70-80% of product costs are determined by design decisions made in the early design stages (source). Therefore, it is important to estimate costs as early and accurately as possible.
What is Cost Estimation?
Cost estimation is a strategic tool which can be used to facilitate decision making. Starting this process early, during the conceptual stage of the project, will inform your project stakeholders and provide the earliest and best insights into the overall cost program. While some information may be inexact during the conceptual phase, having a detailed cost estimation will help maintain the project’s overall budget.
What is Conceptual Cost Estimation?
Conceptual cost estimating is done during the pre-construction stage of a project. The estimate gives the owner greater insight to manage the overall cost control program. The conceptual cost estimate will provide the first check against your project budget.
The conceptual estimate will shed light on potential cost overruns at the early stages. This empowers all project stakeholders with information and time to review designs for possible alternatives. It is typical for the contingency percentage to be large (around 10%) at this stage because the design details are not completed. As the project progresses, the contingency will lessen throughout estimates and the range of accuracy will become defined.
What to do with a Conceptual Cost Estimate:
The project owners, project managers and all stakeholders must ensure that the design is within the estimated project budget. Owners and project managers should look for a realistic estimate to avoid overruns, project cancellations or re-bids.
Don’t be alarmed if some quantities seem inexact. At the conceptual stage of a project, there is an absence of data and design detail. Therefore, some quantities have to be estimated. Cost estimating, at any stage of the project, is both an art and a science. The art is visualizing each and every detail of the project coming together, while the science provides information on the cost of past work.