project, where detailed design plans and specifications are not yet defined. Serving as a cost benchmark, cost estimates provide a comprehensive overview of all construction stages, helping in projecting the project’s budget and making critical decisions about funding. Although not always entirely accurate due to incomplete data, cost estimates remain a reliable tool in planning and budgeting.

How Does Cost Estimating Work?

Cost estimation involves analyzing the project scope, goals, design, and other specifications. In the project’s early stages, finance managers rely heavily on predictions and assumptions due to limited information. Benchmarking, which compares costs with similar completed projects, is often used to gain a better understanding. Additionally, breaking down a project into its component parts and estimating each part separately can improve accuracy. Regular revisions of cost estimates are essential as more project details become available, allowing for more precise projections.

Types of Cost Estimates

In the construction industry, there are four main types of cost estimates:

  1. Preliminary Estimates: Initial, broad estimates based on limited data, providing general information about potential project costs.
  2. Detailed Estimates: More accurate estimates prepared with more information, considering project design, specifications, and other relevant factors.
  3. Quantity Estimates: Focus on the quantities of materials needed for the project, helping determine total material costs.
  4. Final Estimates: Created when all project details are known, offering an accurate cost estimate for the entire project.

Understanding Cost Planning

What is Cost Planning?

Cost planning involves creating a detailed and precise list of total costs for a construction project. It builds on existing cost estimates and incorporates factors such as contingency planning, supply chain management risks, price fluctuations, and contractors’ hourly rates. The main goal of cost planning is to assist in developing a detailed project budget and mapping out all defined costs to ensure the project stays within the allocated budget.

How Does Cost Planning Work?

Cost planning follows a thorough analysis of all project aspects, including design, specifications, scope, and building type. It accounts for all project-related costs, such as labor, materials, licenses, taxes, and contractor fees. The outcome is a comprehensive and precise overview of the project’s costs at different stages, helping establish the initial budget and serving as a benchmark for comparing planned and actual costs.

Cost planning plays two key roles in project management: creating a project budget and a resource plan. The project budget defines the overall project cost and allocates it to different stages, resources, and activities, making it a useful tool for comparing total and planned costs to ensure the project remains within budget. The resource plan helps assign predetermined costs to specific resources and activities, aiding in resource management and cost tracking.

Why is Cost Planning Important?

Cost Planning vs. Cost Estimates: Key Differences

Cost planning provides a comprehensive analysis of all project aspects and their associated costs, resulting in a detailed overview of project costs at various stages. In contrast, cost estimates are less precise and based on limited available data.

Factors Influencing Cost Plans and Estimates

Several factors affect cost plans and estimates, including:

  • Project scope, complexity, specifications, and requirements
  • Project design, including architectural and engineering considerations
  • Market volatility, such as material and labor availability and price fluctuations
  • Expertise of project managers and cost estimators
  • External factors like inflation, economic conditions, government policies, and legal requirements
When to Use Cost Estimates vs. Cost Planning

Use cost estimates in the early stages of project management when information is limited. They help evaluate project feasibility and form a foundation for cost negotiations with contractors and suppliers. In contrast, use cost planning in later project stages when sufficient reliable data is available to create accurate budgets and predict timelines.

How Cost Logic Can Help You

With over the years of professional experience as quantity surveyors, Cost Logic has developed comprehensive cost plans and estimates for numerous clients in the construction industry. From the initial to the final project stages, we assist our clients in defining accurate project estimations, plans, and budgets. Contact us today at info@costlogic.com.au, +61 423 609 877, or visit our website at www.costlogic.com.au to learn more about our services.